UNITED STATES
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 September 30, 2000.
------------------
_ 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.
--------------------------------
(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 November 9, 2000
------------------------------------- ----------------
Class A Common Stock, $.001 par value 5,636,484
=========
Class B Common Stock, $.001 par value 1,200,000
=========
<PAGE>
<TABLE>
<CAPTION>
ALLOU HEALTH & BEAUTY CARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of September 30, 2000 (unaudited)
and March 31, 2000 3
Consolidated Statements of Income & Retained
Earnings for the Six Month Periods Ended
September 30, 2000 and 1999 (unaudited) 4
Consolidated Statements of Income & Retained
Earnings for the Three Month Periods
Ended September 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the Three Month
Periods Ended September 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements (unaudited) 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II. OTHER INFORMATION
Item 2. Sale of Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES
</TABLE>
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
---- ----
(unaudited)
Current Assets
--------------
<S> <C> <C>
Cash $ 48,818 $ 51,311
Accounts Receivable (net of allowance
for doubtful accounts of $1,675,000
and $1,285,000, respectively) 101,142,869 75,853,958
Inventories 178,651,107 163,752,266
Prepaid Purchases 11,125,664 2,942,409
Other Current Assets 5,233,541 4,283,598
------------- -------------
Total Current Assets $296,201,999 $246,883,542
Property and Equipment, Net 4,341,899 3,924,543
Other Assets 11,691,639 9,147,367
------------ -------------
TOTAL ASSETS $312,235,537 $259,955,452
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
-------------------
Amounts Due Bank $177,930,875 $148,470,692
Current Portion of Long-Term Debt 694,303 1,831,547
Accounts Payable and Accrued Expenses 35,467,129 29,289,177
Income Taxes Payable 1,563,717 2,566,969
------------- -------------
Total Current Liabilities $215,656,024 $182,158,385
----------- -----------
Long Term Liabilities
---------------------
Long-Term Debt 1,268,375 1,640,222
Subordinated Debt 15,000,000 - 0 -
------------ ------------------
Total Long Term Liabilities 16,268,375 1,640,222
------------ -------------
TOTAL LIABILITIES $231,924,399 $183,798,607
----------- -----------
Commitments and Contingencies
Stockholders' Equity
--------------------
Preferred Stock, $.001 par value, 1,000,000 shares authorized, none issued
and outstanding.
Class A Common Stock, $.001 par value;
15,000,000 shares authorized; 5,636,484 and
5,566,273 shares issued and outstanding, respectively $ 5,636 $ 5,566
Class B Common Stock, $.001 par value;
2,200,000 shares authorized;
1,200,000 shares issued and outstanding 1,200 1,200
Additional Paid-In Capital 31,078,371 30,818,158
Retained Earnings 49,225,931 45,331,921
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 80,311,138 76,156,845
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $312,235,537 $259,955,452
=========== ===========
The accompanying notes are on integral part of these consolidated financial
statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For The Six Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Revenues $266,915,133 $179,158,877
Costs of Revenues 235,941,729 154,530,392
----------- -----------
Gross Profit 30,973,404 24,628,485
------------ ------------
Operating Expenses
------------------
Warehouse and Delivery 6,497,554 5,558,291
Selling, General and Administrative 10,108,375 9,102,617
------------ -------------
Total Expenses 16,605,929 14,660,908
------------ ------------
Income From Operations 14,367,475 9,967,577
------------ -------------
Other Charges (Credits)
-----------------------
Interest Expense 8,323,465 4,817,113
Interest Income - 0 - ( 331,973)
------------ --------------
Total 8,323,465 4,485,140
------------- -------------
Income From Operations Before Income Taxes 6,044,010 5,482,437
Provision for Income Taxes 2,150,000 2,083,000
------------- -------------
Income From Continuing Operations 3,894,010 3,399,437
Loss From Discontinued Operations
Net of Income Taxes - 0 - ( 516,764)
Gain on Disposal of Discontinued Operations
Net of Income Taxes - 0 - 13,313,225
------------ ------------
NET INCOME $ 3,894,010 $ 16,195,898
RETAINED EARNINGS - BEGINNING 45,331,921 30,372,736
------------ ------------
RETAINED EARNINGS - ENDING $ 49,225,931 $ 46,568,634
============ ============
Earnings Per Common Share
-------------------------
Basic:
Continuing Operations $ .57 $ .51
Discontinued Operations - 0 - 1.92
----- ----
Net Income $ .57 $2.43
==== ====
Diluted:
Continuing Operations $ .53 $ .46
Discontinued Operations - 0 - 1.74
----- ----
Net Income $ .53 $2.20
==== ====
</TABLE>
The accompanying notes are on integral part of these consolidated financial
statements
4
<PAGE>
<TABLE>
<CAPTION>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
For The Three Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Revenues $132,250,479 $101,011,666
Costs of Revenues 117,319,728 87,224,312
----------- ------------
Gross Profit 14,930,751 13,787,354
------------ ------------
Operating Expenses
------------------
Warehouse and Delivery 3,355,989 2,959,369
Selling, General and Administrative 4,799,932 5,053,494
------------- -------------
Total Expenses 8,155,921 8,012,863
------------- -------------
Income From Operations 6,774,830 5,774,491
------------- -------------
Other Charges (Credits)
----------------------
Interest Expense 3,906,582 2,626,362
Other - 0 - 9,521
Interest Income - 0 - ( 189,078)
------------ --------------
Total 3,906,582 2,446,805
------------ -------------
Income From Operations Before Income Taxes 2,868,248 3,327,686
Provision for Income Taxes 1,063,000 1,264,000
------------ -------------
NET INCOME $ 1,805,248 $ 2,063,686
RETAINED EARNINGS - BEGINNING 47,420,683 44,504,948
------------ ------------
RETAINED EARNINGS - ENDING $ 49,225,931 $ 46,568,634
============ ============
Earnings Per Common Share
-------------------------
Basic $.27 $.31
=== ===
Diluted $.24 $.29
==== ===
</TABLE>
The accompanying notes are on integral part of these consolidated financial
statements
5
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Six Months Ended
September 30,
2000 1999
---- ----
Cash Flows From Operating Activities
------------------------------------
<S> <C> <C>
Net Income $ 3,894,010 $16,195,898
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 717,439 391,248
Decrease (Increase) In Assets:
Accounts Receivable (25,288,911) (11,511,186)
Inventories (14,898,841) (27,030,967)
Prepaid Purchases and Other Assets (12,080,059) 15,811,542
Note Receivable - 0 - ( 8,500,000)
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses 6,177,952 (12,694,533)
Income Taxes Payable ( 1,003,252) 7,072,391
----------- -----------
Net Cash Used In Operating Activities (42,481,662) (20,265,607)
---------- ----------
Cash Flows Used in Investing Activities
---------------------------------------
Acquisition of Property and Equipment ( 732,206) ( 836,270)
Disposition of Property and Equipment - 0 - 676,750
---------------- ------------
Net Cash Used in Investing Activities ( 732,206) ( 159,520)
------------ ------------
Cash Flows From Financing Activities
------------------------------------
Net Increase in Amounts Due Bank 29,460,183 20,507,177
Borrowings 15,000,000 119,889
Repayment of Debt ( 1,509,091) ( 472,367)
Net Proceeds From Exercise of Options and Warrants 260,283 134,240
------------ ------------
Net Cash Provided By Financing Activities 43,211,375 20,288,939
---------- ----------
DECREASE IN CASH ( 2,493) ( 136,188)
CASH AT BEGINNING OF PERIOD 51,311 400,090
------------- ------------
CASH AT END OF PERIOD $ 48,818 $ 263,902
============= ============
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 7,962,403 $ 4,757,899
Income Taxes $ 3,153,252 $ 1,260,000
</TABLE>
During the six months ended September 30, 2000 and 1999, the Company issued
notes for $15,000,000 and $119,889, respectively.
The accompanying notes are an integral part of these financial statements.
6
<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, 2000. 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 ended March 31, 2000.
2. As discussed in note 2 of the Company's March 31, 2000 10-K, the Company
provided a valuation allowance of $8,500,000 against its note receivable due
from the principal stockholders of Ibeauty.com, which was due in April, 2000. In
accordance with the provisions of the note, in lieu of repayment, the Company
received shares of stock of Ibeauty.com. Due to Ibeauty.com's inability to
provide financial information to the Company, the shares of stock received
cannot be valued and consequently, the Company's investment of $3,000,000 could
be impaired.
3. Effective May 8, 2000, the Company was approved for a $200,000,000 secured
line of credit with interest payable at 3/4% above the prime rate or 2.5% above
the Eurodollar rate. As of September 30, 2000, the credit line has been funded
in the amount of $185,081,000.
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.
Six Months Ended
September 30,
2000 1999
---- ----
Basic 6,788,422 6,641,731
Assumed exercise of stock options 610,486 692,181
---------- ----------
Diluted 7,398,908 7,333,912
========= =========
Three Months Ended
September 30,
2000 1999
---- ----
Basic 6,810,044 6,643,576
Assumed exercise of stock options 589,451 455,338
---------- ----------
Diluted 7,399,495 7,098,914
========= =========
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.
7
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At the Company's annual meeting, which took place on September 14, 2000, the
Company obtained approval from its stockholders to issue an aggregate of
$25,000,000 12% senior subordinated notes and 2,833,333 seven year warrants of
Allou's Class A Common Stock.
5. During the current period, the Company issued to an institutional investor
$15,000,000 of 12% senior subordinated notes due July 2005 and 1,700,000 seven
year warrants to purchase Allou's Class A Common Stock at $4.50 per share. The
exercise price of the warrants is subject to increase if the Company meets
certain earnings and revenue targets. The warrants are subject to a put option
under which the investor has the right to put the warrant to Allou after five
years at a price of $8 per warrant.
8
<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, 2000 AND 1999
Revenues for the six months ended September 30, 2000 were
$216,915,133, representing a 49.0% increase over revenues of
$179,158,877 for the six months ended September 30, 1999.
This increase in revenues was attributable to an increase in
sales volume for the segments of the Company's business
described below, an expanded customer base and an increase in
same store sales, which have together caused an increase in
the volume of products sold.
Contributions to this increase in revenues by product segment
was as follows:
Sales of Allou Distributors, Inc., the Company's wholly-owned
subsidiary, which distributes brand name health and beauty
aids, prestige designer fragrances, nationally advertised
non-perishable branded food products increased 7.4% when
compared to sales in the same period of the prior year.
Sales of pharmaceutical products increased 230.2% when
compared to the same period of the prior year. This increase
is largely due to increased sales as a result of the Company's
acquisition of Tri-State Pharmaceutical Consultants
Corporation which was consummated during the fourth quarter of
fiscal year 2000.
Manufacturing sales increased 45.5% when compared to the
same period in the prior year.
Gross profit as a percentage of revenues for the six months
ended September 30, 2000 decreased to 11.6% from 13.8% when
compared to the same period in the prior year. This decrease
is due to increased sales of the Company's pharmaceutical
products which is characterized by low gross profit margins
when compared to the other segments of the Company's business.
Warehouse, delivery, selling, general and administrative
expenses decreased as a percentage of sales to 6.2% for the
six months ended September 30, 2000, from 8.2% when compared
to the same period of the prior year. This decrease as a
percentage of sales is due to increased sales without a
proportional increase in expenses.
Inventories increased by approximately $14.9 million or 9% at
September 30, 2000 when compared to the fiscal year ended
March 31, 2000. This increase in inventory was attributable to
merchandise purchased in anticipation of increased sales.
Interest expense for the six months ended September 30, 2000
increased 85.6% when compared to the six months ended
September 30, 1999. This increase was a result of higher
borrowings at an increased rate.
Net income for the six months ended September 30, 2000 was
$3,894,010. For the same period in the prior year net income
was $16,195,898 which includes a one time gain of $12,796,461
(net of taxes) was realized from the sale of a majority
interest in the Company's e-commerce subsidiary, The Fragrance
Counter, Inc. Net income from operations for the six months
ended September 30, 1999, was $3,399,437.
9
<PAGE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
Revenues for the three months ended September 30, 2000 were
$132,250,479, representing a 31% increase over revenues of
$101,011,666 for the six months ended September 30, 1999.
This increase in revenues was attributable to an increase in
sales volume for the segments of the Company's business
described below, 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
was as follows:
Sales of Allou Distributors, Inc., the Company's wholly-owned
subsidiary, which distributes brand name health and beauty
aids, prestige designer fragrances, nationally advertised
non-perishable branded food products decreased 2.3% when
compared to sales in the same period of the prior year, due to
a decrease in the sales of non-perishable food business. Sales
in this segment of our business is categorized by our ability
to purchase off-price non-perishable branded foods from the
manufacturers. During the quarter that ended September 30,
2000 there was a decrease of 45% in the level of promotional
goods offered to the Company by manufacturers.
Sales of pharmaceutical products increased 182.5% when
compared to the same period of the prior year, This was the
result of increased sales largely due to the Company's
acquisition of Tri-State Pharmaceutical Consultant Corporation
during the fourth quarter of fiscal 2000.
Gross profit as a percentage of sales decreased to 11.3% for
the three months ended September 30, 2000 from 13.6% when
compared to the three months ended September 30, 1999. This
decrease was principally attributable to lower profit margins
associated with the Company's pharmaceutical products.
Warehouse, delivery, selling, general and administrative
expenses decreased as a percentage of sales to 6.2% for the
three months ended September 30, 2000 from 7.9% when compared
to the same periods of the prior year. This decrease in
operating expenses is due to increased revenues without a
proportional increase in expenses.
Interest expenses for the three months ended September 30,
2000 increased to 3.0% from 2.4% when compared to the same
period of the prior year. This increase was a result of
increased borrowings at a higher rate.
Net income for the three months ended September 30, 2000 was
$1,805,248, representing a 12.5% decrease over net income of
$2,063,686 for the comparable period in 1999. The decrease in
net income was due to increased interest expense.
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 Fleet Capital for financing
the Company's accounts receivable and inventory. As of
September 30, 2000, the Company had $177,930,875 outstanding
under its $185 million bank line of credit. The loan was
collateralized by the Company's inventory and accounts
receivable. Interest on the loan balance is payable monthly at
3/4% above the prime rate or 2.5% above the Eurodollar rate at
the option of the Company. The effective
10
<PAGE>
interest rate charged to the Company at September 30, 1999 was
9.39%, which was based on a combination of 2.5% above the
Eurodollar rate and 3/4% 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. During the
second quarter of fiscal year 2000 ended September 30 the
Company issued to RFE Investment Partners an institutional
investor $15,000,000 principal amount of 12% senior
subordinated notes due 2005 and 1,700,000 seven year warrants
to purchase Allou's Class A Common Stock at $4.50 per share.
The warrants are subject to a put option under which the
investor has the right to put the warrants to Allou after year
five at a price of $8.00 per warrant.
The Company's accounts receivable increased to $101,142,869 at
September 30, 2000 from $61,673,636 at September 30, 1999,
representing an increase of 64%. This increase in accounts
receivable was due to increased sales and customers which had
previously paid the Company in an average of 55 days at
September 30, 1999 have been paying the Company in an average
of 69 days at September 30, 2000.
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, 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, 2002.
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 effect on its future business. The
Company's fragrance business is seasonal, with greater sales
during the Christmas season than in other seasons. The
Company's other product lines are not seasonal.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. SALE OF SECURITIES.
On July 27, 2000, the Company issued to an institutional investor
$11,470,588 principal amount of 12% Senior Subordinated Notes due 2005 and
warrants exercisable to purchase 1,300,000 shares of the Company's Class A
Common Stock at an exercise price of $4.50 per share. The warrants are subject
to a put option under which the investor has the right to put the warrants to
the Company after the fifth anniversary of their issuance at a price of $8.00
per warrant. On September 26, 2000, the Company issued to the investor an
additional $3,529,412 principal amount of notes and additional warrants
exercisable to purchase 400,000 shares of Class A Common Stock.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 14, 2000, the Company's annual meeting of stockholders was
held (the "Meeting"). At the Meeting, the stockholders approved the following
two matters:
First, the election of Messrs. Victor Jacobs, David Shamilzadeh, Jack
Jacobs, Herman Jacobs, Sol Naimark, Jeffrey Berg and Stuart Glasser as directors
of the Company to serve until the next Annual Meeting of stockholders and until
their successors shall have been duly elected and qualified. The number of votes
cast for or withheld was as follows:
Votes
-----
For Withheld
--- --------
Victor Jacobs 10,261,233 593,902
Herman Jacobs 10,262,233 592,902
David Shamilzadeh 10,262,233 592,902
Jack Jacobs 10,262,233 592,902
Sol Naimark 10,262,233 592,902
Jeffrey Berg 10,262,233 592,902
Stuart Glasser 10,261,233 593,902
Second, the approval of issuances of additional warrants pursuant to a
12% Senior Subordinated Note and Warrant Purchase Agreement dated as of July 25,
2000 among the Company and RFE Investment Partners, VI, L.P. and the issuances
of shares of Class A Common Stock upon exercise of such warrants which would
result in the issuance of greater than 20% of the outstanding Common Stock of
the Company. There were 6,678,401 votes cast "for" the matter, 818,332 votes
cast "against" the matter and 135,085 abstentions [and broker non-votes].
12
<PAGE>
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit Description
------ -----------
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On August 2, 2000 the Company filed a report on Form 8-K,
announcing that it had issued to an institutional investor $11,470,588 principal
amount of 12% Senior Subordinated Notes due 2005 and warrants exercisable to
purchase 1,300,000 shares of the Company's Class A Common Stock at an exercise
price of $4.50 per share.
13
<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/ David Shamilzadeh
------------------------------
David Shamilzadeh
President and Chief Financial Officer
Dated: November 14, 2000
14
