UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended January 31, 1995
Commission File Number 2-96510-N.Y.
DRUG GUILD DISTRIBUTORS, INC.
(Exact name of Registrant as specified in its Charter)
New Jersey 11-2269958
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
350 Meadowland Parkway, Secaucus, New Jersey 07096
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 348-3700
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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 most recent practicable date:
As of January 31, 1995 there were outstanding 9,919,449 shares of the
Registrant's Common Stock, par value $1, and 37,216.29 shares of the
Registrant's Preferred Stock $100 par value.
Page 1 of 9 Pages
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
DRUG GUILD DISTRIBUTORS, INC.
BALANCE SHEETS
ASSETS
January 31, July 31,
1995 1994
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 23,804 $ 1,959,061
Trade Receivables - Stockholders 28,748,335 26,055,791
- Nonstockholders 38,108,257 31,845,966
Allowance for doubtful accounts - Nonstockholders (1,588,360) (1,256,391)
Merchandise inventory 46,307,142 34,862,779
Deferred income tax benefit 796,000 680,000
Prepaid expenses and other current assets 536,306 1,237,062
------------ ------------
Total Current Assets 112,931,484 95,384,268
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment 12,634,584 12,001,701
Less: Accumulated depreciation and amortization 9,507,411 9,034,811
------------ ------------
Depreciated cost 3,127,173 2,966,890
------------ ------------
OTHER ASSETS:
Trade receivables - noncurrent
portion - Stockholders 2,051,343 2,178,947
- Nonstockholders 2,719,223 2,663,158
Allowance for doubtful accounts (110,000) (110,000)
Deferred income tax benefit 318,035 362,035
Various other assets 217,165 223,600
------------ ------------
Total Other Assets 5,195,766 5,317,740
------------ ------------
TOTAL ASSETS $121,254,423 $103,668,898
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable, bank $ 45,883,377 $ 37,317,093
Notes payable 825,460 990,541
Accounts payable 52,724,712 41,977,608
Accrued expenses and taxes 1,131,360 1,179,485
------------ ------------
Total Current Liabilities 100,564,909 81,464,727
------------ ------------
LONG-TERM LIABILITIES:
Notes payable 700,340 885,875
Deferred compensation payable 647,842 672,323
------------ ------------
Total Long-Term Liabilities 1,348,182 1,558,198
------------ ------------
TOTAL LIABILITIES 101,913,091 83,022,925
------------ ------------
REDEEMABLE PREFERRED STOCK, $100 PAR VALUE
Authorized - 250,000 shares:
Issued and outstanding - 37,216.29 and
52,228.74 shares 3,721,629 5,222,874
Subscribed and unissued 10,500 10,500
------------ ------------
Total Before Subscriptions Receivable 3,732,129 5,233,374
Less: Subscription receivable 10,125 10,500
------------ ------------
Total Redeemable Preferred 3,722,004 5,222,874
------------ ------------
STOCKHOLDERS' EQUITY - NOTE 2
Common stock - $1 par value:
Authorized - 25,000,000 shares
Issued and outstanding - 9,919,449 and
9,883,114 shares 9,919,449 9,883,114
Subscribed and unissued 525,549 671,107
Additional paid-in capital 3,862,759 3,927,030
Retained earnings 2,498,821 2,446,248
------------ ------------
Total, before subscriptions receivable 16,806,578 16,927,499
Less: Subscriptions receivable 1,187,250 1,504,400
------------ ------------
Total Stockholders' Equity 15,619,328 15,423,099
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $121,254,423 $103,668,898
============ ============
See accompanying Notes to the Financial Statements.
Page 2
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
-------------------------- --------------------------
January 31, January 31,
-------------------------- --------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
NET SALES
Stockholders $ 54,747,477 $ 50,679,441 $109,887,766 $ 99,634,822
Nonstockholders 73,676,678 52,747,991 139,857,157 103,701,551
------------ ------------ ------------ ------------
TOTAL NET SALES 128,424,155 103,427,432 249,744,923 203,336,373
COST OF SALES:
Inventory, beginning of
period 35,296,734 28,267,776 34,862,779 39,936,840
Purchases 131,835,905 88,491,925 246,770,418 169,655,623
------------ ------------ ------------ ------------
167,132,639 116,759,701 281,633,197 209,592,463
Less: Inventory, end of
period 46,307,142 20,592,904 46,307,142 20,592,904
------------ ------------ ------------ ------------
COST OF SALES 120,825,497 96,166,797 235,326,055 188,999,559
------------ ------------ ------------ ------------
GROSS PROFIT 7,598,658 7,260,635 14,418,868 14,336,814
------------ ------------ ------------ ------------
OPERATING EXPENSES 6,224,480 6,069,489 11,948,570 11,759,390
INTEREST EXPENSE 1,300,834 698,316 2,382,675 1,521,656
------------ ------------ ------------ ------------
TOTAL EXPENSES 7,525,314 6,767,805 14,331,245 13,281,046
------------ ------------ ------------ ------------
INCOME BEFORE CORPORATE
TAXES 73,344 492,830 87,623 1,055,768
------------ ------------ ------------ ------------
PROVISION (CREDIT) FOR
CORPORATE TAXES:
Current 65,350 232,825 107,050 494,000
Deferred (36,000) (36,000) (72,000) (72,000)
------------ ------------ ------------ ------------
Total Provision for
Corporate Taxes 29,350 196,825 35,050 422,000
------------ ------------ ------------ ------------
NET INCOME 43,994 296,005 52,573 633,768
Less: Stock Dividend on
Preferred Stock (A) 70,455 95,836 148,865 191,672
------------ ------------ ------------ ------------
NET INCOME LOSS
ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ (26,461) 200,169 $ (96,292) 442,096
============ ============ ============ ============
EARNINGS (LOSS) PER
COMMON SHARE $.00 $.02 ($0.01) $.05
============ ============ ============ ============
AVERAGE NUMBER OF SHARES
OF COMMON STOCK
OUTSTANDING 9,896,096 9,652,595 9,857,216 9,588,206
============ ============ ============ ============
(A) Gives effect to pro-rata portion of 8% Preferred dividend payable each
July 31.
See accompanying Notes to the Financial Statements.
Page 3
DRUG GUILD DISTRIBUTORS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Six Months Ended
January 31, January 31,
--------------------------- ----------------------------
1995 1994 1995 1994
------------- ------------ ------------- -------------
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Income $ 43,994 $ 296,005 $ 52,573 $ 633,768
------------- ------------ ------------- -------------
Adjustment to
reconcile net income
to net cash
provided by (used
in) operating
activities:
Depreciation and
amortization 231,300 336,599 472,600 688,200
Deferred
compensation
payable (12,131) 45,759 (24,481) 91,518
(Increase) decrease
in:
Deferred income
taxes (36,000) (36,000) (72,000) (72,000)
Trade receivables,
net 220,250 (2,155,866) (9,460,488) (10,481,542)
Merchandise
inventory (11,010,408) 7,674,872 (11,444,363) 19,343,936)
Prepaid expenses
and other current
assets (95,743) (300,752) 700,756 (219,431)
Increase (decrease)
in:
Accounts payable 10,535,406 3,509,614) 10,747,104 (347,244)
Accrued expenses
and taxes 414,035 (441,125) (36,542) (289,675)
------------- ------------ ------------- -------------
Total adjustments 246,709 8,633,101 (9,117,414) 8,713,762)
------------- ------------ ------------- -------------
Net Cash Provided
By (Used In)
Operating
Activities 290,703 8,929,106 (9,064,841) 9,347,530
------------- ------------ ------------- -------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Disposal of Fixed
Assets -- 102,463 -- 102,463
Addition to property
and equipment (358,128) (163,108) (632,883) (282,386)
Decrease (increase)
in other assets 3,435 5,387 6,435 8,915)
------------- ------------ ------------- -------------
Net Cash Used In
Investing
Activities (354,693) (55,258) (626,448) (171,008)
------------- ------------ ------------- -------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Increase in notes
payable -- -- -- --
Repayment of notes
payable (173,194) (1,370,838) (362,199) (2,058,515)
Net increase
(decrease) in
short-term bank
debt 301,483 (7,728,664) 8,566,284 (8,697,163)
Collections on
common stock 155,650 243,804 321,150 496,490
Common stock
redeemed -- -- -- --)
Payment on preferred
stock -- 19,125 375 39,738
Preferred stock
redeemed (198,536) (40,208) (769,578) (66,085)
------------- ------------ ------------- -------------
Net Cash Provided
By (Used in)
Financing
Activities 85,403 (8,876,781) 7,756,032 (10,285,535
------------- ------------ ------------- -------------
NET DECREASE IN CASH 21,413 (2,933) (1,935,257) (1,109,013)
CASH:
Beginning of period 2,391 11,200 1,959,061 1,117,280
------------- ------------ ------------- -------------
End of period $ 23,804 $ 8,267 $ 23,804 $ 8,267
============= ============ ============= =============
SUPPLEMENTAL
DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the
period for:
Interest $ 1,300,834 $ 698,316 $ 2,382,675 $ 1,521,656
Income taxes $ -- $ 627,000 $ -- $ 647,000
SUPPLEMENTAL
SCHEDULE OF NONCASH
INVESTING & FINANCING
ACTIVITIES:
Reduction of accrued
expenses due to
issuance of notes
payable $ 5,863 $ 5,632 $ 11,583 $ 11,125
Accounts receivable
reduced for
redemptions of
common stock $ -- $ -- $ 177,495 $ 21,718
Accounts receivable
reduced for
redemptions of
preferred stock $ -- $ -- $ 731,666 $ --
See accompanying Notes to the Financial Statements.
Page 4
DRUG GUILD DISTRIBUTORS, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - FINANCIAL STATEMENTS:
These Financial Statements should be read in conjunction with the July 31, 1994
financial statements which describe all accounting policies.
NOTE 2 - REGISTERED PUBLIC OFFERING:
On June 10, 1991, the company's Registration Statement on Form S-2 filed with
the United States Securities and Exchange Commission (the "Registration
Statement") became effective. Pursuant to the Registration Statement, the
company will offer up to 4,500,000 shares of its common stock, $1 par value. A
Post-Effective Amendment was filed on August 31, 1994. The offering price of the
common stock being sold will be its FIFO book value (book value adjusted for
inventory and tax liabilities, stated as if the inventory was valued at the
lower of first-in, first-out cost or market) as of the close of the fiscal
quarter immediately preceding the sale. As of January 31, 1995, the FIFO book
value was $2.28 per share. The outstanding subscribed shares are included in the
accompanying financial statements based on the purchase price at that date. The
difference between the par value and the purchase price of subscribed common
shares has been credited to additional paid-in capital. Additional paid-in
capital at January 31, 1995 includes $663,691 on such uncollected subscriptions.
INFORMATION SUBJECT TO ADJUSTMENT:
While the information shown above is subject to adjustments on audit at the end
of the fiscal year, all adjustments which are in the opinion of Management
necessary for a fair statement of the results for the interim period have been
made.
-5-
DRUG GUILD DISTRIBUTORS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Condition at January 31, 1995 Compared to Financial Condition at
July 31, 1994. From July 31, 1994 to January 31, 1995, the Company's current
assets increased to $112,931,484 from $95,384,268 and its current liabilities
increased to $100,564,909 from $81,464,727. Such increase was attributable to
the Company's higher inventory purchases based upon anticipated price increases
in pharmaceuticals. Inventory as well as receivables increased as a result of
higher volume customers. The Company's ratio of current assets to current
liabilities remained substantially the same during the period, decreasing to
1.12:1 from 1.17:1.
The Company has an accounts receivable and inventory financing arrangement
with a bank under which it can borrow up to 70% of its eligible accounts
receivable and up to 40% of its eligible inventory, as defined.
As of January 31, 1995, there were $58,671,000 of such eligible accounts
receivable out of a total of $62,851,000 or 93% and $54,703,000 of eligible
inventory, an amount in excess of 99% of total inventory. The maximum amount of
borrowing with respect to its inventory pursuant to such Agreements is
$24,000,000. The combined borrowing limit for accounts receivable and inventory
is $65,000,000. Such limit is determined by the bank and may be raised or
lowered by the bank at its discretion.
Total borrowings upon the line of credit equaled $45,883,000 on January 31,
1995. On such date the interest rate with respect to such financing was the
prime interest rate plus 1-1/4% (10-1/4%).
-6-
Inflation. The Company attempts to pass along price increases from its
suppliers as soon as it is notified of those increases so as to preserve its
gross profit margin and, subject to competitive pressures on particular
products, is generally successful in doing so. Accordingly, the historical
effect of inflation has been to increase the Company's revenues and profits.
Three Months Ended January 31, 1995 Compared to Three Months Ended January
31, 1994. Sales for the three months ended January 31, 1995 increased by 24.1%
over those for the 1994 period. Approximately 25% of this increase was
attributable to price increases and the balance to an increase in volume.
Gross profit for the period increased by 4.7% from gross profit for the
1994 period. Gross profit as a percentage of sales decreased to 5.90% from 7.0%
as a result of competitive pressures
Total expenses for 1995 increased by 11.1% over such expenses for 1994.
Operating expenses (excluding interest expense) for the 1995 period were up
approximately 2.5% as compared to the 1994 period. Increased warehouse expense
as a result of higher volume were the primary reason for the increase in
expenses.
Interest expense increased 86.3% on higher average borrowings for higher
sales volume requiring higher receivables and inventory. In addition, interest
rates were significantly higher.
The effect of the foregoing factors was that the Company's income before
corporate taxes for the three months ended January 31, 1995 experienced a 85.1%
decrease from the same period in 1994. Income taxes were 85.1% lower than the
same period in 1994 resulting from the lower income.
-7-
Six Months Ended January 31, 1995 Compared to
Six Months Ended January 31, 1994:
Sales for the six months ended January 31, 1995 increased by 22.8% over
those for the 1994 period. Approximately 25% of this increase was attributable
to price increases and the balance to an increase in volume. The number of
stores serviced increased 15% to approximately 800.
Gross profit for the six months increased by 0.6% from the gross profit for
the 1994 period as a result of higher volume. Gross profit as a percentage of
sales decreased to 5.77% from 7.05% as a result of competitive pressures.
Total expenses for 1995 increased by 7.9% over such expenses for 1994.
Operating expenses (excluding interest expense) for the 1995 period were up 1.6%
as compared to 1994.
Interest expense increased 56.5% due to higher interest rates as well as
borrowing for higher receivables and inventory due to increased volume.
The effect of the foregoing factors was that the Company's income before
corporate taxes for the six months ended January 31, 1995 experienced a 92%
decrease from the same period in 1994. Income taxes were 92% lower than the
same period in 1994 resulting from the lower income.
-8-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be executed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 11, 1995
DRUG GUILD DISTRIBUTORS, INC.
By /s/ Jay Reba
Jay Reba, Vice President of Finance
(Duly authorized officer and
principal financial officer)
-9-