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, 1999.
------------------
__ 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 February 8, 2000
- ------------------------------------ ----------------
Class A Common Stock, $.001 par value 5,475,326
=========
Class B Common Stock, $.001 par value 1,200,000
=========
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheet as of December 31, 1999 (unaudited)
and March 31, 1999...................................................3
Consolidated Statement of Income and Retained Earnings (unaudited) for
the Nine Month Periods Ended December 31, 1999 and 1998...............4
Consolidated Statement of Income and Retained Earnings (unaudited) for
the Three Month Periods Ended December 31, 1999 and 1998.............5
Consolidated Statement of Cash Flows for the Nine Month Periods
Ended December 31, 1999 and 1998......................................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 4. Submission of Matters to a Vote of Security Holders.........10
Item 6. Exhibits and Reports on Form 8-K............................10
SIGNATURES....................................................................12
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
(Unaudited)
------------ --------
Current Assets
<S> <C> <C>
Cash $ 67,427 $ 400,090
Accounts Receivable (less allowance for
doubtful accounts of $1,502,932 at December 31,
1999 and $1,615,965 at March 31, 1999) 65,239,452 50,162,450
Inventories 166,797,066 122,917,911
Prepaid Purchases 2,888,543 24,682,481
Note Receivable 8,500,000 - 0 -
Other Current Assets 3,675,577 12,876,642
------------- ------------
Total Current Assets $247,168,065 $211,039,574
Property and Equipment, Less Accumulated Depreciation 3,729,320 3,839,906
Other Assets 5,881,395 5,027,901
------------- -------------
TOTAL ASSETS $256,778,780 $219,907,381
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Amounts Due Bank $144,799,151 $123,371,228
Current Portion of Long-Term Debt 753,086 707,652
Accounts Payable and Accrued Expenses 25,052,307 33,936,223
Income Taxes Payable 3,046,936 - 0 -
Deferred Income Taxes 3,230,000 832,000
------------- ------------
Total Current Liabilities $176,881,480 $158,847,103
----------- -----------
Long Term Liabilities
Long-Term Debt, Less Current Portion 1,171,310 724,234
------------- -------------
Total Long Term Liabilities 1,171,310 724,234
------------- -------------
TOTAL LIABILITIES $178,052,790 $159,571,337
----------- -----------
Commitments and Contingencies
Stockholders' Equity
Preferred Stock, $.001 par value, 1,000,000 shares authorized, none issued
and outstanding. $ -0- $ -0-
Class A Common Stock, $.001 par value;
15,000,000 shares authorized;
5,475,326 and 5,339,122 shares issued and
outstanding at December 31, 1999 and March 31, 1999 5,475 5,339
Class B Common Stock, $.001 par value;
2,200,000 shares authorized;
1,200,000 shares issued and outstanding
at December 31, 1999 and March 31, 1999 1,200 1,200
Additional Paid-In Capital 30,234,748 29,956,769
Retained Earnings 48,484,567 30,372,736
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 78,725,990 60,336,044
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $256,778,780 $219,907,381
=========== ===========
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
For The Nine Months Ended
December 31,
1999 1998
---- ----
Revenues $287,252,976 $245,305,221
Costs of Revenues 248,182,714 212,737,301
----------- -----------
Gross Profit 39,070,262 32,567,920
------------ ------------
Operating Expenses
Warehouse and Delivery 8,789,206 7,584,323
Selling, General and Administrative 14,547,707 10,110,390
------------ ------------
Total Expenses 23,336,913 17,694,713
------------ ------------
Income From Operations 15,733,349 14,873,207
------------ ------------
Other Charges (Credits)
Interest Expense 7,672,785 7,663,451
Other - 0 - ( 4,380)
Interest Income ( 512,598) - 0 -
-------------- ------------------
Total 7,160,187 7,659,071
------------- -------------
Income From Operations Before Income Taxes 8,573,162 7,214,136
Provision for Income Taxes 3,257,792 2,805,183
------------- -------------
Income From Continuing Operations 5,315,370 4,408,953
Loss From Discontinued Operations
Net of Income Taxes ( 516,764) ( 3,720,930)
Gain on Disposal of Segment Net of Income Taxes 13,313,225 1,830,000
------------ -------------
NET INCOME $ 18,111,831 $ 2,518,023
RETAINED EARNINGS - BEGINNING 30,372,736 29,024,881
------------ ------------
RETAINED EARNINGS - ENDING $ 48,484,567 $ 31,542,904
============ ============
Earnings (Loss) Per Common Share
Basic:
Continuing Operations $ .80 $.75
Discontinued Operations 1.92 (.32)
---- ---
Net Income $2.72 $.43
==== ===
Diluted:
Continuing Operations $ .73 $.68
Discontinued Operations 1.76 (.29)
---- ---
Net Income $2.49 $.39
==== ===
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
For The Three Months Ended
December 31,
1999 1998
---- ----
Revenues $108,094,099 $87,998,697
Costs of Revenues 93,652,322 76,736,319
------------ ----------
Gross Profit 14,441,777 11,262,378
------------ ----------
Operating Expenses
Warehouse and Delivery 3,230,915 2,711,243
Selling, General and Administrative 5,445,090 3,161,510
------------- -----------
Total Expenses 8,676,005 5,872,753
------------- -----------
Income From Operations 5,765,772 5,389,625
------------- -----------
Other Charges (Credits)
Interest Expense 2,855,668 2,650,714
Other - 0 - ( 4,380)
Interest Income ( 180,625) - 0 -
-------------- ----------------
Total 2,675,043 2,646,334
------------- -----------
Income From Operations Before Income Taxes 3,090,729 2,743,291
Provision for Income Taxes 1,174,796 1,058,553
------------- -----------
Income From Continuing Operations 1,915,933 1,684,738
Loss From Discontinued Operations
Net of Income Taxes - 0 - ( 1,930,611)
Gain on Disposal of Segment Net of Income Taxes - 0 - 1,830,000
------------------ -----------
NET INCOME $ 1,915,933 $ 1,584,127
RETAINED EARNINGS - BEGINNING 46,568,634 29,958,777
------------ ----------
RETAINED EARNINGS - ENDING $ 48,484,567 $31,542,904
============ ==========
Earnings (Loss) Per Common Share
Basic:
Continuing Operations $ .29 $.28
Discontinued Operations - 0 - (.01)
----- ---
Net Income $ .29 $.27
==== ===
Diluted:
Continuing Operations $ .27 $.26
Discontinued Operations - 0 - (.02)
----- ---
Net Income $ .27 $.24
==== ===
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
ALLOU HEALTH & BEAUTY CARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
December 31,
1999 1998
---- ----
Cash Flows From Operating Activities
Net Income $18,111,827 $ 2,518,023
Adjustments to Reconcile Net Income to Net Cash
Used in Operating Activities:
Depreciation and Amortization 586,872 584,820
Deferred Income Taxes 2,398,000 1,140,000
Decrease (Increase) In Assets:
Accounts Receivable (15,077,002) (26,074,516)
Inventories (43,879,155) (12,470,235)
Prepaid Purchases and Other Assets 29,900,406 3,150,284
Note Receivable ( 8,500,000) - 0 -
Increase (Decrease) In Liabilities:
Accounts Payable and Accrued Expenses ( 8,883,916) 6,557,127
Income Taxes Payable 3,046,936 -0-
----------- ----------------
Net Cash Used In Operating Activities (22,296,032) (24,594,497)
---------- ----------
Cash Flows Used in Investing Activities
Acquisition of Property and Equipment ( 911,929) ( 1,082,592)
Disposition of Property and Equipment 676,750 - 0 -
------------ ----------------
Net Cash Used in Investing Activities ( 235,179) ( 1,082,592)
------------ -----------
Cash Flows From Financing Activities
Net Increase in Amounts Due Bank 21,427,923 20,381,485
Borrowings 1,119,889 108,704
Repayment of Debt ( 627,379) ( 541,530)
Sale of Capital Stock 278,115 6,127,779
------------ -----------
Net Cash Provided By Financing Activities 22,198,548 26,076,438
---------- ----------
INCREASE (DECREASE) IN CASH ( 332,663) 399,349
CASH AT BEGINNING OF PERIOD 400,090 46,675
------------ -------------
CASH AT END OF PERIOD $ 67,427 $ 446,024
============= ============
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest $ 7,620,083 $ 7,583,564
Income Taxes $ 4,107,000 $ 1,474,304
</TABLE>
During the nine months ended December 31, 1999 and 1998, the Company issued
notes for $1,119,889 and $108,704, 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, 1999. 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, 1999.
2. On April 23, 1999, the Company sold 69% of its interest in The Fragrance
Counter Inc. for net proceeds of $11,296,584 in cash and $8,900,000 in notes,
bearing interest at 3/8% above the prime rate, $400,000 was due and paid in
July 1999 and $8,500,000 is due in April 2000 plus accrued interest. The
Company retains a 13% minority interest. As a result of the disposition, the
Company recognized a gain of $21,472,225 and has provided for $8,159,000 of
related taxes of which $3,230,000 has been deferred to fiscal 2001, when the
$8,500,000 note is due.
The consolidated statements of income for the nine months and three
months period ended December 31, 1999 have been restated to segregate the net
results of continued and discontinued operations.
3. On January 4, 2000, the Company purchased the intangible assets of Tri-State
Pharmaceutical Consultants Corp., a pharmaceutical wholesaler, for cash and
stock. The Company also entered into an employment contract with Tri-State's
principal.
4. On February 8, 2000, the Company entered into an agreement whereby it
obtained a 50% interest in Discreet Medical Solutions, LLC, a company formed to
create an internet portal to provide on-line delivery of certain medical
products and content.
5. 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.
Nine Months Ended
December 31,
1999 1998
---- ----
Basic 6,647,793 5,867,040
Assumed exercise of stock options 609,156 621,061
---------- ----------
Diluted 7,256,949 6,488,101
========= =========
Three Months Ended
December 31,
1999 1998
---- ----
Basic 6,659,853 5,960,387
Assumed exercise of stock options 407,981 508,577
---------- ----------
Diluted 7,067,834 6,468,964
========= =========
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>
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, 1999 AND 1998.
Revenues for the nine months ended December 31, 1999 were $287,252,976
representing a 17.1% increase over revenues of $245,305,221 for the nine
months ended December 31, 1998.
Contributions to this increase in revenues by product segment are as
follows:
. Health and beauty aids increased 6.5% 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 7.3% when compared to the same
period in the prior year due to an expanded customer base, increases
in same store sales and revenue contributions from the Company's
wholly-owned subsidiary Direct Fragrances, Inc. which together has
caused an increase in the volume of products sold.
. Nationally advertised non-perishable branded food products increased
12.1% when compared to the same period in the prior year due to
increased levels of promotional food products offered to the Company
by manufacturers during this period.
. Sales of pharmaceutical products increased 64.2% when compared to the
same period in the prior year. This increase is due to an increase of
products sold to an expanded customer base. On December 13, 1999 the
Company announced the acquisition of Tri-State Pharmaceutical Corp. a
wholesaler and dealer of prescription pharmaceuticals which has since
been fully integrated into the Company's operations.
. Sales of the Company's manufacturing wholly-owned subsidiaries Allou
Personal Care Corp. and Stanford Personal Care Corp. grew 209% when
compared to the same period in the prior year as a result of an
expanded customer base.
Gross profit as a percentage of revenues increased to 13.6% for the nine
months ended December 31, 1999 when compared to 13.5% 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
decreased as a percentage of sales to 8.1% for the nine months ended
December 31, 1999 from 9.9% when compared to the same period in the prior
year. This decrease in operating expenses is due to non-recurring
expenses associated with the Company's former wholly owned subsidiary The
Fragrance Center, Inc.
Inventories increased by approximately $43.9 million or 35.7% at December
31, 1999 when compared to the fiscal year ended March 31, 1999. This
increase in inventory was attributable to merchandise purchased in
anticipation of increased sales.
Increased expenses as a percentage of sales for the nine months ended
December 31, 1999 decreased to 2.5% from 3.2% for the same period in the
prior year.
Net income for the nine months ended December 31, 1999 was $18,111,827
which includes a one time gain of $12,796,461 (net of taxes) realized
from the sale of a majority interest in the Company's e-commerce
subsidiary, The Fragrance Counter, Inc. Net income from operations fo
-8-
<PAGE>
the nine months ended December 31, 1999 was $5,315,380 representing a
111% increase over net income of $2,518,023 for the comparable period in
1998. This increase in net income is due primarily to the reasons
discussed above.
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999 AND 1998.
Revenues for the three months ended December 31, 1999 were $108,094,099
representing a 13.5% increase over revenues of $87,998,697 for the three
months ended December 31, 1998.
The increase in revenues is 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 were as
follows:
. Sales of health and beauty aides increased 3.3% when compared to sales
in the same period in the prior year. Sales of Prestige Designer
Fragrances increased 13.8% when compared to sales in the same period
of the prior year. Sales of nationally advertised non-perishable food
products decreased 22% due to a limited availability of off-price
non-perishable branded foods that were made available during this
period. Sales of pharmaceutical products increased 117% when compared
to the same period in the prior year. The Company's manufacturing
subsidiaries Allou Personal Care Corp. and Stanford Personal Care
Corp. had increased sales of 331% when compared to the same period in
the prior year.
Gross profit as a percentage of sales increased to 13.5% for the three
months ended December 31, 1999 from 12.8% for the three months ended
December 31, 1998. This increase was 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, 1999
decreased to 8.0% from 10.5% for the same period in the prior year. This
decrease is attributable to non-recurring marketing costs associated
with the Company's former subsidiary The Fragrance Counter.
Interest expenses as a percentage of sales for the three months ended
December 31, 1999 decreased to 2.5% from 3.1% in the comparable period
of the prior year.
Net income for the three months ended December 31, 1999 was $1,915,935
a compare to a net loss of $245,873 for the comparable period in
1998. The increase in net income was due primarily to the reasons
discussed above.
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 31,1999, the
Company had $144,799,151 outstanding under its $163.5 million 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
1/4% 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 December 31, 1999 was 7.65% which was based on a combination
of 2% above the Eurodollar rate and 1/4% 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.
-9-
<PAGE>
The Company's accounts receivable has decreased to $65,239,452 at
December 31, 1999 from $70,192,427 at December 31,1998. This decrease in
accounts receivable is due to increased sales for the period and
collections of receivables turning at 55 days as compared to 69 days
during the three months ended December 31, 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 its internally generated funds and bank line of credit
will be sufficient to meet its currently anticipated cash and capital
needs through the fiscal year ending March 31, 2000.
INFLATION AND SEASONALITY
Inflation has not had any significant adverse effects on the Company's
business and the Company does not believe it will not have any significant
effect on its future business. The Company's fragrance business is seasonal with
greater sales in the Christmas season then in other seasons. The Company's other
product lines are not seasonal.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On September 14, 1999, 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, Herman Jacobs, Jack
Jacobs, David Shamilzadeh, Ramon Montes, Sol Naimark and Jeffrey Berg 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 10,433,941 430,585
Herman Jacobs 10,433,941 431,085
Jack Jacobs 10,433,941 431,085
David Shamilzadeh 10,455,716 408,810
Ramon Montes 10,436,716 427,810
Sol Naimark 10,427,016 437,510
Jeffrey Berg 10,428,216 436,310
Second, the approval of an amendment to the Company's 1996 Stock Option
Plan. There were 6,616,690 votes cast "for" the matter and 1,300,784 votes
cast "against" the matter.
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 September 30, 1998.
-10-
<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, 2000
-11-
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
------ ----------- ---
27.1 Financial Data Schedule
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000846538
<NAME> ALLOU HEALTH AND BEAUTY CARE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Mar-31-2000
<PERIOD-START> Apr-1-1999
<PERIOD-END> Dec-31-1999
<CASH> 67,427
<SECURITIES> 0
<RECEIVABLES> 66,742,384
<ALLOWANCES> 1,502,932
<INVENTORY> 166,797,066
<CURRENT-ASSETS> 247,168,065
<PP&E> 8,320,694
<DEPRECIATION> 4,591,364
<TOTAL-ASSETS> 256,778,780
<CURRENT-LIABILITIES> 176,881,480
<BONDS> 0
0
1,200
<COMMON> 5,475
<OTHER-SE> 78,717,315
<TOTAL-LIABILITY-AND-EQUITY> 256,778,780
<SALES> 287,252,976
<TOTAL-REVENUES> 287,252,976
<CGS> 248,182,714
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,824,315
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,672,785
<INCOME-PRETAX> 8,573,162
<INCOME-TAX> 3,257,792
<INCOME-CONTINUING> 5,315,370
<DISCONTINUED> 1,279,461
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,111,831
<EPS-BASIC> 2.72
<EPS-DILUTED> 2.49
</TABLE>
