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 June 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
-------
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 8, 2000
------------------------------------- --------------
Class A Common Stock, $.001 par value 5,602,903
=========
Class B Common Stock, $.001 par value 1,200,000
=========
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and March 31, 2000........................................................................3
Consolidated Statements of Income & Retained
Earnings For the Three Month Periods
Ended June 30, 2000 and 1999 (unaudited)..................................................4
Consolidated Statements of Cash Flows For the Three Month
Periods Ended June 30, 2000 and 1999 (unaudited)..........................................5
Notes to Consolidated Financial Statements (unaudited)......................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.......................................7
Part II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................9
Item 2. Changes in Securities and Use of Proceeds..........................................9
Item 3. Defaults Upon Senior Securities....................................................9
Item 4. Submission of Matters to a Vote of Security Holders................................9
Item 5. Other Information..................................................................9
Item 6. Exhibits and Reports on Form 8-K...................................................9
SIGNATURES.................................................................................10
</TABLE>
2
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
------
<TABLE>
<CAPTION>
June 30, March 31,
2000 2000
---- ----
(unaudited)
Current Assets
--------------
<S> <C> <C>
Cash $ 1,122,102 $ 51,311
Accounts Receivable (net of allowance
for doubtful accounts of $1,480,000
and $1,285,000, respectively) 97,300,059 75,853,958
Inventories 175,140,897 163,752,266
Prepaid Purchases 6,853,889 2,942,409
Other Current Assets 3,796,064 4,283,598
------------- -------------
Total Current Assets $284,213,011 $246,883,542
Property and Equipment, Net 4,037,162 3,924,543
Other Assets 10,913,743 9,147,367
------------ -------------
TOTAL ASSETS $299,163,916 $259,955,452
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------
Current Liabilities
-------------------
Amounts Due Bank $180,687,342 $148,470,692
Current Portion of Long-Term Debt 1,741,046 1,831,547
Accounts Payable and Accrued Expenses 35,112,240 29,289,177
Income Taxes Payable 1,909,487 2,566,969
------------- -------------
Total Current Liabilities $219,450,115 $182,158,385
----------- -----------
Long Term Liabilities
---------------------
Long-Term Debt 1,460,694 1,640,222
------------- -------------
Total Long Term Liabilities 1,460,694 1,640,222
------------- -------------
TOTAL LIABILITIES $220,910,809 $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; 5,567,648 and
5,566,273 shares issued and outstanding, respectively $ 5,568 $ 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 30,825,656 30,818,158
Retained Earnings 47,420,683 45,331,921
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 78,253,107 76,156,845
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $299,163,916 $259,955,452
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Revenues $134,664,654 $78,147,211
Costs of Revenues 118,622,001 67,306,080
----------- ----------
Gross Profit 16,042,653 10,841,131
------------ ----------
Operating Expenses
------------------
Warehouse and Delivery 3,141,565 2,598,922
Selling, General and Administrative 5,308,443 4,051,765
------------- -----------
Total Expenses 8,450,008 6,650,687
------------- -----------
Income From Operations 7,592,645 4,190,444
------------- -----------
Other (Expenses) Income
-----------------------
Interest Expense ( 4,416,883) ( 2,190,757)
Other - 0 - 12,163
Interest Income - 0 - 142,895
------------- -----------
Total ( 4,416,883) ( 2,035,699)
------------- -----------
Income From Operations Before Income Taxes 3,175,762 2,154,745
Provision for Income Taxes 1,087,000 819,000
------------- ------------
Income From Continuing Operations 2,088,762 1,335,745
Loss From Discontinued Operations
Net of Income Taxes of $316,000 - 0 - ( 516,764)
Gain on Disposal of Discontinued Operations
Net of Income Taxes of $8,159,000 - 0 - 13,313,225
------------- -----------
NET INCOME $ 2,088,762 $14,132,206
RETAINED EARNINGS - BEGINNING 45,331,921 30,372,736
------------ ----------
RETAINED EARNINGS - ENDING $ 47,420,683 $44,504,942
============ ==========
Earnings Per Common Share
-------------------------
Basic:
Continuing Operations $.31 $ .20
Discontinued Operations .00 1.93
--- ----
Net Income $.31 $2.13
=== ====
Diluted:
Continuing Operations $.29 $ .18
Discontinued Operations .00 1.69
--- ----
Net Income $.29 $1.87
=== ====
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
2000 1999
---- ----
Cash Flows From Operating Activities
------------------------------------
<S> <C> <C>
Net Income $ 2,088,762 $14,132,206
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 333,956 195,624
Decrease (Increase) In Assets:
Accounts Receivable (21,446,101)
Inventories (11,388,631)
Prepaid Purchases and Other Assets ( 5,368,227)
Note Receivable - 0 -
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses 5,823,063 (15,453,243)
Income Taxes Payable ( 657,482) 7,068,391
------------ -----------
Net Cash Used In Operating Activities (30,614,660) ( 585,715)
---------- ------------
Cash Flows Used in Investing Activities
---------------------------------------
Acquisition of Property and Equipment ( 268,670) ( 550,617)
Disposition of Property and Equipment - 0 - 676,750
---------------- ------------
Net Cash Provided by (Used In) Investing Activities ( 268,670) 126,133
------------ ------------
Cash Flows From Financing Activities
------------------------------------
Net Increase in Amounts Due Bank 32,216,650 443,953
Borrowings - 0 - 39,132
Repayment of Debt ( 270,029) ( 328,892)
Net Proceeds From Exercise of Options and Warrants 7,500 134,240
-------------- ------------
Net Cash Provided By Financing Activities 31,954,121 288,433
---------- ------------
INCREASE (DECREASE) IN CASH 1,070,791 ( 171,149)
CASH AT BEGINNING OF PERIOD 51,311 400,090
------------- ------------
CASH AT END OF PERIOD $ 1,122,102 $ 228,941
=========== ============
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 4,230,604 $ 2,184,859
Income Taxes $ 1,744,482 $ - 0 -
</TABLE>
During the three months ended June 30, 1999, the Company issued notes for
$39,132.
The accompanying notes are an integral part of these
consolidated financial statements.
5
<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 1,816,239 shares of stock of Ibeauty.com. As a result, the Company owns
31% of ibeauty.com as of June 30, 2000. Due to ibeauty.com's inability to
provide financial information to the Company, the shares of stock received are
not being valued and Allou cannot apply the equity method to its minority
investment. 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 June 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.
June 30,
2000 1999
---- ----
Basic 6,767,028 6,639,873
Assumed exercise of stock options 555,233 918,072
---------- ----------
Diluted 7,322,261 7,557,945
========= =========
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.
5. On July 27, 2000, the Company issued to an institutional investor $11,470,588
of 12% senior subordinated notes due 2005 and 1,300,000 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.
Additionally, subject to the Company obtaining stockholder approval at its
annual meeting, the Company may issue to investors additional notes of
$13,529,412 and 1,533,333 of warrants exercisable on identical terms.
6
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
A. RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999.
Revenues for the three months ended June 30, 2000 were $134,664,654 representing
a 72.3% increase over revenues of $78,147,211 for the three months ended June
30, 1999.
This increase in revenues is attributable to increased contributions to revenues
by the product segments set forth below:
Sales of health and beauty aids increased 23.4% when compared to the same period
in the previous year. This increase in revenue is due to an increase in same
store sales and an expanded customer base.
Sales of prestige designer fragrances increased 22% when compared to the same
period in the prior year. This increase in revenue is due to an increase in both
same store sales and an expanded customer base.
Sales of nationally advertised non-perishable branded food products grew 51% due
to our ability to obtain a greater number of promotional products from
manufacturers which we then sold to our customers thus resulting in increased
sales. We cannot determine whether this trend will continue.
Sales of pharmaceutical items increased 285% within our wholly-owned
subsidiary, M. Sobol, Inc. when compared to the same period in the prior year.
This was a result of our acquisition of Tri-State Pharmaceutical Consultants
Corp. acquired during the fourth quarter of fiscal 2000 which ended March 31.
Gross profit as a percentage of revenues decreased to 11.9% for the three months
ended June 30, 2000 when compared to 13.9% for the same period in the previous
year. This decrease was primarily due to an increase in volume of revenue
attributable to pharmaceutical products which has gross profit margins that are
typically lower than our other business segments.
Warehouse, delivery, selling, general and administrative expenses decreased as a
percentage of sales to 6.3% for the three months ended June 30, 2000 from 8.5%
when compared to the same period in the prior year. This percentage decrease is
due to the greater volume of revenues generated by our pharmaceutical
subsidiary, which has lesser operating expenses when compared to other segments
of our businesses.
Inventories increased by approximately $34.3 million or 24.4% in fiscal 2000
when compared to the same period in fiscal 1999. This increase in inventory is
attributable to merchandise purchased in anticipation of increased sales.
Interest expense for the three months ended June 30, 2000 increased to 3.2% from
2.6% when compared to the three months ended June 30, 1999. This increase is due
to increased borrowings at a higher interest rate.
Net income from continued operations for the three months ended June 30, 2000
was $2,088,762, representing a 56% increase when compared to net income of
$1,335,745 for the comparable period in 1999. Net income including income from
discontinued operations during the comparable period in fiscal
7
<PAGE>
1999 was $14,132,206 which includes a one time gain of $12,796,461 (net of
taxes) which was realized from the sale of a majority interest in our e-commerce
subsidiary, The Fragrance Counter, Inc. This increase in net income is due
primarily to the reasons discussed above.
LIQUIDITY AND CAPITAL RESOURCES
We meet our working capital requirements from internally generated funds and
from a financing agreement with a consortium of banks led by Fleet Capital for
financing our accounts receivable and inventory. As of June 30, 2000, we had
$180,687,342 outstanding under our $185,000,000 bank line of credit. The loan is
collaterized by our 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 our option. The effective interest rate charged to us at
June 30, 2000 was 8.78% which, was based on a combination of 2.5% above the
Eurodollar rate and 3/4% above the prime rate. We utilize cash generated from
operations to reduce short-term borrowings, which in turn acts to increase loan
availability consistent with our financing agreement. On July 27, 2000, we
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 our Class A Common Stock at an exercise price of $4.50 per share. The
exercise price of the warrants is subject to increase if we meet certain
earnings and revenue targets. The warrants are subject to a put option under
which the investor has the right to put the warrants us after the fifth
anniversary of their issuance at a price of $8.00 per warrant.
Our accounts receivable increased to $97,300,059 at June 30, 2000 from
$45,448,145 at June 30, 1999 representing an increase of 114%. This increase in
accounts receivable is due to increased revenues during this period.
We have minimal capital investment requirements and any significant capital
expenditures are financed through long term lease agreements that would not
adversely impact cash flow. We believe that our internally generated funds and
our current and future bank line of credit will be sufficient to meet our
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 our business and we do
not believe it will have any significant affect on our future business. Our
fragrance business is seasonal, with greater sales during the Christmas season
then in other seasons. Our other product lines are not seasonal.
8
<PAGE>
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
-----------
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter ended
June 30, 2000.
9
<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: August 14, 2000
10
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description Page
------- ----------- ----
27.1 Financial Data Schedule
