SECURITY 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 SEPTEMBER 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
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 November 11, 1996
- ------------------------------------- -----------------
Class A Common Stock, $.001 par value 4,552,225
Class B Common Stock, $.001 par value 1,200,000
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ALLOU HEALTH & BEAUTY CARE, INC.
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of September 30, 1996
(unaudited) and March 31, 1996........................ 3
Consolidated Statement of Income and Retained Earnings
For the Six Months Ended September 30, 1996
and 1995 (unaudited).................................. 4
Consolidated Statement of Income and Retained Earnings
For the Three Months Ended September 30, 1996
and 1995 (unaudited).................................. 5
Consolidated Statement of Cash Flows (unaudited)
For the Six Months Ended September 30, 1996........... 6
Notes to Consolidated Financial Statements..................... 7
Item 2. Managements' Discussion and Analysis of Financial
Condition and Results of Operations........................ 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders........... 16
Item 6. Exhibits and Reports on Form 8-K.............................. 16
SIGNATURES................................................................. 17
EXHIBIT INDEX.............................................................. 18
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ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------ ------------
Current Assets
<S> <C> <C>
Cash $ 60,729 $ 144,118
Accounts Receivable (less allowance for
doubtful accounts of $767,927 at September
30, 1996 and $373,890 at March 31, 1996
(Notes 1 & 5) 54,116,868 33,963,830
Inventories (Notes 1 & 5) 82,017,385 71,690,321
Other Current Assets (Note 2) 8,800,677 13,215,004
------------ ------------
Total Current Assets $144,995,659 $119,013,273
Fixed Assets, Less Accumulated Depreciation
(Notes 1 & 3) 3,685,213 3,625,147
Other Assets (Note 4) 3,639,853 3,546,285
------------ ------------
$152,320,725 $126,184,705
TOTAL ASSETS ============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
- -------------------
Amounts Due Bank (Note 5) $ 85,520,385 $ 70,809,101
Current Portion of Long-Term Debt (Note 6) 463,152 222,393
Accounts Payable and Accrued Expenses (Note 7) 18,227,007 10,425,003
------------ ------------
Total Current Liabilities $104,210,544 $ 81,456,497
------------ ------------
Long Term Liabilities
- ---------------------
Long-Term Debt, Less Current Portion (Note 6) 2,031,852 529,390
Deferred Income Taxes (Note 1) 30,422 30,422
------------ ------------
Total Long Term Liabilities 2,062,274 559,812
TOTAL LIABILITIES $106,272,818 $ 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 September 30, 1996 and March 31, 1996 $ 4,552 $ 4,552
Class B Common Stock, $.001 par value;
2,200,000 and 1,700,000 authorized at
September 30, 1996 and March 31, 1996
respectively, 1,200,000 issued and outstanding
at September 30, 1996 and March 31, 1996 1,200 1,200
Additional Paid-In Capital 23,476,508 23,476,508
Retained Earnings 22,565,647 20,686,136
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 46,047,907 44,168,396
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' $152,320,725 $126,184,705
EQUITY ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement.
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ALLOU HEALTH & BEAUTY CARE, INC
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
For The Six Months Ended
September 30,
1996 1995
---- ----
Revenues $145,796,500 $131,345,758
Costs of Revenues 129,293,994 116,899,966
------------ ------------
Gross Profit 16,502,506 14,445,792
------------ ------------
Operating Expenses
- ------------------
Warehouse & Delivery 4,256,051 3,423,722
Selling, General & Administrative 6,150,466 5,359,875
------------ ------------
Total Expenses 10,406,517 8,783,597
------------ ------------
Income From Operations 6,095,989 5,662,195
------------ ------------
Other Charges (Credits)
- -----------------------
Interest 3,091,491 2,640,581
Other ( 18,013) ( 21,787)
------------ ------------
Total 3,073,478 2,618,794
------------ ------------
Income Before Income Taxes 3,022,511 3,043,401
Provision for Income Taxes (Note 10) 1,143,000 1,210,000
------------ ------------
NET INCOME 1,879,511 1,833,401
RETAINED EARNINGS - BEGINNING 20,686,136 16,929,450
------------ ------------
RETAINED EARNINGS - ENDING 22,565,647 18,762,851
============ ============
Net Income Per Common Share: (Note 1)
Primary and Fully Diluted .33 .32
=== ===
The accompanying notes are an integral part of this financial statement.
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ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
For The Three Months Ended
September 30,
1996 1995
---- ----
Revenues $76,838,439 $66,913,389
Costs of Revenues 68,466,379 59,693,510
----------- -----------
Gross Profit 8,372,060 7,219,879
----------- -----------
Operating Expenses
- ------------------
Warehouse & Delivery 2,261,178 1,824,236
Selling, General & Administrative 2,794,385 2,865,541
----------- -----------
Total Expenses 5,055,563 4,689,777
----------- -----------
Income From Operations 3,316,497 2,530,102
----------- -----------
Other Charges (Credits)
- -----------------------
Interest 1,601,682 1,380,320
Other ( 7,029) ( 14,790)
----------- -----------
Total 1,594,653 1,365,530
----------- -----------
Income Before Income Taxes 1,721,844 1,164,572
Provision for Income Taxes 645,000 488,000
(Note 10) ----------- -----------
NET INCOME 1,076,844 676,572
RETAINED EARNINGS - BEGINNING 21,488,803 18,086,279
----------- -----------
RETAINED EARNINGS - ENDING $22,565,647 $18,762,851
=========== ===========
Net Income Per Common Share: (Note 1)
Primary and Fully Diluted $.19 $.12
=== ===
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
September 30,
1996 1995
---- ----
Cash Flows From Operating Activities
- ------------------------------------
Net income $ 1,879,511 $ 1,833,401
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 343,636 258,615
Decrease (Increase) In Assets:
Accounts Receivable (20,153,038) ( 6,350,127)
Inventory (10,327,064) (10,586,911)
Prepaid Purchases and Other Assets 4,286,827 38,696
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses 7,802,004 1,957,200
Income Taxes Payable -0- ( 524,187)
------------ ------------
Net Cash Used In Operating Activities (16,168,124) (13,373,313)
------------ ------------
Cash Flows Used in Investing Activities
- ---------------------------------------
Acquisition of Fixed Assets ( 369,770) ( 886,407)
------------ ------------
Cash Flows From Financing Activities
- ------------------------------------
Net Increase in Amounts Due Bank 14,711,284 14,993,718
Borrowings 2,010,376 -0-
Repayment of Debt ( 267,155) ( 174,560)
------------ ------------
Net Cash Provided By Financing Activities 16,454,505 14,819,158
------------ ------------
DECREASE IN CASH ( 83,389) ( 559,438)
------------ ------------
CASH AT BEGINNING OF PERIOD 144,118 126,237
------------ ------------
CASH AT END OF PERIOD $ 60,729 $ 685,675
============ ============
Supplemental Disclosures of Cash Flow
Information
Cash Paid For:
Interest $ 3,008,007 $ 2,444,996
Income Taxes $ 894,000 $ 1,881,260
During the six months ended September 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(1,200,000 post-split) of 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 that
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.
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
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 September 30, 1996 are $6,299,005
of prepayments on merchandise and $1,039,560 of interest bearing officers'
loans.
3. PROPERTY AND EQUIPMENT:
September 30, March 31, Estimated
1996 1996 Useful Lives
---- ---- ------------
Machinery & Equipment $1,773,951 $1,639,480 5 years
Furniture, Fixtures &
Office Equipment 2,158,791 2,015,415 5-10 years
Transportation Equipment 96,750 96,750 3-5 years
2,450,722 2,358,799 10-33 years
Leasehold Improvements --------- ---------
6,480,214 6,110,444
2,795,001 2,485,297
Less: Accumulated Depreciation --------- ---------
$3,685,213 $3,625,147
========== ==========
Depreciation expense for the six months ended September 30, 1996 and
1995 amounted to $309,704 and $205,751, respectively. Depreciation and expense
for the three months ended September 30, 1996 and 1995 amounted to $154,699 and
$102,759, respectively.
4. OTHER ASSETS:
Included in other assets is $1,652,075 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 $1,579,527 of interest-bearing officers' loans.
The goodwill is being amortized over forty years and ten years, respectively.
Amortization expense for the six months ended September 30, 1996 and 1995
amounted to $33,932 and $18,932, respectively.
Amortization expense for the three months ended September 30, 1996 and
1995 amounted to $16,966 and $9,466, respectively.
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<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
$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 September 30, 1996 was 7.59%, which was based on a combination of 2%
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 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 Ending
March 31,
-----------
1997 (six months) $ 206,081
1998 514,029
1999 531,398
2000 550,834
2001 - 2002 692,662
----------
$2,495,004
==========
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
September 30, March 31,
1996 1996
---- ----
Cost of Revenues $16,714,871 $ 8,471,396
Selling, General & Administrative 777,647 1,245,841
Interest - Bank 457,713 374,229
Payroll 276,776 333,537
----------- -----------
$18,227,007 $10,425,003
=========== ===========
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 September 30, 1996, total
minimum annual rentals, excluding additional payments for real estate taxes and
certain expenses, are as follows:
Year Ended
March 31,
----------
1997 (six months) $ 432,399
1998 846,797
1999 852,797
2000 858,797
2001 768,749
2002-2006 2,608,078
Rent expense for the six months ended September 30, 1996 and 1995
amounted to $445,685 and $343,128, respectively.
Rent expense for the three months ended September 30, 1996 and 1995
amounted to $302,299 and $188,960, 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.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. Stock Option Plans:
Prior to 1995, the Company adopted three stock option plans, which
provide for the granting of stock options to certain employees and directors. An
aggregate of 1,300,000 shares of Class A and Class B Common Stock are reserved
for issuance under these three plans. On September 11, 1996, the stockholders of
the Company approved the Company's 1995 Non-Qualified Stock Option Plan (the
"1995 Plan") and the 1996 Stock Option Plan (the "1996 Plan"), which provide for
the granting of stock options to certain employees and directors. An aggregate
of 500,000 shares of Class B Common Stock are reserved for issuance under the
1995 Plan and an aggregate of 1,000,000 shares of Class A Common Stock are
reserved for issuance under the 1996 Plan.
Incentive stock options are granted at no less than fair market value
of the shares on the date of grant and options granted to individuals owning
more than 10% of the voting power of the Company's capital stock must be granted
at 110% of the fair market value at the date of grant.
As of September 30, 1996, the Company had 1,184,500 of outstanding
options at prices ranging from $5.75 to $10.00. As of September 30, 1995, the
Company had 1,176,950 of outstanding options at prices ranging from $2.50 to
$10.00.
E. The Company had entered into three-year employment agreements with
four of its officers, which expired on August 1, 1995. These employment
agreements provided for annual salaries of $150,000 for each of the three
officers and $225,000 for the fourth officer. In addition, three of the officers
received bonuses based on the Company's earnings before interest and taxes. For
the six months ended September 30, 1995, these three 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 such officer 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 six
months ended September 30, 1996, there was no officers' bonus expense for these
three officers.
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
$425,000 expiring thru June 8, 1997.
9. STOCKHOLDERS' EQUITY:
On September 11, 1996, the stockholders of the Company approved an
increase of the number of authorized shares of Class B Common Stock from
1,700,000 to 2,200,000 shares. The number of authorized shares of Class A Common
Stock is currently 10,000,000 shares. The Company is also authorized to issue
1,000,000 shares of preferred stock. Holders of Class A Common Stock and Class B
Common Stock share pro rata in all dividends declared by the Board of Directors.
The holders of Class A Common Stock 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
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
of Class A Common Stock. All outstanding shares of Class A Common Stock and
Class B Common Stock are freely transferable.
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:
September 30,
1996 1995
---- ----
Income Before Income Taxes $3,022,511 $3,043,401
========== ==========
Federal Income Tax $ 949,000 $ 996,000
State Income Taxes 194,000 214,000
---------- ----------
Total Provision for Income Taxes $1,143,000 $1,210,000
========== ==========
The following is a reconciliation of the statutory income tax rate to
the total effective tax rates:
September 30,
1996 1995
---- ----
Federal Statutory Income Tax Rate 34% 34%
Increase in Tax Rates Resulting from:
State Income Taxes, Net of Federal Tax
Benefits 3.8% 5.8%
Total Effective Tax Rates 37.8% 39.8%
===== =====
At September 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.
- 12 -
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 six months ended September 30, 1996, and 1995, there were no
sales to related parties during, or outstanding receivables at the end of the
period. For the six months ended September 30, 1996 and 1995, purchases from
related parties amounted to $356,120 and $687,199, respectively, and there were
prepaid purchases of $11,066 at September 30, 1996.
- 13 -
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
A. RESULTS OF OPERATIONS.
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Revenues for the six months ended September 30, 1996 were $145,796,500
representing an 11% increase over revenues of $131,345,758 for the six months
ended September 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 has together 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 11% 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 18% 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 slightly 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 5% when
compared to the same period in the prior year due to an
expanded customer base.
Gross profit as a percentage of revenues increased to 11.3% for the six
months ended September 30, 1996 when compared to 10.9% for the same period in
the previous year. This increase was due to improved profit margins associated
with the sales of the Company's fragrance products.
Warehouse, delivery, selling, general and administrative expenses
increased as a percentage of sales increased to 7.1% for the six months ended
September 30, 1996 from 6.7% for the same period in the prior year. This
increase was due primarily to salary increases for union and non-union employees
and related general expenses.
Interest expenses for the six months ended September 30, 1996 increased
to 2.1% from 2.0% when compared to the six months ended September 30, 1995.
This increase is due to increased borrowing.
Net income for the six months ended September 30, 1996 was $1,879,511
representing a 0.3% increase over net income of $1,833,401 for the comparable
period in 1995. The increase in net income is due to improved margins.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Revenues for the three months ended September 30, 1996 were $76,838,439
representing a 15% increase over revenues of $66,913,389 for the three months
ended September 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
increases in same store sales which has resulted in an increase in the volume of
products sold.
- 14 -
<PAGE>
Contributions to this increase in revenues by product segment is as
follows:
Health and beauty aides increased 19% 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 22% 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 grew 3% when compared to
the same period in the prior year. This growth is due to
increases in same store sales.
Gross profit as a percentage of sales increased to 10.9% for the three
months ended September 30, 1996 from 10.8% when compared to the three months
ended September 30, 1995. This increase is principally attributable to higher
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 September 30, 1996 decreased to
6.6% from 7.0% for the same period in the prior year.
Interest expenses for the three months ended September 30, 1996 was
2.0%, comparable to the same period in the prior year.
Net income for the three months ended September 30, 1996 was $1,076,844
representing a 59% increase over net income of $676,572 for the comparable
period in 1995. The increase in net income is due to higher margins on increased
sales.
B. 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 September 30, 1996, the Company had $85,520,385
outstanding under its bank line of $105,000,000 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% above the
Eurodollar rate, at the option of the Company. The effective interest rate
charged to the Company at September 30, 1996 was 7.59% which was based on a
combination 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 $34,823,147 at
September 30, 1995 to $54,116,868 at September 30, 1996. This increase in
accounts receivable is due to increased sales for the period and to slower
payments by customers, which had previously paid the company in an average of 47
days at September 30, 1995, have been paying the Company in an average of 69
days at September 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, 1997.
- 15 -
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On September 11, 1996, the Company's annual meeting of stockholders was
held (the "Meeting"). At the Meeting, the stockholders approved the following
matters:
1. Election of the following individuals as directors of the
Company for a term of one year, which constitutes the entire
Board of Directors of the Company:
Victor Jacobs, Herman Jacobs, Jack Jacobs, Ramon
Montes, David Shamilzadeh, Jeffrey Berg and Sol
Naimark
2. Approval of the 1995 Plan.
3. Approval of the 1996 Plan.
4. Approval of an amendment to the Company's Certificate of
Incorporation (i) to confirm that the shares of Class B Common
Stock are convertible at any time into shares of Class A
Common Stock on a one-for-one basis, which previously has been
included in the Company's public disclosures; (ii) to provide
that the shares of Class B Common Stock are freely
transferable.
There was no solicitation in opposition to the nominees of the Board of
Directors for election to the Board of Directors. All nominees of the Board of
Directors were elected. The number of votes cast for or withheld were as
follows:
Nominee Votes For Votes Withheld
------- --------- --------------
Victor Jacobs 9,418,947 502,050
Herman Jacobs 9,419,047 501,950
Jack Jacobs 9,418,747 502,250
Ramon Montes 9,418,647 502,350
David Shamilzadeh 9,398,147 522,850
Jeffrey Berg 9,413,817 507,180
Sol Naimark 9,413,817 507,180
Matters numbered 2, 3 and 4 were approved by the stockholders at the
Meeting. The votes cast on each of these Matters were as follows:
Abstentions and
Matter Votes For Against Broker Non-Votes
------ --------- ------- ----------------
No. 2 7,047,610 1,296,461 1,576,926
No. 3 7,057,830 1,280,561 1,582,606
No. 4 7,359,032 1,125,941 1,436,024
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Restated Certificate of Incorporation
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 September 30, 1996.
- 16 -
<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.
By: /s/ DAVID SHAMILZADEH
--------------------------------
David Shamilzadeh,
Senior Vice President of Finance
and Chief Financial Officer
Dated: November 14, 1996
-17-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page Number
- ------- ----------- -----------
3.1 Restated Certificate of Incorporation
11 Computation of Primary and Fully Diluted Earnings Per Common Share
27.1 Financial Data Schedule
- 18 -
RESTATED CERTIFICATE OF INCORPORATION
OF
ALLOU HEALTH & BEAUTY CARE, INC.
It is hereby certified that:
1. The present name of the corporation (hereinafter called the
"Corporation") is ALLOU HEALTH & BEAUTY CARE, INC., which is the name under
which the Corporation was originally incorporated. The date of filing the
original Certificate of Incorporation of the Corporation with the Secretary of
State of the State of Delaware is January 20, 1989.
2. The provisions of the Certificate of Incorporation of the
Corporation, as heretofore amended and/or supplemented, are hereby restated and
integrated into the single instrument without further amendment and without any
discrepancy between the provisions of the Certificate of Incorporation as
heretofore amended and supplemented and the provisions of the said single
instrument hereinafter set forth.
3. The Board of Directors of the Corporation has duly adopted this
Restated Certificate of Incorporation pursuant to the provisions of Section 245
of the General Corporation Law of the State of Delaware in the form set forth as
follows:
"RESTATED CERTIFICATE OF INCORPORATION
OF
ALLOU HEALTH & BEAUTY CARE, INC.
---------------
FIRST: The name of the corporation (hereinafter called the
"Corporation") is ALLOU HEALTH & BEAUTY CARE, INC.
SECOND: The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington, County of New Castle; and the name of the registered
agent of the Corporation in the State of Delaware at such address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is 13,200,000, divided into three classes: (i) 10,000,000
shares of Class A Common Stock, par value $.001 per share (the "Class A Common
Stock"); (ii) 2,200,000 shares of Class B Common Stock, par value $.001 per
share (the "Class B Common Stock"); (iii) 1,000,000 shares preferred stock, par
value $.001 per share (the "Preferred Stock") (the Class A Common Stock and the
Class B Common Stock collectively referred to herein as the "Common Stock").
A. Common Stock
1. General. The voting, dividend and liquidation rights of the
holders of the Common Stock are subject to and qualified by the rights
of the holders of the Preferred Stock of any class as may be designated
- 1 -
<PAGE>
by the Board of Directors upon any issuance of the Preferred Stock of
any class.
2. Voting. Each holder of Class A Common Stock shall have one
vote in respect of each share of Class A Common Stock held by him and
each holder of Class B Common Stock shall have five votes in respect of
each share of Class B Common Stock held by him on all matters voted
upon by the stockholders.
3. Dividends. Dividends may be declared and paid on the Common
Stock from funds lawfully available therefor as and when determined by
the Board of Directors and subject to any preferential dividend rights
of any then outstanding Preferred Stock.
4. Liquidation. Upon the dissolution or liquidation of the
Company, whether voluntary or involuntary, holders of Common Stock will
be entitled to receive all assets of the Company available for
distribution to its stockholders, subject to any preferential rights of
any then outstanding Preferred Stock.
5. Transferability. All outstanding shares of Common Stock
shall be freely transferable.
6. Conversion of Class B Common Stock. All outstanding shares
of Class B Common Stock shall be convertible at all times, at the
election of the holder thereof, into an equal number of fully paid and
nonassessable shares of Class A Common Stock by delivery of written
notice by the holder of such shares of Class B Common Stock to the
Corporation, or its transfer agent, of his election together with the
certificate(s) representing the shares to be converted. Thereupon, the
Corporation, or its transfer agent, as the case may be, shall exchange
such certificate(s) for a certificate or certificates representing an
equal number of shares of Class A Common Stock. Shares of Class B
Common Stock shall be deemed to have been converted immediately prior
to the close of business on the day upon which the Corporation, or its
transfer agent, received such shares for conversion. The person
entitled to receive the Class A Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of
such Class A Common Stock at such time. Thereafter, the shares of Class
B Common Stock so converted shall be authorized and unissued shares of
Class B Common Stock of the Corporation.
With respect to any shares of Class B Common Stock converted
into Class A Common Stock, until surrender as hereinafter provided,
each outstanding certificate, which prior to such conversion
represented shares of Class B Common Stock, shall be deemed for all
purposes to evidence ownership of the number of shares of Class A
Common Stock into which the shares of Class B Common Stock shall have
been converted. Upon surrender to the Corporation, or its transfer
agent, for cancellation of the certificate or certificates representing
such shares, the holder thereof shall be entitled to receive a
certificate or certificates representing the number of shares of Class
A Common Stock to which such holder is entitled.
B. Preferred Stock
The relative rights, preferences and limitations of the shares
of Preferred Stock are as follows:
The Preferred Stock may be issued, from time to time, in one
or more series, with such designations, preferences and relative
participating, optional or other rights, qualifications, limitations or
restrictions thereof as shall be stated and expressed in the resolution
or resolutions providing for the issue of such series adopted by the
Board of Directors from time to time, pursuant to the authority herein
- 2 -
<PAGE>
given, a copy of which resolution or resolutions shall have been set
forth in a Certificate made, executed, acknowledged, filed and recorded
in the manner required by the laws of the State of Delaware in order to
make the same effective. Each series shall consist of such number of
shares as shall be stated and expressed in such resolution or
resolutions providing for the issuance of the stock of such series. All
shares of any one series of Preferred Stock shall be alike in every
particular. The authority of the Board of Directors with respect to
each series shall include, but not be limited to, determination of the
following:
1. the number of shares constituting that series and the
distinctive designation of that series;
2. whether the holders of shares of that series shall be
entitled to receive dividends and, if so, the rates of such dividends,
conditions under which and times such dividends may be declared or
paid, any preference of any such dividends to, and the relation to, the
dividends payable on any other class or classes of stock or any other
series of the same class and whether dividends shall be cumulative or
noncumulative and, if cumulative, from which date or dates;
3. whether the holders of shares of that series shall have
voting rights in addition to the voting rights provided by law and, if
so, the terms of such voting rights;
4. whether shares of that series shall have conversion or
exchange privileges into or for, at the option of either the holder or
the Corporation or upon the happening of a specified event, shares of
any other class or classes or of any other series of the same or other
class or classes of stock of the Corporation and, if so, the terms and
conditions of such conversion or exchange including provision for
adjustment of the conversion or exchange rate in such events as the
Board of Directors shall determine;
5. whether shares of that series shall be redeemable and, if
so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable and the amount per
share payable in case redemption, which amount may vary under different
conditions and at different redemption dates;
6. whether shares of that series shall be subject to the
operation of a retirement or sinking fund and, if so subject, the
extent to and the manner in which it shall be applied to the purchase
or redemption of the shares of that series, and the terms and
provisions relative to the operation thereof;
7. the rights of shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and any preference of any such rights to, and the relation
to, the rights in respect thereto of any class or classes of stock or
any other series of the same class; and
8. whether shares of that series shall be subject or entitled
to any other preferences, and the other relative, participating,
optional or other special rights and qualifications, limitations or
restrictions of shares of that series and, if so, the terms thereof;
provided, however, that if the stated dividends and amounts payable on
liquidation with respect to shares of any series of Preferred Stock are
not paid in full, then the shares of all series of Preferred Stock
shall share ratably in the payment of dividends including
accumulations, if any, in accordance with the sums which would be
payable on such shares if all dividends were declared and paid in full,
and in any distribution of assets (other than by way if dividends) in
accordance with the sums
- 3 -
<PAGE>
which would be payable on such distribution if all sums payable were
discharged in full.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
ss. 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for this corporation under
ss. 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this corporation, as the case
may be, and also on this corporation.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
A. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed by, or in the
manner provided in, the Bylaws. The phrase "whole Board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
B. After the original or other Bylaws of the Corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of ss. 109 of the General Corporation Law of the State of Delaware,
and, after the Corporation has received any payment for any of its stock, the
power to adopt, amend, or repeal the Bylaws of the Corporation may be exercised
by the Board of Directors of the Corporation; provided, however, that any
provision for the classification of directors of the Corporation for staggered
terms pursuant to the provisions of subsection (d) of ss. 141 of the General
Corporation Law of the State of Delaware shall be set forth in an initial Bylaw
or in a Bylaw adopted by the stockholders entitled to vote of the Corporation
unless provisions for such classification shall be set forth in this certificate
of incorporation.
C. Whenever the Corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at, any meeting of stockholders. Whenever the Corporation
shall be authorized to issue more than one class of stock, no outstanding share
of any class of stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (2) of
subsection (b) of ss. 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized shares of said class.
- 4 -
<PAGE>
EIGHTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of subsection
(b) of ss. 102 of the General Corporation Law of the State of Delaware, as the
same may be amended and supplemented.
NINTH: The Corporation shall, to the fullest extent permitted by ss.
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
TENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of this
Article TENTH."
Signed on October 31, 1996
/s/ HERMAN JACOBS
------------------------------
Herman Jacobs,
President and Chief Operating
Officer
- 5 -
EXHIBIT XI
ALLOU HEALTH & BEAUTY CARE, INC.
COMPUTATION OF PRIMARY AND FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended September 30, Ended September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Reconciliation of net income
per consolidated statement of operations
to amount in earnings per share calculation:
Net Income $1,879,511 $1,833,401 $1,076,844 $ 676,592
========= ========= ========= =========
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 5,752,225 5,661,725
Add: Shares issuable from
assumed exercise of options
and warrants 1,596 127,592 - 0 - 20,690
--------- --------- --------- ---------
Total Common Stock And
Equivalents 5,753,821 5,789,317 5,752,225 5,682,415
========= ========= ========= =========
Earnings per common share $.33 $.32 $.19 $.12
==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846538
<NAME> ALLOU HEALTH & BEAUTY CARE, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 60,729
<SECURITIES> 0
<RECEIVABLES> 54,884,795
<ALLOWANCES> 767,927
<INVENTORY> 82,017,385
<CURRENT-ASSETS> 144,995,659
<PP&E> 6,480,214
<DEPRECIATION> 2,795,001
<TOTAL-ASSETS> 152,320,725
<CURRENT-LIABILITIES> 104,210,544
<BONDS> 0
0
0
<COMMON> 5,752
<OTHER-SE> 46,042,155
<TOTAL-LIABILITY-AND-EQUITY> 152,320,725
<SALES> 145,796,500
<TOTAL-REVENUES> 145,796,500
<CGS> 129,293,994
<TOTAL-COSTS> 129,293,994
<OTHER-EXPENSES> 10,388,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,091,491
<INCOME-PRETAX> 3,022,511
<INCOME-TAX> 1,143,000
<INCOME-CONTINUING> 1,879,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,879,511
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
