SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1998.
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to ______ .
Commission file number 1-10340
Allou Health & Beauty Care, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-2953972
---------------------------- ---------------------------------
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
50 Emjay Boulevard, Brentwood, NY 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 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 August 11, 1998
----------------- ---------------
Class A Common Stock, $.001 par value 4,644,380
=========
Class B Common Stock, $.001 par value 1,200,000
=========
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements 3
Consolidated Balance Sheet as of June 30,1998
(unaudited) and March 31, 1998 4
Consolidated Statement of Income & Retained
Earnings (unaudited) For the Three Month Periods
Ended June 30, 1998 and 1997 5
Consolidated Statement of Cash Flows (unaudited) For
the Three Month Period Ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
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<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
ASSETS
June 30, March 31,
Current Assets 1998 1998
- -------------- ---- ----
Cash $ 219,693 $ 46,675
Accounts Receivable (less allowance for
doubtful accounts of $831,474 at June 30,
1998 and $371,475 at March 31, 1998) 42,153,271 44,117,911
Inventories 130,661,803 112,530,659
Other Current Assets 16,186,887 11,680,718
------------ ------------
Total Current Assets $189,221,654 $168,375,963
Property & Equipment, Less Accumulated
Depreciation 3,752,947 3,613,223
Other Assets 6,631,242 6,395,110
------------ ------------
TOTAL ASSETS $199,605,843 $178,384,296
============ ============
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
- -------------------
Amounts Due Bank $123,542,215 $110,596,761
Current Portion of Long-Term Debt 491,119 645,233
Accounts Payable and Accrued Expenses 17,392,372 13,174,949
------------ ------------
Total Current Liabilities $141,425,706 $124,416,943
------------ ------------
Long Term Liabilities
- ---------------------
Long-Term Debt, Less Current Portion 4,345,065 1,354,462
------------ ------------
Total Long Term Liabilities 4,345,065 1,354,462
------------ ------------
TOTAL LIABILITIES $145,770,771 $125,771,405
------------ ------------
Commitments & Contingencies
Stockholders' Equity
- --------------------
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;
4,644,380 and 4,569,850 shares issued
and outstanding at June 30, 1998 and
March 31, 1998 $ 4,644 $ 4,570
Class B Common Stock, $.001 par value;
2,200,000 shares authorized
1,200,000 shares issued and outstanding
at June 30,1998 and March 31, 1998 1,200 1,200
Additional Paid-In Capital 24,107,195 23,582,240
Retained Earnings 29,722,033 29,024,881
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 53,835,072 52,612,891
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $199,605,843 $178,384,296
============ ============
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
(UNAUDITED)
For The Three Months Ended
June 30,
1998 1997
---- ----
Revenues $ 68,634,713 $ 64,855,684
Costs of Revenues 58,290,916 55,149,409
------------ ------------
Gross Profit 10,343,797 9,706,275
------------ ------------
Operating Expenses
- ------------------
Warehouse & Delivery 2,247,097 2,378,177
Selling, General & Administrative 4,555,489 3,714,771
------------ ------------
Total Expenses 6,802,586 6,092,948
------------ ------------
Income From Operations 3,541,211 3,613,327
------------ ------------
Other Charges (Credits)
- -----------------------
Interest 2,405,070 1,978,738
Other (5,311) (3,381)
------------ ------------
Total 2,399,759 1,975,357
------------ ------------
Income Before Income Taxes 1,141,452 1,637,970
Provision for Income Taxes 444,300 650,000
------------ ------------
NET INCOME 697,152 987,970
RETAINED EARNINGS - BEGINNING 29,024,881 24,744,671
------------ ------------
RETAINED EARNINGS - ENDING $ 29,722,033 $ 25,732,641
============ ============
Net Income Per Common Share:
Basic $ .12 $ .17
============ ============
Diluted $ .11 $ .17
============ ============
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
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months Ended
June 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
- ------------------------------------
Net Income $ 697,152 $ 987,970
Adjustments to Reconcile Net Income
to Net Cash Provided By (Used in)
Operating Activities:
Depreciation and Amortization 192,858 175,836
Decrease (Increase) In Assets:
Accounts Receivable 1,964,640 3,348,050
Inventory (18,131,144) (4,899,861)
Prepaid Purchases and Other Assets (4,781,934) (1,663,622)
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses 4,217,423 3,460,364
Income Taxes Payable -0- 402,314
------------ ------------
Net Cash Provided By (Used In) Operating Activities (15,841,005) 1,811,051
------------ ------------
Cash Flows Used in Investing Activities
- ---------------------------------------
Acquisition of Fixed Assets (292,949) (72,657)
------------ ------------
Cash Flows From Financing Activities
- ------------------------------------
Net Increase (Decrease) in Amounts Due Bank 12,945,454 (1,426,052)
Borrowings 3,108,704 215,771
Repayment of Debt (272,215) (244,948)
Net Proceeds From Exercise of Options 525,029 -0-
------------ ------------
Net Cash Provided By (Used In) Financing Activities 16,306,972 (1,455,229)
------------ ------------
INCREASE IN CASH 173,018 283,165
CASH AT BEGINNING OF PERIOD 46,675 76,531
CASH AT END OF PERIOD $ 219,693 $ 359,696
============ ============
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 2,402,314
Income Taxes $ 239,604
</TABLE>
During the three months ended June 30, 1998 and 1997 the Company issued notes
for $3,108,704 and $215,771, respectively.
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. The accompanying interim consolidated financial statements of Allou Health
& Beauty Care Inc. (the Company) have been prepared in conformity with generally
accepted accounting principles consistent in all material respects with those
applied in the Annual Report on Form 10-K for the year ended March 31, 1998. The
interim financial information is unaudited, but reflects all normal adjustments
which are, in the opinion of management, necessary to provide a fair statement
of results for the interim periods presented. The interim financial statements
should be read in connection with the financial statements in the Company's
Annual Report on Form 10-K for the year March 31, 1998.
2. On June 23, 1998 the Company purchased certain assets of Direct Fragrance,
Inc., a telemarketer of fragrances located in Florida for $2,761,671. The assets
include inventories, fixed assets and intangibles.
3. During the current period, certain officers of the Company loaned the
Fragrance Counter Inc., a wholly owned subsidiary of the Company, $3,000,000 at
an interest rate of 8.75% per annum. The loan is subordinated to the Company's
senior debt, and may be repaid only upon an infusion of new equity into the
Fragrance Counter Inc.
4. Earnings per share (EPS) for the current and prior period has been
presented in conformity with the provisions of SFAS 128. The following table is
a reconciliation of the weighted-average shares (denominator) used in the
computation of basic and diluted EPS for the statement of operation periods
presented herein.
June 30,
1998 1997
---- ----
Basic 5,822,848 5,752,225
Assumed exercise of stock options 757,148 52,737
--------- ---------
Diluted 6,579,996 5,804,962
========= =========
Net income as presented in the consolidated statement of operations is
used as the numerator in the EPS calculation for both the basic and diluted
computations.
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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, 1998 AND
1997.
Revenues for the three months ended June 30, 1998 were $68,634,713,
representing a 5.5% increase over revenues of $64,855,684 for the three
months ended June 30, 1997.
This increase in revenue was attributable to increased sales.
Contributions to revenues by product segment were as follows:
Sales of health and beauty aids increased 6.5% when compared to the
same period in the previous year. This increase in revenue was due to
an increase in same store sales.
Sales of prestige designer fragrances grew 4.3% when compared to the
same period in the prior year due to an increase in same store sales.
Sales of nationally advertised non-perishable branded food products
were flat 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 focus its resources on
those non-perishable branded food products, which carry higher gross
profit margins.
Sales of pharmaceutical items increased 7% within the Company's
wholly-owned subsidiary, M. Sobol, Incorporated when compared to the
same period in the prior year, this increase was a direct result of new
products introduced by the pharmaceutical manufacturers, which has
resulted in an increase in the volume of products sold.
Gross profit as a percentage of revenues increased to 15.1% for the
three months ended June 30, 1998 when compared to 15% 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.
Warehouse, delivery, selling, general and administrative expenses
increased as a percentage of sales to 9.9% for the three months ended
June 30, 1998 from 9.4% when compared to the same period in the prior
year. This increase in operating expenses was due to expenses
associated with its wholly owned subsidiary, Allou Personal Care
Corporation, a manufacturer of hair and skin care products and
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<PAGE>
advertising expenses associated with the company's E-commerce
subsidiary, The Fragrance Counter, Inc. ("The Fragrance Counter").
Inventories increased by approximately $29.1 million or 29% in fiscal
1997 when compared to the same period in fiscal 1996. This increase in
inventory was attributable to merchandise purchased in anticipation of
increased sales.
Interest expense for the three months ended June 30, 1998 increased to
3.5% of sales from 3.0% sales when compared to the three months ended
June 30, 1997. This increase was due to higher borrowing levels.
Net income for the three months ended June 30, 1998 was $697,148,
representing a 42% decrease over net income of $987,967 for the
comparable period in 1997. This decrease in net income was 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, 1998, the
Company had $123,542,215 outstanding under its $145,000,000 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 2.0% above the Eurodollar rate, at the
option of the Company. The effective interest rate charged to the
Company at June 30, 1998 was 7.87% which, was based on a combination of
2.0% 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 decreased to $42,153,271 at June 30,
1998 from $45,076,832 at June 30, 1997 representing a decrease of 6.5%.
This decrease in accounts receivable was due to customers which had
previously paid the Company in an average of 65 days at June 30, 1997
have been paying the Company in an average of 54 days at June 30, 1998.
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, except for The Fragrance Counter, its internally
generated funds and its current and future bank line of credit will be
sufficient to meet its anticipated cash and capital needs through the
fiscal year ending March 31, 1999. The Company is seeking means of
providing financing for The Fragrance Counter that are independent of
its
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<PAGE>
revolving line of credit. During the quarter ended June 30, 1998,
Messrs. Victor Jacobs, Herman Jacobs, and Jack Jacobs collectively
loaned an aggregate of $3 million on an unsecured basis to The
Fragrance Counter (the "Bridge Financing"). Amounts loaned under the
Bridge Financing accrue interest at the rate of 8-3/4% per annum and
become due and payable in October 1998. During June 1998 the Company
acquired selected assets of Direct Fragrances, Inc. a telemarketing
sales company of fragrance products to an account base consisting of
over 5,000 independent retailers nationally.
INFLATION AND SEASONALITY
Inflation has not had any significant adverse effects on the Company's
business and the Company does not believe it will have any significant
affect on its future business. The Company's fragrance business is
seasonal, with greater sales during the Christmas season then in other
seasons. The Company's other product lines are not seasonal.
YEAR 2000
The Company does not expect that the cost to modify or replace software
that it uses, so that such software will properly recognize dates
beyond December 31, 1999 ("Year 2000 Compliance") will be material. The
Company has initiated formal communications with its significant
vendors and customers to determine the extent that Year 2000 Compliance
issues of such parties may affect the Company. There can be no
guarantee that the systems of such other companies will be timely
converted, or that their conversion will be compatible with information
included in the Company's systems, without a material adverse effect on
the Company's business, financial condition, or results of operations.
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<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the period ended June
30, 1998.
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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.
/s/ Herman Jacobs
---------------------------------------
Herman Jacobs
President and Chief Operating Officer
Dated: August 14, 1998
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<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
- ---------- -----------
27 Financial Data Schedule
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846538
<NAME> ALLOU HEALTH & BEAUTY CARE, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 219,693
<SECURITIES> 0
<RECEIVABLES> 42,984,745
<ALLOWANCES> 831,474
<INVENTORY> 130,661,803
<CURRENT-ASSETS> 189,221,654
<PP&E> 7,487,065
<DEPRECIATION> 3,734,118
<TOTAL-ASSETS> 3,752,947
<CURRENT-LIABILITIES> 141,425,706
<BONDS> 0
0
0
<COMMON> 5,844
<OTHER-SE> 53,829,228
<TOTAL-LIABILITY-AND-EQUITY> 199,605,843
<SALES> 68,634,713
<TOTAL-REVENUES> 68,634,713
<CGS> 58,290,916
<TOTAL-COSTS> 65,088,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,405,070
<INCOME-PRETAX> 1,141,452
<INCOME-TAX> 444,300
<INCOME-CONTINUING> 697,152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 697,152
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
