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, 1996
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, N.J. 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 or 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, 1996 there were outstanding 10,070,300 shares of the
Registrant's Common Stock, par value $1, and 29,584.98 shares of the
Registrant's Preferred Stock $100 par value.
Page 1 of 8 Pages
Part 1- Financial Information
Item 1.Financial Statements
DRUG GUILD DISTRIBUTORS, INC.
BALANCE SHEETS
ASSETS
January 31, July 31,
1996 1995
CURRENT ASSETS: (unaudited)
Cash ....................................... $ 10,192 $ 2,022,564
Trade Receivables-Stockholders ............. 31,276,448 26,535,603
Nonstockholders ..... 42,838,358 36,713,630
Allowance for doubtful accounts ............ (1,322,678) (1,123,467)
Merchandise Inventory ...................... 26,737,490 38,896,026
Deferred income tax benefit ................ 788,000 788,000
Prepaid expenses and other current assets .. 911,906 791,033
------------ ------------
Total Current Assets .............. 101,239,716 104,623,389
------------ ------------
PROPERTY AND EQUIPMENT:
Property and equipment...................... 14,001,932 13,407,078
Less: Accumulated depreciation and
amortization.............................. 10,491,145 10,065,778
------------ ------------
Depreciated Cost.......................... 3,510,787 3,341,300
------------ ------------
OTHER ASSETS:
Trade Receivables-noncurrent portion-
Stockholders......... 2,132,532 2,160,614
Nonstockholders...... 2,920,862 2,914,479
Allowance for doubtful accounts ............ (460,000) (460,000)
Deferred income tax benefit ................ 246,035 246,035
Various other assets ....................... 436,037 440,223
------------ ------------
Total Other Assets ....................... 5,275,466 5,301,351
------------ ------------
TOTAL ASSETS $110,025,969 $113,266,040
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Loans payable, bank ......................... $49,190,467 $53,175,440
Notes payable ............................... 569,707 772,059
Accounts payable ............................ 39,693,415 37,462,754
Accrued expenses and taxes .................. 1,538,931 1,832,283
------------ ------------
Total Current Liabilities ................. 90,992,520 93,242,536
------------ ------------
LONG TERM LIABILITIES
Notes payable ............................... 470,000 501,151
Deferred compensation payable ............... 597,268 623,249
------------ ------------
Total Long-Term Liabilities ............... 1,067,268 1,124,400
------------ ------------
TOTAL LIABILITIES ............................. 92,059,788 94,366,936
------------ ------------
REDEEMABLE PREFERRED STOCK, $100 PAR VALUE
Authorized-250,000 shares
Issued and outstanding-30,102.58 and
39,326.46 shares......................... 2,958,498 3,932,646
------------ ------------
STOCKHOLDERS' EQUITY-NOTE 2
Common stock- $1 par value
Authorized 25,000,000 shares
Issued and outstanding-10,070,300
and 9,999,834 shares..................... 10,070,300 9,999,834
Subscribed and unissued ................... 358,125 424,766
Additional paid-in capital................. 3,784,326 3,791,151
Retained earnings. ........................ 1,539,832 1,650,307
------------ ------------
Total, before subscriptions receivable... 15,752,583 15,866,058
Less: Subscriptions receivable .............. 744,900 899,600
------------ ------------
Total Stockholders' Equity................. 15,007,683 14,966,458
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $110,025,969 $113,266,040
============ ============
See accompanying Notes to the Financial Statement
-2-
DRUG GUILD DISTRIBUTORS , INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
January 31 January 31
1996 1995 1996 1995
NET SALES
Stockholders .................................. $ 55,431,734 $ 54,747,477 $ 109,524,763 $ 109,887,766
Nonstockholders ............................... 75,379,616 73,676,678 149,186,981 139,857,157
------------- ------------- ------------ -------------
TOTAL NET SALES .................................... 130,811,350 128,424,155 258,711,744 249,744,923
------------- ------------- ------------ -------------
COST OF SALES:
Inventory, beginning of period ..................... 31,861,047 35,296,734 38,896,026 34,862,779
Purchases .......................................... 118,867,790 131,835,905 232,714,853 246,770,418
------------- ------------- ------------ -------------
150,728,837 167,132,639 271,610,879 281,633,197
Less: Inventory, end of period ..................... 26,737,490 46,307,142 26,737,490 46,307,142
------------- ------------- ------------ -------------
COST OF SALES ...................................... 123,991,347 120,825,497 244,873,389 235,326,055
------------- ------------- ------------ -------------
GROSS PROFIT ....................................... 6,820,003 7,598,658 13,838,355 14,418,868
------------- ------------- ------------ -------------
OPERATING EXPENSES ................................. 5,704,285 6,224,480 11,647,665 11,948,570
INTEREST EXPENSE ................................... 1,192,301 1,300,834 2,520,165 2,382,675
------------- ------------- ------------ -------------
TOTAL EXPENSES ..................................... 6,896,586 7,525,314 14,167,830 14,331,245
------------- ------------- ------------ -------------
INCOME (LOSS) BEFORE CORPORATE TAXES ............. (76,583) 73,344 (329,475) 87,623
------------- ------------- ------------ -------------
PROVISION (CREDIT) FOR CORPORATE TAXES:
Current ....................................... (139,000) 65,350 (219,000) 107,050
Deferred ...................................... 21,000 (36,000) 0 (72,000)
------------- ------------- ------------ -------------
Total Provision (Credit) for Corporate
Taxes................................... (118,000) 29,350 (219,000) 35,050
------------- ------------- ------------ -------------
NET INCOME (LOSS) .................................. 41,417 43,994 (110,475) 52,573
Less: Stock Dividend on Preferred Stock(A) ......... 60,205 70,455 120,410 148,865
------------- ------------- ------------ -------------
NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS ........................... $ (18,788) $ (26,461) $ (230,885) $ (96,292)
============= ============= ============ =============
LOSS PER COMMON SHARE ............................. $0.00 $0.00 ($0.02) ($0.01)
============= ============= ============ =============
AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING ...................... 10,059,534 9,896,096 10,042,999 9,857,216
------------- ------------- ------------ -------------
(A) Gives effect to pro-rata portion of 8% Preferred dividend payable
each July 31.
See accompanying Notes to the Financial Statement
-3-
DRUG GUILD DISTRIBUTORS , INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended Six Months Ended
January 31 January 31
1996 1995 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ............................................... $ 41,417 $ 43,994 $ (110,475) $ 52,573
---------- ----------- ----------- -----------
Adjustment to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .............................. 179,367 231,300 425,367 472,600
Deferred compensation payable .............................. (13,118) (12,131) (25,981) (24,481)
(Increase) decrease in:
Deferred income taxes ...................................... 21,000 (36,000) -- (72,000)
Trade receivables, net ..................................... (3,943,352) 220,250 (10,644,663) (9,460,488)
Merchandise inventory ...................................... 5,123,557 (11,010,408) 12,158,536 (11,444,363)
Prepaid expenses and other current assets .................. (145,023) (95,743) (120,873) 700,756
Increase (decrease) in:
Accounts payable ........................................... 1,841,848 10,535,406 2,230,661 10,747,104
Accrued expenses and taxes ................................. (325,977) 414,035 (272,159) (36,542)
---------- ----------- ----------- -----------
Total adjustments .......................................... 2,738,302 246,709 3,750,888 (9,117,414)
---------- ----------- ----------- -----------
Net Cash Provided by (Used In)
Operating Activities .............................. 2,779,719 290,703 3,640,413 (9,064,841)
---------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ............................ (358,774) (358,128) (594,854) (632,883)
Decrease in other assets ....................................... 8,861 3,435 4,186 6,435
---------- ----------- ----------- -----------
Net Cash Used In Investing Actitvities .............. (349,913) (354,693) (590,668) (626,448)
---------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable ...................................... (119,000) (173,194) (254,696) (362,199)
Net increase (decrease) in short-term bank debt ................. (2,320,613) 301,483 (3,984,973) 8,566,284
Collections on common stock ..................................... 64,750 155,650 151,700 321,150
Collections on preferred stock .................................. -- -- -- 375
Preferred stock redeemed ........................................ (51,760) (198,536) (974,148) (769,578)
---------- ----------- ----------- -----------
Net Cash Provided By (Used In)
Financing Activities............................... (2,426,623) 85,403 (5,062,117) 7,756,032
---------- ----------- ----------- -----------
NET (INCREASE) DECREASE IN CASH ...................................... 3,183 21,413 (2,012,372) (1,935,257)
CASH:
Beginning of period ............................................. 7,009 2,391 2,022,564 1,959,061
---------- ----------- ----------- -----------
End of period ................................................... $ 10,192 $23,804 $ 10,192 $ 23,804
========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid in the period for:
Interest ................................................... $ 1,298,983 $ 1,300,834 $ 2,752,324 $ 2,382,675
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING & FINANCING ACTIVITIES:
Reduction of accrued expenses due to issuance of notes payable... $ 11,134 $ 5,863 $ 21,193 $ 11,583
Accounts receivable reduced for redemptions of common stock ..... -- -- -- $ 177,495
Accounts receivable reduced for redemptions of preferred stock... -- -- -- $ 731,666
Accounts receivable reduced for cancellation of common stock .... -- -- -- --
See accompanying Notes to Financial Statements
-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, 1995
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 first-in, first-out cost or market) as of the close of the fiscal quarter
immediately preceding the sale. As of Janauary 31,1996, the FIFO book value was
$2.08 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, 1996 includes $386,715 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, 1996 Compared to Financial Condition at
July 31, 1995.
From July 31, 1995 to January 31, 1996, the Company's current assets
decreased to $101,239,716 from $104,623,389 and its current liabilities
decreased to $90,992,520 from $93,242,536. Such decrease was attributable to
the Company's lower inventory purchases. The Company's bank loan also decreased
during this period. The Company's ratio of current assets to current
liabilities remained substantially the same during the period, decreasing to
1.11:1 from 1.12:1.
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 50% of its eligible inventory, as defined.
As of January 31, 1996, there were $62,736,000 of such eligible accounts
receivable out of a total of $69,033,000, or 91%, and $37,529,000 of eligible
FIFO 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
$30,000,000. The combined borrowing limit for accounts receivable and inventory
is $80,000,000. 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 $49,190,467 on January
31, 1996. On such date the interest rate with respect to such financing was the
prime rate plus 1-1/4% (9 3/4%).
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.
-6-
Three Months Ended January 31, 1996 Compared to Three Months Ended January 31,
1995.
Net sales for the three months ended January 31, 1996 increased by 1.8%
over those for the 1995 period. This increase was attributable to price
increases. The number of stores remained unchanged at approximately 800.
Gross profit for the period decreased by 10.2% from gross profit for the
1995 period. Gross profit as a percentage of sales decreased to 5.2% down from
5.9%.
Total expenses for 1996 decreased by 0.8% over such expenses for 1995.
Operating expenses (excluding interest expense) for the 1996 period were down
approximately 0.8% as compared to the 1995 period.
Interest expense decreased 0.8% on lower average borrowings due to
decreased inventory.
Six Months Ended January 31, 1996 Compared to Six Months Ended January 31, 1995.
Gross profit for the six months decreased by 4.0% from the gross profit for
the 1995 period. Gross profit as a percentage of sales decreased to 5.3% from
5.8% as a result of competitive pressures.
Total expenses for 1996 remained relatively unchanged over such expenses
for 1995. Operating expenses (excluding interest expense) for the 1996 period
were up 2.5% as compared to 1995.
Interest expenses increased 5.8% due to higher borrowing due to slower
payments on receivables.
-7-
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 15, 1996
DRUG GUILD DISTRIBUTORS, INC.
By /s/ Jay Reba
----------------------------------
Jay Reba,Vice President of Finance
(Duly authorized officer and
principal financial officer)
-8-