SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934. For the quarterly period ended December 31, 1996
-----------------
or
Transition report pursuant to Section 13 or 15(d) of the Securities
--- Exchange Act of 1934. For the transition period from ______________ to
____________.
Commission file number 1-10340
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Allou Health & Beauty Care, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 11-2953972
- ---------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
50 Emjay Boulevard, Brentwood, NY 11717
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 273-4000
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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 twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X. No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class February 11, 1997
----- -----------------
Class A Common Stock, $.001 par value 4,552,225
Class B Common Stock, $.001 par value 1,200,000
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
INDEX
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PAGE
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet as of December 31, 1996 3
(unaudited) and March 31, 1996
Consolidated Statement of Income & Retained Earnings For 5
the Nine Months Ended December 31, 1996 and 1995
(unaudited)
Consolidated Statement of Income & Retained Earnings For 6
the Three Months Ended December 31, 1996 and 1995
(unaudited)
Consolidated Statement of Cash Flows (unaudited) 7
For the Nine Months Ended December 31, 1996
Notes to Consolidated Financial Statements 8
Item 2. Management's discussion and analysis of financial condition 15
and results of operations
PART II. OTHER INFORMATION 18
SIGNATURES 19
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
------
December 31, March 31,
1996 1996
----------- -----------
Current Assets
- --------------
<S> <C> <C>
Cash $ 86,704 $ 144,118
Accounts Receivable (less allowance for doubtful
accounts of $901,139 at December 31, 1996 and
$373,890 at March 31, 1996) (Notes 1 & 5) 34,324,807 33,963,830
Inventories (Notes 1 & 5) 97,516,765 71,690,321
Other Current Assets (Note 2) 14,243,867 13,215,004
----------- -----------
Total Current Assets $146,172,143 $119,013,273
Fixed Assets, Less Accumulated Depreciation
(Notes 1 & 3) 3,818,547 3,625,147
Other Assets (Note 4) 3,967,152 3,546,285
----------- -----------
TOTAL ASSETS $153,957,842 $126,184,705
=========== ===========
</TABLE>
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
- -------------------
<S> <C> <C>
Amounts Due Bank (Note 5) $ 85,097,713 $ 70,809,101
Current Portion of Long-Term Debt (Note 6) 518,908 222,393
Accounts Payable and Accrued Expenses (Note 7) 19,468,355 10,425,003
----------- -----------
Total Current Liabilities $105,084,976 $ 81,456,497
----------- -----------
Long Term Liabilities
- ---------------------
Long-Term Debt, Less Current Portion (Note 6) 1,860,222 529,390
Deferred Income Taxes (Note 1) 30,422 30,422
----------- -----------
Total Long Term Liabilities 1,890,644 559,812
----------- -----------
TOTAL LIABILITIES $106,975,620 $ 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 December 31, 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 December 31, 1996
and March 31, 1996 respectively, 1,200,000 issued
and outstanding at December 31, 1996 and
March 31, 1996 1,200 1,200
Additional Paid-In Capital 23,476,508 23,476,508
Retained Earnings 23,499,962 20,686,136
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 46,982,222 44,168,396
----------- -----------
TOTAL LIABILITIES &
SHAREHOLDERS' EQUITY $153,957,842 $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 Nine Months Ended
December 31,
1996 1995
---- ----
Revenues $211,453,748 $208,061,224
Costs of Revenues 186,592,527 184,457,670
----------- -----------
Gross Profit 24,861,221 23,603,554
----------- -----------
Operating Expenses
- ------------------
Warehouse & Delivery 6,350,775 5,673,721
Selling, General & Administrative 9,166,287 8,886,200
----------- -----------
Total Expenses 15,517,062 14,559,921
----------- -----------
Income From Operations 9,344,159 9,043,633
----------- -----------
Other Charges (Credits)
- -----------------------
Interest 4,827,435 4,128,530
Other ( 26,914) ( 27,523)
----------- -----------
Total 4,800,521 4,101,007
----------- -----------
Income Before Income Taxes 4,543,638 4,942,626
Provision for Income Taxes (Note 10) 1,729,812 1,910,958
----------- -----------
NET INCOME 2,813,826 3,031,668
----------- -----------
RETAINED EARNINGS -
BEGINNING OF PERIOD 20,686,136 16,929,450
----------- -----------
RETAINED EARNINGS - END OF PERIOD $ 23,499,962 $ 19,961,118
=========== ===========
Net Income Per Common Share: (Note 1)
Primary and Fully Diluted $.49 $.53
=== ===
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
December 31,
1996 1995
---- ----
Revenues $65,657,248 $76,715,466
Costs of Revenues 57,298,533 67,557,704
---------- ----------
Gross Profit 8,358,715 9,157,762
---------- ----------
Operating Expenses
- ------------------
Warehouse & Delivery 2,094,724 2,249,999
Selling, General & Administrative 3,015,821 3,526,325
---------- ----------
Total Expenses 5,110,545 5,776,324
---------- ----------
Income From Operations 3,248,170 3,381,438
---------- ----------
Other Charges (Credits)
- -----------------------
Interest 1,735,944 1,487,949
Other ( 8,896) ( 5,736)
----------- -----------
Total 1,727,048 1,482,213
---------- ----------
Income Before Income Taxes 1,521,122 1,899,225
Provision for Income Taxes 586,807 700,958
---------- ----------
NET INCOME 934,315 1,198,267
RETAINED EARNINGS -
BEGINNING OF PERIOD 22,565,647 18,762,851
---------- ----------
RETAINED EARNINGS -
END OF PERIOD $23,499,962 $19,961,118
========== ==========
Net Income Per Common Share: (Note 1)
Primary and Fully Diluted $.16 $.21
=== ===
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
<TABLE>
<CAPTION>
For The Nine Months Ended
December 31,
1996 1995
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net Income $ 2,813,826 $ 3,031,668
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 455,215 356,739
Decrease (Increase) In Assets:
Accounts Receivable ( 360,977) (14,779,227)
Inventory (25,826,444) (13,913,280)
Prepaid Purchases and Other Assets ( 1,500,628) 2,370,890
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses 9,043,352 5,570,297
Income Taxes Payable - 0 - ( 524,187)
----------- -----------
Net Cash Used In Operating Activities (15,375,656) (17,887,100)
----------- -----------
Cash Flows Used in Investing Activities
- ---------------------------------------
Acquisition of Fixed Assets ( 597,717) ( 1,702,375)
----------- -----------
Cash Flows From Financing Activities
- ------------------------------------
Net Increase in Amounts Due Bank 14,288,612 19,872,994
Borrowings 2,010,376 - 0 -
Repayment of Debt ( 383,029) ( 207,699)
----------- -----------
Net Cash Provided By Financing Activities 15,915,959 19,665,295
----------- -----------
INCREASE (DECREASE) IN CASH ( 57,414) 75,820
CASH AT BEGINNING OF PERIOD 144,118 126,237
----------- -----------
CASH AT END OF PERIOD $ 86,704 $ 202,057
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 4,706,028 $ 4,022,606
Income Taxes $ 1,662,293 $ 2,598,698
</TABLE>
During the nine months ended December 31, 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 $2,296,735. 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:
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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 December 31, 1996 are $12,119,017
of prepayments on merchandise and $589,560 of interest bearing officers' loans.
3. PROPERTY AND EQUIPMENT:
December 31, March 31, Estimated
1996 1996 Useful Lives
---- ---- ------------
Machinery & Equipment $1,824,414 $1,639,480 5 years
Furniture, Fixtures &
Office Equipment 2,225,380 2,015,415 5-10 years
Transportation Equipment 96,750 96,750 3-5 years
Leasehold Improvements 2,561,617 2,358,799 10-33 years
--------- ---------
6,708,161 6,110,444
Less: Accumulated Depreciation 2,889,614 2,485,297
--------- ---------
$3,818,547 $3,625,147
========= =========
Depreciation expense for the nine months ended December 31, 1996 and
1995 amounted to $404,317 and $328,342, respectively. Depreciation expense for
the three months ended December 31, 1996 and 1995 amounted to $94,613 and
$122,591, respectively.
4. OTHER ASSETS:
Included in other assets is $1,635,109 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 $1,906,030 of interest-bearing officers' loans.
The goodwill is being amortized over forty years and ten years, respectively.
Amortization expense for the nine months ended December 31, 1996 and 1995
amounted to $50,898 and $28,398, respectively.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amortization expense for the three months ended December 31, 1996 and
1995 amounted to $16,966 and $9,466, 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 December 31, 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 (three months) $ 105,393
1998 514,029
1999 531,398
2000 550,834
2001 - 2002 677,476
---------
$2,379,130
=========
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
December 31, March 31,
1996 1996
---- ----
Cost of Revenues $18,229,015 $ 8,471,396
Selling, General & Administrative 538,831 1,245,841
Interest - Bank 495,636 374,229
Payroll 204,873 333,537
---------- ----------
$19,468,355 $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 December 31, 1996, total
minimum annual rentals, excluding additional payments for real estate taxes and
certain expenses, are as follows:
Year Ending
March 31,
1997 (three months) $ 216,200
1998 846,797
1999 852,797
2000 858,797
2001 768,749
2002-2006 2,608,078
Rent expense for the nine months ended December 31, 1996 and
1995 amounted to $669,184 and $513,846, respectively.
Rent expense for the three months ended December 31, 1996 and
1995 amounted to $223,499 and $214,759, 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. Defined Contribution Plan
Effective April 1, 1996, the Company established a
non-contributory defined contribution plan (401K) for substantially all
employees not covered under collective bargaining agreements.
E. Stock Option Plans:
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 December 31, 1996, the Company had 1,088,500 of
outstanding options at prices ranging from $5.75 to $10.00. As of December 31,
1995, the Company had 1,411,950 of outstanding options at prices ranging from
$2.50 to $10.00.
F. 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 nine months ended December 31, 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 nine
months ended December 31, 1996, officers' bonus expense for these three officers
amounted to $32,000.
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.
G. 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 of Class A
Common Stock. All outstanding shares of Class A Common Stock and Class B Common
Stock are freely transferable, subject to applicable law.
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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:
December 31,
1996 1995
---- ----
Income Before Income Taxes $4,543,638 $4,946,626
========= =========
Federal Income Tax $1,441,291 $1,584,880
State Income Taxes 288,521 326,078
--------- ---------
Total Provision for Income Taxes $1,729,812 $1,910,958
========= =========
The following is a reconciliation of the statutory income tax rate to
the total effective tax rates:
December 31,
1996 1995
---- ----
Federal Statutory Income Tax Rate 34% 34%
Increase in Tax Rates Resulting from:
State Income Taxes, Net of Federal Tax
Benefits 4.1% 5.9%
(Over) Under Accrual of Prior Year Tax Provision - 0 - (1.3%)
----- -----
Total Effective Tax Rates 38.1% 38.6%
===== =====
At December 31, 1996, net operating loss carryforwards of approximately $225,000
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.
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<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 nine months ended December 31, 1996, and 1995, there were no
sales to related parties during, or outstanding receivables at the end of the
period. For the nine months ended December 31, 1996 and 1995 purchases from
related parties amounted to $385,193 and $1,673,636, respectively, with $18,073
outstanding at December 31, 1996.
-14-
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
A. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED
DECEMBER 31, 1996 AND 1995.
Revenues for the nine months ended December 31, 1996 were $211,453,748,
representing an 1.6% increase over revenues of $208,061,224 for the nine months
ended December 31, 1995.
Contributions to this increase in revenues by product segment is as follows:
Health and beauty aids increased 3.1% when compared to the same period
in the previous year. This increase in revenue is due to an increase in
same store sales.
Prestige designer fragrances grew 12% when compared to the same period
in the prior year due to an expanded customer base and increases in
same store sales, which together has caused an increase in the volume
of products sold.
Nationally advertised non-perishable branded food products decreased
20% when compared to the same period in the prior year due to
management's decision to eliminate a variety of products from the
Company's distribution mix due to increased costs and lower gross
profit margins associated with those products. It is management's
expectation that the Company will continue to reduce revenues within
this segment of its business over the foreseeable future while focusing
its resources on those non-perishable branded food products which carry
higher gross profit margins.
The 1.7% decrease in sales of pharmaceutical items within the Company's
wholly-owned subsidiary, M. Sobol, Inc. when compared to the same
period in the prior year was a direct result of management's decision
to de-emphasize sales of branded pharmaceuticals which are
characterized by limited operating margins. The Company has required
that all sales of its branded pharmaceutical products to its customers
be combined with orders for generic pharmaceuticals and
over-the-counter health and beauty aids products which historically are
marked by higher gross profit margins.
Gross profit as a percentage of revenues increased to 11.8% for the nine months
ended December 31, 1996 when compared to 11.3% for the same period in the
previous year. This increase was primarily due to higher profit margins
associated with the increased sales of the Company's fragrance products at
higher unit prices. The Company expects this trend to continue.
Warehouse, delivery, selling, general and administrative expenses increased as a
percentage of sales to 7.3% for the nine months ended December 31, 1996 from
7.0% when compared to the same period in the prior year. This increase in
operating expenses is due to reduced revenues in the Company's non-perishable
food and branded pharmaceutical products without a proportional reduction of
expenses relating to these areas. Additionally, the Company experienced
increased expenses associated with the formation of its wholly-owned subsidiary,
Allou Personal Care Corporation, a manufacturer and distributor of hair and skin
care products.
Interest expenses as a percentage of sales for the nine months ended December
31, 1996 increased to 2.3% from 2.0% in the nine months ended December 31, 1995.
This increase is due to higher borrowing levels.
Net income for the nine months ended December 31, 1996 was $2,813,826
representing a 7.2% decrease over the net income of $3,031,668 for the
comparable period in 1995. The decrease in net income is due to the above
factors.
-15-
<PAGE>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Revenues for the three months ended December 31, 1996 were $65,657,248
representing a 14.4% decrease over revenues of $76,715,466 for the three months
ended December 31, 1995.
The decrease in revenues is attributable to decreased sales. Contributions to
revenue by product segment is as follows:
Health and beauty aides decreased 11% when compared to the same period
in the previous year. This decrease in revenue is due to the decrease
in same store sales volume.
Prestige designer fragrances grew 2% when compared to the same period
in the prior year due to increases in same store sales.
Nationally advertised non-perishable branded food products decreased
54% when compared to the same period in the prior year due to the
reasons discussed above.
Sales of prescription pharmaceuticals decreased 14% when compared to
the same period in the prior year, due to the reasons discussed above.
Gross profit as a percentage of sales increased to 12.7% for the three months
ended December 31, 1996 from 11.9% as compared to the three months ended
December 31, 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 December 31, 1996 increased to
7.8% from 7.5% for the same period in the prior year. The increase in warehouse,
delivery, selling, general and administrative expenses for the three months
ended December 31, 1996, is attributable to reduced sales without proportional
decreases in operating expenses and costs associated with the formation of the
Company's wholly-owned subsidiary Allou Personal Care Corp., a manufacturer and
distributor of hair and skin care products.
Interest expenses as a percentage of sales for the three months ended December
31, 1996 increased to 2.6% from 1.9% in the comparable period of the prior year,
representing higher borrowings.
Net income for the three months ended December 31, 1996 was $934,315
representing a 22% decrease over net income of $1,198,267 for the comparable
period in 1995. The decrease in net income is due to the above factors.
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 December 31, 1995, the company had $85,097,713 outstanding
under its $105,000,000 bank line of credit. The loan is collaterized 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
December 31, 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.
-16-
<PAGE>
The Company's accounts receivable has decreased to $34,324,807 at December 31,
1996 from $43,252,247 at December 31, 1995. This decrease in accounts receivable
is due to decreased sales for the period and improved collections resulting in
receivables turning at 49 days as compared to 52 days during the three months
ended December 31, 1995.
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 first quarter for the fiscal year
ending March 31, 1998.
-17-
<PAGE>
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
11 Computation of Primary and Fully Diluted Earnings
Per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any reports or Form 8-K during the
quarterly period ended December 31, 1996.
-18-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
/s/ Herman Jacobs
------------------
Herman Jacobs
President and Chief Operating Officer
/s/ David Shamilzadeh
----------------------
David Shamilzadeh
Chief Financial Officer
Dated: February 14, 1997
-19-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Page
Number Description Number
- ------ ----------- ------
11 Computation of Primary and Fully Diluted Earnings
Per Common Share
27.1 Financial Data Schedule
-20-
EXHIBIT 11
ALLOU HEALTH & BEAUTY CARE, INC.
COMPUTATION OF PRIMARY AND
FULLY DILUTED EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended December 31, Ended December 31,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Reconciliation of net income
per consolidated statement of
operations to amount used in
earnings per share calculation:
Net Income $2,813,826 $3,031,568 $ 934,315 $1,198,167
========= ========= ========= =========
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 10,514 94,732 10,514 39,943
--------- --------- --------- ---------
Total Common Stock And
Equivalents 5,762,739 5,756,457 5,762,739 5,701,668
========= ========= ========= =========
Earnings per common share $.49 $.53 $.16 $.21
=== === === ===
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846538
<NAME> Allou Health & Beauty Care, Inc.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 86,704
<SECURITIES> 0
<RECEIVABLES> 35,225,946
<ALLOWANCES> 901,139
<INVENTORY> 97,516,765
<CURRENT-ASSETS> 146,172,143
<PP&E> 6,708,161
<DEPRECIATION> 2,889,614
<TOTAL-ASSETS> 153,957,842
<CURRENT-LIABILITIES> 105,084,976
<BONDS> 0
0
0
<COMMON> 5,752
<OTHER-SE> 46,976,470
<TOTAL-LIABILITY-AND-EQUITY> 46,982,222
<SALES> 211,453,748
<TOTAL-REVENUES> 211,453,748
<CGS> 186,592,527
<TOTAL-COSTS> 186,592,527
<OTHER-EXPENSES> 15,490,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,827,435
<INCOME-PRETAX> 4,543,638
<INCOME-TAX> 1,729,812
<INCOME-CONTINUING> 2,813,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,813,826
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
