================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             -----------------------
                                    FORM 10-K

  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
                                     OF 1934
                    FOR THE FISCAL YEAR ENDED MARCH 31, 2002.

                         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 of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

50 EMJAY BOULEVARD, BRENTWOOD, NEW YORK                   11717
---------------------------------------            -------------------
(Address of Principal Executive Offices)                (Zip Code)

                                 (631) 273-4000
               Registrant's Telephone Number, Including Area Code

           Securities registered pursuant to Section 12(b) of the Act:

      Title of Each Class              Name of Each Exchange on Which Registered
      -------------------              -----------------------------------------
     Class A Common Stock,                     American Stock Exchange
  par value $.001 per share

        Securities registered pursuant to Section 12(g) of the Act: None

     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 by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best  of  the  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. X .

     The  aggregate  market value of the Class A Common Stock of the  registrant
held by non-affiliates of the registrant on June 25, 2002 was $46,521,488.  Such
aggregate  market value is computed by  reference to the closing  sales price of
the Class A Common  Stock on such date.  For purposes of this  calculation,  the
registrant  has excluded the Class B Common  Stock,  which is held  primarily by
affiliates and is not publicly-traded.

     As of the  close of  business  on June 25,  2002,  there  were  outstanding
6,104,300 shares of the  registrant's  Class A Common Stock and 1,200,000 shares
of the registrant's Class B Common Stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain  portions  of the  Registrant's  Proxy  Statement  relating  to the
Registrant's  2002 Annual Meeting of Stockholders  are incorporated by reference
into Part III of this Form 10-K.

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<PAGE>

<TABLE>
<CAPTION>

                                             TABLE OF CONTENTS

                                                                                                        Page
                                                                                                        ----
<S>        <C>                                                                                            <C>
Cautionary Statement.......................................................................................1

                                                        PART I

Item 1.    Business........................................................................................1
Item 2.    Properties......................................................................................6
Item 3.    Legal Proceedings...............................................................................6
Item 4.    Submission of Matters to a Vote of Security Holders.............................................6

                                                       PART II

Item 5.    Market for Registrant's Common Equity and Related Stockholder Matters...........................7
Item 6.    Selected Financial Data.........................................................................9
Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations..........11
Item 8.    Financial Statements and Supplementary Data....................................................18
Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........18

                                                       PART III

Item 10.   Directors and Executive Officers Of the Registrant.............................................19
Item. 11.  Executive Compensation.........................................................................19
Item 12.   Security Ownership of Certain Beneficial Owners and Management.................................19
Item 13.   Certain Relationships and Related Transactions.................................................19

                                                       PART IV

Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................19

</TABLE>


                                      -i-

<PAGE>

     UNLESS THE CONTEXT OTHERWISE REQUIRES, ALL REFERENCES TO "WE," "US," "OUR,"
"ALLOU" OR THE  "COMPANY"  INCLUDE  ALLOU  HEALTH & BEAUTY  CARE,  INC.  AND OUR
SUBSIDIARIES.

                              CAUTIONARY STATEMENT

     CAUTIONARY  STATEMENT FOR PURPOSES OF THE "SAFE  HARBOR"  PROVISIONS OF THE
PRIVATE  SECURITIES  LITIGATION REFORM ACT OF 1995:  Certain  statements in this
report, in particular "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operation" and "Item 1. Business" are "forward  looking
statements"  within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements,  which may
include  words such as "expect,"  "believe,  "anticipate,"  "estimate,"  "plan,"
"project,"  "strategy"  and "intend,"  involve  certain known and unknown risks,
uncertainties  and other factors that may cause the  statements to be materially
different from actual future results.  These factors include,  among others: the
competitive  environment  in  the  consumer  health  and  beauty  aids  products
industries;  the availability of financing to fund the anticipated growth of our
business; changes in consumer preferences and demographics;  and the integration
of any acquired business and operations.


                                      -ii-

<PAGE>

                                     PART I

ITEM 1.   BUSINESS.

GENERAL

     We   distribute   consumer   personal   care   products  and   prescription
pharmaceuticals  on a national basis. We also manufacture  upscale hair and skin
care products for sale under private labels. Our consumer personal care products
distribution  business includes prestige brand name designer  fragrances,  brand
name health and beauty aids products and non-perishable packaged food items. Our
prescription  pharmaceuticals distribution business includes both brand name and
generic pharmaceutical products.

     We distribute  approximately  22,000 SKUs of branded  consumer  products to
approximately  4,200  independent  retailers,  and to  over  140  national  mass
merchandisers including Sears Roebuck & Co., Wal-Mart, J.C. Penney, Target, CVS,
and Walgreens. We believe that products distributed by us are sold in a total of
over 15,000 retail stores. In the three fiscal years since the fiscal year ended
March 31, 1999, our revenues have grown by  approximately  69% through  internal
growth and strategic  acquisitions,  which have enabled us to expand our product
offerings,  enter into new geographic markets,  add new customers and cross-sell
existing and new product lines to our diversified customer base.

DISTRIBUTION OF PRODUCTS

     Distribution of Consumer Personal Care Products.

     In our consumer personal care products distribution business, we distribute
three principal categories of products:

     o    fragrances;

     o    name brand health and beauty aids and health and beauty aids under our
          Allou brand; and

     o    non-perishable food items.

     In  addition,  we  manufacture  and  distribute  upscale hair and skin care
products.

     We distribute approximately 7,000 brands of prestige designer fragrances of
many large  manufacturers  which include Ralph Lauren,  Calvin Klein and Chanel.
See "Manufacturers and Suppliers".  We distribute approximately 8,000 brand name
health and beauty aids  products  by such  manufacturers  as Colgate  Palmolive,
Clairol,  Procter & Gamble,  Johnson & Johnson and Gillette.  See "Manufacturers
and Suppliers". We also distribute nail polish, toothpaste,  petroleum jelly and
other health and beauty aids products  manufactured by others and sold under our
Allou brand label.

     We sell  non-perishable  packaged  food  items,  which we  purchase  almost
exclusively  at discount  prices from major food  companies.  This  product line
requires little  additional  operating costs to us because these items generally
are pre-sold and drop-shipped directly to our customers from the vendors.

     Some of the fragrance and cosmetic brands that we distribute are:

         o   Polo                          o      Revlon
         o   Eternity                      o      Maybelline
         o   Hugo                          o      Lancome


                                      -1-
<PAGE>

     Some of the fragrance and cosmetic products that we distribute are:

         o   Perfume                       o      Eyeshadow
         o   Cologne                       o      Lipstick
         o   Nail Polish                   o      Mascara

     Some of the health and beauty aids brands that we distribute are:

         o   Pantene Pro-V shampoo         o      Colgate toothpaste
         o   Johnson's Baby Lotion         o      Rave hairspray
         o   Gillette Mach 3 razors        o      Vaseline Intensive Care lotion

         Some of the health and beauty aids products that we distribute are:

         o   Antacids                      o      Oral Antiseptics and Sprays
         o   Baby Care                     o      Deodorants
         o   Cough and ColdRemedies        o      Shampoos

     Distribution of consumer personal care products accounted for approximately
72% of our  revenues  during the fiscal  year ended March 31,  2000,  57% of our
revenues for the fiscal year ended March 31, 2001 and 59% of our revenues during
the fiscal year ended March 31, 2002.

     Distribution of Prescription Pharmaceuticals.

     We purchase approximately 4,000 branded  pharmaceuticals from manufacturers
such as Pfizer,  Eli Lilly,  Merck and Glaxo. We also  distribute  3,000 generic
prescription pharmaceutical products which are purchased from manufacturers such
as Schein Pharmaceuticals,  Inc., Barre National, Inc., and Sidmak Laboratories,
Inc.

     During fiscal 1994, we acquired the capital stock of M. Sobol,  Inc., which
is a  manufacturers'  distributor of branded  prescription  pharmaceuticals.  M.
Sobol,  Inc. was founded in 1928 and currently  distributes  pharmaceuticals  to
approximately 700 independent pharmacies in the Northeast.

     During  fiscal 2000,  we acquired  the assets of  Tri-State  Pharmaceutical
Consultants,   Corp.   a   national   distributor   of   branded   and   generic
pharmaceuticals.  Tri-State  was  founded  in  1995  and  currently  distributes
pharmaceuticals  to  national  chains such as Rite Aid and  wholesalers  such as
McKesson.

     Distribution  of  prescription   pharmaceutical   products   accounted  for
approximately  26% of our revenues  during the fiscal year ended March 31, 2000,
42% of our  revenues  during the fiscal year ended March 31, 2001 and 40% of our
revenues during the fiscal year ended March 31, 2002.

     Manufacturing and Distribution of Hair and Skin Care Products.

     During fiscal 1996, we purchased selected assets of Russ Kalvin,  Inc. This
acquisition has enabled us to manufacture and distribute  salon quality hair and
skin care products to national mass  merchandisers  and  independent  retailers.
Since  1998,  we have  manufactured  private  label  upscale  hair and skin care
products for J.C.  Penney,  Bath and Body Works,  Sears  Roebuck & Co. and other
specialty retailers. In addition, we manufacture a proprietary line of hair care
and skin care  products  which we market under the Russ Kalvin  generic  brands.
This  business  generates  substantially  higher gross  profit  margins than our
distribution business.


                                      -2-
<PAGE>

     Manufacture and  distribution of hair and skin care products  accounted for
approximately 2% of our revenues during the fiscal year ended March 31, 2000, 1%
of our  revenues  during the  fiscal  year  ended  March 31,  2001 and 1% of our
revenues during the fiscal year ended March 31, 2002.  Revenues from prior years
were not material.

MANUFACTURERS AND SUPPLIERS

     The products we distribute  are  manufactured  and supplied by  independent
foreign and domestic  companies.  Many of these  companies also  manufacture and
supply health and beauty aids products, fragrances and cosmetics for many of our
competitors.  We purchase  approximately 8,000 brand name health and beauty aids
products  from such  manufacturers  as Procter & Gamble,  Johnson & Johnson  and
Gillette.  We also purchase  approximately 7,000 fragrance and cosmetic products
directly from  manufacturers such as Coty and Revlon and from secondary sources.
We  purchase  approximately  4,000  branded  pharmaceuticals  and 3,000  generic
prescription  pharmaceuticals  from  manufacturers  such as  Pfizer,  Eli Lilly,
Schein   Pharmaceuticals,   and  Barre  National.   Additionally,   we  purchase
non-perishable  packaged food items from  manufacturers  such as General  Mills,
General  Foods and  Nabisco.  We  contract  with  manufacturers  to produce  the
products  which carry our Allou name brand and we  manufacture  our  proprietary
line of Russ  Kalvin  generic  brand  hair and skin care  products  through  our
wholly-owned subsidiary, Allou Personal Care Corp.

     We  typically  purchase  health and beauty  aids and  pharmaceuticals  from
manufacturers  on open  accounts  which are  payable in 30 days and may  receive
discounts of up to 2% for early  payments.  As is customary in the industry,  we
prepay certain suppliers for products that we purchase at deep discounts.  These
types of purchases are  opportunistic and highly dependent upon availability and
price.  If the products for which we have prepaid and ordered are not shipped to
us, there could be an adverse  effect on our  operations.  To date,  we have not
suffered any such adverse effect.  In addition,  we may return health and beauty
aids and prescription  pharmaceutical  products to our suppliers for full credit
if the products are damaged, their shelf life has expired, or they are otherwise
not saleable.

     Manufacturers of prestige  fragrances have  historically  restricted direct
sales of their  products in the United States  primarily to prestige  department
stores  and  specialty   stores.  As  a  result,   mass-market   retailers  have
traditionally  obtained prestige products from secondary sources.  Historically,
the secondary sources available to the mass market have been limited to:

     o    direct  distributors  like us which  receive  products  directly  from
          fragrance manufacturers, and

     o    distributors of prestige products  manufactured by, or distributed to,
          foreign  sources for foreign  distribution,  which are diverted to the
          United States.

     Under existing court decisions, there are variations in the extent to which
trademark  laws,  copyright  laws  and  customs  regulations  may  restrict  the
importation  of  trademarked  or  copyright  fragrance  products  through  those
distributors  who divert  prestige  products  to the United  States  without the
consent of the trademark or copyright owner. As is customary in the industry, we
purchase a substantial portion of our fragrance products from secondary sources.
In  addition,  from time to time,  we may take  advantage  of  favorable  buying
opportunities  and purchase  limited  amounts of health and beauty aids products
from secondary sources.  There can be no assurance that these sources of product
will be  available  in the future or that we may not become the subject of legal
action arising from our buying  activities  with respect to these  products.  To
date, we have not been the subject of any such legal action.

     We have had  long-term  relationships  with  most of our  suppliers.  As is
customary in our industry, we have not entered into written agreements with most
of our suppliers.  However, we believe that our


                                      -3-
<PAGE>

relationships  with  our  suppliers  are  good.  We  have  not  experienced  any
interruptions in the supply of products that have resulted in a material adverse
effect on our operations.

MARKETING AND SALES

     Sales are made by our  in-house  sales staff  consisting  of  telemarketing
professionals. We pay our in-house sales persons a base salary plus a commission
based on  sales  and  gross  margins.  Sales  are  also  made by  sales  account
representatives who make on-site visits to our customers.

     We publish a monthly  health  and beauty  aids  catalogue  and a  quarterly
fragrance  catalogue   containing  order  forms,   product   descriptions,   the
manufacturer's  suggested retail price and net cost per unit or per dozen. These
catalogues are mailed to each of our active customers.  They also help serve the
advertising  needs of the  manufacturers  who provide us with  rebates that have
historically  paid for the full cost of  preparing,  printing  and  mailing  the
catalogues.  In addition to the catalogues,  we frequently  supply our customers
with flyers  advising them of items that are being sold at a discount.  The sale
of fragrances  nationally to independent  stores is handled  exclusively by mail
order through the catalogues.

OPERATIONS

     We  maintain a facility in  Brentwood,  New York of  approximately  157,000
square  feet that  includes  warehouse  space  and our sales and  administrative
offices.  The warehouse  typically contains,  on a blended basis,  inventory for
approximately four months of distribution to customers. We maintain these levels
of inventory in order to provide our customers with the  convenience of one stop
shopping  privileges.  We use a computerized  data base system which enables our
management to monitor sales,  purchases and inventory status.  Historically,  we
have not experienced problems with product shelf lives, because most products we
sell are not  perishable.  Those products that are  perishable  generally can be
returned to the  manufacturer  if they are not sold by the  expiration  date. We
also lease a facility in Saugus,  California of approximately 52,800 square feet
and a facility in Miami,  Florida of approximately 10,000 square feet. See "Item
2. Properties".

     We contract with local  carriers and  independent  trucking  agents to make
deliveries to our  customers.  A customer order will generally be shipped within
48 hours from the time it is placed.

     Work in the  warehouse is cyclical and workers are trained in several tasks
so that they can be rotated to fill the jobs where they are most needed.

     We have  positioned  ourselves to market and  manufacture  quality hair and
skin care products to major retailers such as J.C. Penney,  Bath and Body Works,
Sears Roebuck, & Co. and other specialty retailers.  In addition, we have 52,800
square feet of leased space in Saugus,  California  which is used to manufacture
and  distribute  upscale  private  label hair and skin care  products  for major
retailers.

MANAGEMENT INFORMATION AND CONTROL SYSTEM

     We  use  a  proprietary,   computerized  database  management  system  that
collects,  integrates  and analyzes data  concerning  sales,  order  processing,
shipping,  purchases,  receiving,  inventories and financial  reporting.  At any
given time,  we are able to determine  the quantity of each item in inventory by
brand,  style,  cost,  list price and other  characteristics.  The  computerized
system enables us to better manage our inventories. It keeps a running inventory
of goods on hand for each item we  distribute.  When the  inventory  of any item
drops  to a  certain  pre-set  level,  a  purchase  order  for a set  number  of
additional units of the item is automatically  written and, after being reviewed
by management, is sent directly to the manufacturer.


                                      -4-
<PAGE>

     Our system also provides our  telemarketing  professionals  with  immediate
product  availability  and gross margin  information  on-screen  when  receiving
customer  orders.  This system allows us to provide our customers with real-time
inventory and pricing information and to ship orders within 48 hours of receipt,
which allows our customers to better manage their inventory.

     We have engaged J.D. Edwards & Company, a software technology provider,  to
upgrade our EDP systems.  The implementation of this technology will provide the
technological infrastructure required to meet our goals for future growth.

COMPETITION

     The distribution of consumer personal care products and the distribution of
prescription  pharmaceutical products are both extremely competitive businesses.
Among others,  our  competitors  include  pharmaceutical  wholesalers  who carry
consumer personal care products as an accommodation for their customers. Many of
these  wholesalers  have  greater  financial  and  other  resources  than we do.
However, to our knowledge,  there is no significant  competitor that distributes
to its customers the  assortment of consumer  personal care products  (including
fragrances,  cosmetics and health and beauty aids  products) that we distribute.
We  believe  that we  compete  on the  basis  of price  and on the  basis of the
services we provide to our  customers,  which  include  quick  delivery  and low
minimum  order  requirements.  In order to maintain our  margins,  we compete to
obtain  our  fragrances   and  cosmetics  at  the  best  possible   prices  from
manufacturers  and importers  who also supply  competing  distributors  and sell
directly to retailers.

     In addition,  we face intensive  competition  with respect to marketing our
own brand of Allou health and beauty aids  products and the Russ Kalvin  generic
brand of hair and skin care  products.  We compete  with major health and beauty
aids   companies,   as  well  as  hair  and  skin   care   companies   who  have
well-established  product lines,  spend large sums for advertising and marketing
and have far greater  financial and other  resources than we do. We also compete
with these  companies  for shelf space and product  placement in various  retail
outlets.

EMPLOYEES

     As of March 31, 2002, we employed  approximately 300 persons on a full time
basis, including 5 in executive positions, 13 in purchasing, 51 in marketing and
sales, 89 in  administration  and accounting and 142 in warehouse and receiving.
Some of our sales  personnel are partially  paid on a commission  basis.  During
peak selling seasons we also employ part-time personnel.

     We are a party to a collective  bargaining  agreement expiring December 14,
2003 with the National Organization of Industrial Trade Unions that covers 85 of
our  warehouse  and  receiving  employees.  We have  not  experienced  any  work
stoppages. We believe our relations with our employees are satisfactory.

TRADENAMES AND TRADEMARKS

     We use the  unregistered  tradename  for our brand "Allou Brand" on generic
products  that we  distribute.  With  the  introduction  of  additional  generic
products,  we may adopt other  unregistered  tradenames and  trademarks.  During
fiscal  1996,  we acquired the patents,  trademarks  and all other  intellectual
property of Russ Kalvin, Inc. We believe that no single trademark,  tradename or
servicemark is material to our business as a whole.


                                      -5-
<PAGE>

GOVERNMENT REGULATION

     The United  States Food,  Drug and Cosmetic Act and the Fair  Packaging and
Labeling  Act  regulate  the purity  and  packaging  of health  and beauty  aids
products and fragrances and cosmetic products. Similar statutes are in effect in
various  states.  Manufacturers  and  distributors  of health  and  beauty  aids
products are also subject to the  jurisdiction  of the Federal Trade  Commission
with respect to matters such as advertising  content and other trade  practices.
To our knowledge,  we only distribute  products  produced by  manufacturers  who
comply with these  regulations  and who  periodically  submit their  products to
independent laboratories for testing.  However, the failure by our manufacturers
or suppliers to comply with applicable  government  regulations  could result in
product  recalls  that  could  adversely  affect  our  relationships   with  our
customers. In addition, the extent of potentially adverse government regulations
which might arise from future  legislation  or  administrative  action cannot be
predicted.

     Some of the products that we manufacture contain alcohol and certain active
ingredients  that are  regulated by the Bureau of Alcohol,  Tobacco and Firearms
and the Food and Drug Administration.  We have obtained the appropriate licenses
from these agencies in order to comply with all applicable regulations.

ITEM 2.   PROPERTIES.

     We lease  approximately  157,000  square  feet of space  for our  principal
executive offices, warehouse and distribution facilities, and sales headquarters
in the Brentwood Industrial Park, 50 Emjay Boulevard, Brentwood, New York 11717.
We have a ten-year  lease which expires on May 31, 2005 and includes a five-year
option for  renewal.  The base annual  rental of the  property is  approximately
$500,000,  with additional  charges for insurance,  fuel and taxes and increases
during the initial term of the lease. We also lease approximately  52,800 square
feet of space in Saugus,  California to manufacture and distribute hair and skin
care  products.  This space is leased  through two leases.  One lease,  covering
approximately 27,800 square feet, expires on September 30, 2010, with a ten-year
option for  renewal  at a base  annual  rental of  approximately  $333,173  with
additional  charges for insurance,  fuel, taxes and increases during the initial
term of the lease. The other lease,  covering  approximately 25,000 square feet,
expires on May 31,  2010,  with a ten-year  option for  renewal at a base annual
rental of  approximately  $108,000,  with an additional  surcharge of $2,000 per
month from May 2001 to April 2003 and additional  charges for  insurance,  fuel,
taxes and increases  during the initial term of the lease.  We also lease 10,000
square  feet of space in Miami,  Florida,  which  expires on April 30, 2003 at a
base annual rent of  approximately  $156,000 for  warehousing  and  distribution
purposes.

ITEM 3.   LEGAL PROCEEDINGS.

     We are a party to a number of legal  proceedings,  all of which are routine
litigation incidental to our business.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     During the fourth  quarter of the fiscal year covered by this annual report
on Form 10-K, no matters were  submitted to a vote of security  holders  through
the solicitation of proxies or otherwise.


                                      -6-
<PAGE>

                                    PART II

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information
------------------

     Our Class A Common Stock is listed on the American Stock Exchange under the
symbol "ALU".  There is no  established  public  trading  market for our Class B
Common Stock.

     The following  table sets forth the  quarterly  high and low sales price of
the Class A Common Stock during our last two fiscal years:

                                                     HIGH             LOW
                                                     ----             ---
FISCAL YEAR ENDING MARCH 31, 2001:

Quarter ending June 30, 2000........................$8.250          $5.625
Quarter ending September 30, 2000................... 7.312           5.125
Quarter ending December 31, 2000.................... 5.500           3.125
Quarter ending March 31, 2001....................... 5.750           3.375

                                                     HIGH             LOW
                                                     ----             ---
FISCAL YEAR ENDING MARCH 31, 2002:

Quarter ending June 30, 2001........................$4.950          $3.160
Quarter ending September 30, 2001................... 4.550           3.050
Quarter ending December 31, 2001.................... 5.950           3.210
Quarter ending March 31, 2002....................... 7.500           5.400

Holders
-------

     As of June 25, 2002,  there were  sixty-eight (68) holders of record of our
Class A Common Stock and four (4) holders of record of our Class B Common Stock.
Based upon  conversations  with brokers,  management  believes that there are in
excess of 1,000 beneficial owners of the Class A Common Stock.

Dividends
---------

     We have not paid a dividend on our shares of Class A Common  Stock or Class
B Common Stock and have no present  expectation  of doing so in the  foreseeable
future.

Recent Sales of Unregistered Securities
---------------------------------------

     During fiscal 2001, we issued to an institutional  investor an aggregate of
$15,000,000  of 12%  senior  subordinated  notes due July  2005 and  seven  year
warrants to  purchase an  aggregate  of  1,700,000  shares of our Class A Common
Stock at $4.50 per share.  The  exercise  price of the warrants is subject to an
increase if we meet  certain  earnings  and revenue  targets.  In the event that
these  warrants have not been  converted to Common Stock,  the investor may have
the right, under certain  circumstances which are based on financial results for
the year ending March 31, 2003,  to put the warrants to us after five years at a
price of $8 per warrant.  These  warrants  were  initially  valued at $4,314,006
using the  Black-Scholes  Pricing  Model.  The initial value of the warrants was
established  as a discount to the  subordinated  debt and this discount is being
accreted over the life of the subordinated  notes.  Included in interest expense
for fiscal 2002 is $616,288, representing such accretion.


                                      -7-
<PAGE>

     We have issued the following  number of shares of Class A Common Stock,  on
the following dates, to Tri-State  Pharmaceutical  Consultants  Corp. as partial
consideration for our purchase of certain assets:

               Shares                                  Date
               ------                                  ----

               75,472                             March 3, 2000

               34,771                             July 17, 2000

               121,951                            July 16, 2001

     The  issuance  and sale of the  securities  set forth above are exempt from
registration  under the  Securities Act of 1933 in reliance upon Section 4(2) of
the Securities Act of 1933 as a transaction not involving a public offering.


                                      -8-
<PAGE>

ITEM 6.         SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>

                                                              Years Ended March 31,

                                       2002           2001           2000            1999            1998
                                   ----------     ----------    -----------      ----------      ----------
<S>                                <C>            <C>           <C>              <C>             <C>
Revenues                           $  564,151     $  548,147    $   421,047      $  334,175      $  301,092
Costs of revenues                     500,890        482,590        367,964         289,637         262,237
                                   ----------     ----------    -----------      ----------      ----------

Gross profit                           63,261         65,557         53,083          44,538          38,855
Warehouse and delivery expense         12,918         15,121         12,307          10,279           9,288
Selling, general and
 administrative expense                23,066         21,946         18,520          14,707          13,264
                                   ----------     ----------    -----------      ----------      ----------

Income from operations                 27,277         28,490         22,256          19,552          16,303
Interest and other                     16,370         24,444         10,874           9,647           8,470
                                   ----------     ----------    -----------      ----------      ----------

Income before income taxes             10,907          4,046         11,382           9,905           7,833
                                   ----------     ----------    -----------      ----------      ----------
Discontinued operations, net
 of income taxes                            -              -          7,916          (4,599)           (576)
                                   ----------     ----------    -----------      ----------      ----------
Net income                         $    6,590     $    2,458    $    14,959      $    1,348      $    4,280
                                   ==========     ==========    ===========      ==========      ==========
Net income per common share
Basic:
Operations                         $      .95     $      .36    $      1.05      $      .98      $      .84
Discontinued operations                     -              -           1.17            (.76)           (.10)
                                   ----------     ----------    -----------      ----------      ----------
                                   $      .95     $      .36    $      2.22      $      .22      $      .74
                                   ==========     ==========    ===========      ==========      ==========
Diluted:
Operations                         $      .91     $      .34    $       .97      $      .87      $      .81
Discontinued Operations                     -              -           1.08             (67)           (.09)
                                   ----------     ----------    -----------      ----------      ----------
                                   $      .91     $      .34    $      2.05      $      .20      $      .72
                                   ==========     ==========    ===========      ==========      ==========
-----------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

BALANCE SHEET DATA:

                                                                As of March 31,
                                       2002           2001           2000            1999            1998
                                   ----------     ----------    -----------      ----------      ----------
<S>                                <C>            <C>           <C>              <C>             <C>
Cash                               $     1,246    $       264   $         51     $      400      $       47
Working capital                         90,091         83,412         64,725         52,192          43,959
Total assets                           324,941        291,764        259,219        219,907         178,384
Total long-term liabilities             19,801         17,697          1,640            724           1,354
Total liabilities                      237,421        212,789        183,062        159,571         125,771
Stockholders' equity                    87,520         78,975         76,157         60,336          52,613
-----------------------------------------------------------------------------------------------------------
</TABLE>

--------------------

(1)  As a result of our sale of our majority  interest in The Fragrance  Counter
     Inc.,  the  statements  of income for the prior years have been restated to
     segregate the net results of continued and discontinued operations.


                                      -9-
<PAGE>

                        SELECTED QUARTERLY FINANCIAL DATA
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                       First              Second              Third             Fourth
                                      Quarter             Quarter            Quarter            Quarter               Total

Year ended
March 31, 2002
--------------

<S>                               <C>                <C>                 <C>               <C>                 <C>
Revenues                          $110,230,491       $148,981,900        $163,306,563      $141,632,306        $564,151,260
Net income (loss)                 $    274,425       $  2,235,751        $  1,991,522      $  2,087,960        $  6,589,658
                                  ============       ============        ============      ============        ============
Earnings per common share -
   Basic                                 $ .04              $ .32               $ .29             $ .29               $ .94
                                         -----              -----               -----             -----               -----
Earnings per common share -
   Diluted                               $ .04              $ .32               $ .28             $ .24               $ .88
                                         -----              -----               -----             -----               -----

------------------------------------------------------------------------------------------------------------------------------
Year ended
March 31, 2001
--------------

Revenues                          $134,664,654       $132,250,479        $140,652,706      $140,579,114        $548,146,953
Net income (loss)                 $  2,088,762       $  1,805,248        $  1,110,741      $ (2,546,384)       $  2,458,367
                                  ============       ============        ============      ============        ============
Earnings per common share -
    Basic                                $ .31              $ .27               $ .16            $ (.38)              $ .36
                                         -----              -----               -----            -------              -----
Earnings per common share -
   Diluted                               $ .29              $ .24               $ .16            $ (.35)              $ .34
                                         -----              -----               -----            -------              -----

</TABLE>

     Earnings  per  common  share  are  computed  independently  for each of the
quarters  presented.  Therefore,  the  sum of the  quarterly  per  common  share
information may not equal the annual earnings per common share.


                                      -10-
<PAGE>

ITEM 7.   MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS.

RESULTS OF OPERATIONS

     We   distribute   consumer   personal   care   products  and   prescription
pharmaceuticals  on a national basis. We also manufacture  upscale hair and skin
care products for sale under private labels. Our consumer personal care products
distribution  business includes prestige brand name designer  fragrances,  brand
name health and beauty aids products and non-perishable packaged food items. Our
prescription  pharmaceuticals distribution business includes both brand name and
generic pharmaceutical products. In the three fiscal years since the fiscal year
ended March 31,  1999,  our  revenues  have grown by  approximately  69% through
internal growth and strategic acquisitions,  which have enabled us to expand our
product  offerings,  enter into new  geographic  markets,  add new customers and
cross-sell existing and new product lines to our diversified customer base.

     Distribution of consumer personal care products accounted for approximately
72% of our  revenues  during the fiscal  year ended March 31,  2000,  57% of our
revenues for the fiscal year ended March 31, 2001 and 59% of our revenues during
the  fiscal   year  ended  March  31,   2002.   Distribution   of   prescription
pharmaceutical  products  accounted for approximately 26% of our revenues during
the fiscal year ended March 31, 2000, 42% of our revenues during the fiscal year
ended March 31, 2001 and 40% of our revenues  during the fiscal year ended March
31, 2002.  Manufacture and distribution of hair and skin care products accounted
for  approximately  2% of our  revenues  during the fiscal  year ended March 31,
2000,  1% of our revenues  during the fiscal year ended March 31, 2001 and 1% of
our revenues during the fiscal year ended March 31, 2002.

     Our operating  results for fiscal years 2000,  2001 and 2002 expressed as a
percentage of sales were as follows:

                                                     FISCAL YEAR ENDED MARCH 31
                                                     --------------------------

                                                    2002        2001       2000
                                                    ----        ----       ----
                                                             (Audited)
    Net sales                                      100.0%      100.0%     100.0%
    Costs of goods sold                             88.8        88.0       87.4
    Gross profit                                    11.2        12.0       12.6
    Warehouse & delivery expenses                    2.3         2.8        2.9
    Selling, general and administrative expenses     4.1         4.0        4.4
    Operating income                                 4.9         5.2        5.3
    Net interest expense                             2.9         3.4        2.6
    Provision for losses on asset impairments        -           1.0        -
    Total other expense, net                         2.9         4.5        2.6
    Income before income tax                         2.0         0.7        2.7
    Income tax provision                             0.8         0.3        1.0
    Gain from discontinued operations                -           -          1.9
    Net income                                       1.2%        0.4%       3.6%


                                      -11-
<PAGE>

FISCAL 2002 COMPARED TO FISCAL 2001

     Revenues. Our sales are composed almost entirely of sales of prestige brand
name  designer   fragrances,   brand  name  health  and  beauty  aids  products,
prescription  pharmaceuticals,  non-perishables packaged food items, and upscale
hair and skin care  products.  Revenues for the fiscal year ended March 31, 2002
increased $16.0 million to $564.1 million,  representing a 3.0% gain as compared
to revenues of $548.1  million  for the fiscal year ended March 31,  2001.  This
increase resulted from increased revenues from most segments of our business, as
described below.  Distribution of prescription  pharmaceutical  products for the
fiscal year ended March 31, 2002,  however,  decreased  $12.2  million to $224.7
million.  The increased demand for our products  resulted from increases in same
store  sales.  We made no  acquisitions  during the fiscal  year ended March 31,
2002.

     Contributions  to the  increase in  revenues  during this period by product
segment are as follows.  Sales of Allou  Distributors,  Inc.,  our  wholly-owned
subsidiary  which  distributes  brand  name  health and  beauty  aids,  prestige
designer fragrances and non-perishable  food products,  increased 5.9% in fiscal
2002  compared to fiscal 2001,  due to  increases in same store sales.  Sales of
prescription  pharmaceuticals  decreased  .07% in fiscal  2002 when  compared to
fiscal 2001.  This  decrease in revenues is due to decreases  in  purchasing  of
pharmaceutical  products  during the first half of fiscal 2002,  which  resulted
from  financing  reductions  in the  earlier  part  of the  year  in our  former
revolving  credit facility with a consortium of banks led by Fleet Capital Corp.
This  financing  reduction  was  required  by our  former  lenders  in  order to
accommodate our request for an extension to the former revolving credit facility
which  expired on May 7, 2001.  We closed a new $200  million  revolving  credit
facility  on  September  4, 2002  with a  consortium  of banks  led by  Congress
Financial  Corporation and Citibank,  N.A. This new credit facility permitted us
to  resume  our  normal  level of  pharmaceutical  purchases,  which in turn has
alleviated  the  shortfall of related  sales in this  period.  Sales of products
manufactured by us  ("Manufacturing  Sales")  increased 2.7% in fiscal 2002 when
compared to fiscal 2001. Manufacturing Sales are not material.

     Gross  Profit.  Gross  profit for the fiscal  year ended March 31, 2002 was
$63.3 million  representing  a $2.3 million  decrease over gross profit of $65.6
million for the fiscal year ended March 31, 2001.  This decrease in gross profit
is due in part to promotional sales of pharmaceutical products that were subject
to expire within six months. We determined that it was economically favorable to
discount  these  products  rather  than to wait for the  expiration  date before
returning the expired products to the  manufacturers.  Also,  certain  customers
requested  that  their  orders be shipped at their own cost.  We  typically  pay
freight  charges  and add the charge to the  customer  invoice.  The  request by
certain  customers to directly pay their freight  charges  caused a reduction in
the selling price for these products by the amount of the freight charges.  This
reduction   in  selling   price  caused  a  reduction  in  gross  profit  and  a
corresponding  reduction in warehouse and delivery  expenses,  with no effect on
net income.  Additionally,  sales of  pharmaceutical  products have historically
lower gross profit margins than health and beauty aids, fragrances or cosmetics.
Thus, as pharmaceutical  products become a greater  percentage of our sales, the
impact of such sales will result in lower blended gross profit margins. Sales of
prescription  pharmaceuticals,  however,  decreased  .07% in  fiscal  2002  when
compared to fiscal 2001.

     Warehouse,   Delivery,   Selling,   General  and  Administrative  Expenses.
Warehouse, delivery, selling, general and administrative expenses for the fiscal
year ended  March 31, 2002  decreased  $1.1  million to $36  million  from $37.1
million in the prior year. This reduction resulted from a $2.2 million reduction
in warehouse and delivery  expenses,  from $15.1 million in fiscal 2001 to $12.9
million in fiscal 2002,  partially offset by a $1.2 million increase in selling,
general and administrative expenses.  Warehouse,  delivery, selling, general and
administrative  expenses  decreased as a percentage  of revenues to 6.4% for the
fiscal  year  ended  March 31,  2002 from 6.8% in the prior  fiscal  year.  This
decrease as a percentage of revenues is due to in part to reduced  freight costs
and improved  efficiencies in warehouse  operations and reduced costs associated
with an outside bonded warehouse.


                                      -12-
<PAGE>

     Interest  Expense.  Interest  expense as a  percentage  of revenues for the
fiscal year ended March 31, 2002 decreased to 2.9% from 3.4% for the same period
in the prior year.  This decrease was due to a decrease in interest rates offset
by both the accretion of the discount to the  subordinated  debt, and the change
in the fair  market  value of the  warrants,  which are being  valued  using the
Black-Scholes  Pricing Model.  Included in interest  expense for the fiscal year
ended March 31, 2002 was $179,075,  which represented the change in the value of
these warrants. As of March 31, 2002, the fair market value for our warrants was
$4,539,000.

     Net  Income.  Our net  income  for the fiscal  year  ended  March 31,  2002
increased $4.1 million to $6.6 million, or 164%, as compared to $2.5 million for
the fiscal year ended March 31, 2001. This increase in net income is due in part
to a decrease in operating  expenses,  a reduction  in interest  expense and the
absence of a loss on interest in internet  investments  which last year  totaled
$5.6 million.

FISCAL 2001 COMPARED TO FISCAL 2000

     Revenues.  Revenues  for the fiscal  year ended  March 31,  2001  increased
$127.1  million to $548.1  million,  representing  a 30.2% gain as  compared  to
revenues  of $421.0  million  for the fiscal  year ended  March 31,  2000.  This
increase  resulted from a blended  increase in revenues from the segments of our
business,  as described below.  The increased  demand for our products  resulted
from an expanded customer base and increases in same store sales.

     Contributions to this increase in revenues by segment is as follows.  Sales
of Allou Distributors, Inc., our wholly-owned subsidiary which distributes brand
name health and beauty aids,  prestige  designer  fragrances and  non-perishable
food  products,  increased  5.0% in fiscal 2001 compared to fiscal 2001,  due to
increases in same store sales. Sales of prescription  pharmaceuticals  increased
108% in fiscal 2001 when  compared to fiscal 2000.  This increase is largely due
to increased sales  resulting from our  acquisition of Tri-State  Pharmaceutical
Consultants  Corporation  which was  consummated  during the  fourth  quarter of
fiscal year 2000. This  acquisition has enabled the company to become a national
distributor of prescription  pharmaceuticals thereby expanding our customer base
resulting in a substantial increase in sales.

     Cost of Goods Sold.  Cost of goods sold for the fiscal year ended March 31,
2001  increased as a  percentage  of revenues to 88.0% from 87.4% for the fiscal
year ended March 31,  2000.  This  increase  in the cost of goods sold  resulted
primarily from decreased  profit margins  associated  with the  distribution  of
pharmaceutical products.

     Warehouse,   Delivery,   Selling,   General  and  Administrative  Expenses.
Warehouse, Delivery, Selling, General and Administrative expenses for the fiscal
year ended March 31, 2001 increased  $6.2 million to $37.0  million,  or 6.8% of
sales,  as compared to expenses of $30.8 million or 7.3% of sales for the fiscal
year ended March 31, 2000. This increase was largely due to marketing,  delivery
and warehouse  expenses  associated  with our  wholly-owned  pharmaceutical  and
manufacturing subsidiaries.

     Interest Expense. Interest expense for the fiscal year ended March 31, 2001
increased  $7.9 million to $18.8 million,  or 3.4% as a percentage of sales,  as
compared to $10.9 million, or 2.3% as a percentage of sales, for the fiscal year
ended March 31, 2000. This increase was due to increased  borrowings at a higher
rate and non-cash interest from the warrant discount  accretion of approximately
$600,000.

     Net  Income.  Our net  income  for the fiscal  year  ended  March 31,  2001
decreased  $12.5  million to $2.5 million or 83.6% as compared to $14.9  million
for the fiscal year ended March 31, 2000.  This decrease in net income  resulted
in part from the fact that the prior  period  included  a gain of  approximately
$7.9  million,  or $1.08 per diluted  share,  on the sale of our interest in our
Internet  subsidiary during the first quarter of fiscal 2000, and also from loss
during the fiscal year ended March 31, 2001 on our Internet


                                      -13-
<PAGE>

investments   totaling   $5,642,678  which  management   determined  had  become
permanently impaired, thus electing to recognize a loss on the investment during
this period.  This loss was included in our financial  statements with the other
expenses  set forth in the line item  "Interest  and  other."  In  addition,  an
increase in interest expense of approximately 72% contributed to these decreased
earnings.  Net income for fiscal  2001 was  $2,458,367,  or 34 cents per diluted
share,  when compared to $14,959,185,  or $2.05 per diluted share,  for the same
period a year earlier.

LIQUIDITY AND CAPITAL RESOURCES

     Our working  capital  increased $6.61 million to $90.0 million at March 31,
2002 from $83.4  million at March 31,  2001,  primarily  due to an  increase  in
accounts receivable and inventories.  In addition,  included in this increase in
working capital was an increase in our cash and cash  equivalents  from $263,774
at March 31, 2001 to $1,245,521 at March 31, 2002.

     Our capital requirements relate primarily to the purchase of inventory, the
carrying of customer  accounts  receivable,  the investment in capital equipment
and the acquisition of businesses.  During the fiscal year ended March 31, 2002,
our accounts receivable  increased by 28%, or $24.0 million,  from $85.6 million
to $109.6 million; our inventories increased by 5%, or $9.1 million, from $176.4
million to $185.5 million;  and our property and equipment  increased by 94%, or
$5.3 million,  from $5.7 million to $11.0 million.  We made no  acquisitions  of
businesses  during the fiscal year ending  March 31, 2002.  However,  we believe
that there are significant  opportunities to add to our distribution  businesses
through   acquisitions,   particularly   in  the   prescription   pharmaceutical
distribution   industry.  We  will  seek  to  identify  attractive   acquisition
candidates that we believe will complement our current business.

     We meet our working capital  requirements  from internally  generated funds
and from a $200  million  line of  credit  with a  consortium  of  banks  led by
Congress Financial  Corporation and Citibank,  N.A. entered into on September 4,
2001 and which expires on September 4, 2004. The purpose of this credit facility
is to finance our accounts  receivable and  inventory.  As at March 31, 2002, we
had $191,285,333  outstanding  under our line of credit.  The credit facility is
secured by a  security  interest  in most of our  assets.  Interest  on the loan
balance is payable at .25% per annum  above the prime  rate,  or 2.75% per annum
above the Eurodollar rate, at our option. The effective rate of interest charged
to us at March 31, 2002 was 4.6%. We utilize cash  generated  from  operation to
reduce  short-term  borrowings which in turn acts to increase loan  availability
consistent with our financing agreement.

     The financing  agreement contains various covenants that limit or restrict,
among  other  things,   subject  to  certain   exceptions,   the  incurrence  of
indebtedness,  the creation of liens, transactions with affiliates,  investments
and acquisitions, mergers, consolidations, dissolutions, asset sales, dividends,
redemptions and certain other  transactions and business  activities.  Financial
performance  covenants  include  minimum net worth,  EBITDA,  and current  ratio
requirements.  At March  31,  2002,  we were in  compliance  with all  financial
performance  covenants.  Substantially  all of our  borrowings  under the credit
facility bear interest at floating rates. Therefore, our financial condition and
results of operations will be affected by changes in prevailing interest rates.

     We believe that, based on anticipated levels of operations,  cash flow from
operations, together with other available sources of funds, including additional
borrowings under our credit facility,  will be adequate for at least the next 12
months  to fund  our debt  service,  capital  expenditure  and  working  capital
requirements.  However,  in  order  to  consummate  acquisitions  of  additional
businesses,  it will be necessary for us to obtain additional financing,  and we
cannot be certain adequate additional financing will be available to us for this
purpose on satisfactory terms.

     During the quarter of fiscal year 2000 ended September 30, we issued to RFE
Investment Partners, an institutional investor, $15,000,000 principal amount 12%
Senior  Subordinated  notes  due 2005 and seven  year  warrants  exercisable  to
purchase  1,700,000  shares of our Class A common stock at


                                      -14-
<PAGE>

$4.50 per share.  The  warrants are subject to a future  contingent  put option;
under  certain  circumstances  as defined the  investor has the right to put the
warrants to us after year five at a price of $8.00 per warrant.

     As noted above,  our accounts  receivable  increased to  $109,655,884 as at
March 31, 2002 from $85,579,734,  as at March 31, 2001, representing an increase
of 28.1%. The increase in accounts  receivable is due to increased sales and the
fact that  customers  who had been paying us on an average of 55 days during the
fiscal year  ending  March 31, 2001 have been paying us on an average of 71 days
during the fiscal year ended March 31,  2002.  We believe this change is largely
due to economic conditions. In addition, our cash and cash equivalents increased
from  $263,774  at  March  31,  2001 to  $1,245,521  at March  31,  2002 and our
inventories  increased by  approximately  $9.1 million,  or 5.1%, for the fiscal
year ended March 31, 2002 compared to the fiscal year ended March 31, 2001.

     Inventories  increased by  approximately  $9.1  million,  or 5.1%,  for the
fiscal  year ended  March 31,  2002  compared to the fiscal year ended March 31,
2001.  This increase in inventory is in  anticipation  of increased sales during
fiscal 2003.

     Operations  for the fiscal year ended March 31,  2002,  excluding  non-cash
charges for items such as depreciation and amortization,  deferred income taxes,
and asset impairment, provided cash of $9.1 million. Other changes in assets and
liabilities  resulting from operating activities for the fiscal year ended March
31, 2002 used cash of $26.3  million,  resulting  in net cash used in  operating
activities of $17.4 million.  Investing activities,  which principally consisted
of acquisitions of property,  plant and equipment,  resulted in a use of cash of
$3.7 million for the fiscal year ended March 31, 2002. For the fiscal year ended
March 31, 2002, financing activities provided cash of $22.1 million, principally
consisting of increased borrowing and issuance of common stock from the exercise
of stock options.

CRITICAL ACCOUNTING POLICIES

     This  management  discussion  and  analysis  is based  on our  consolidated
financial  statements  which are  prepared  using  certain  critical  accounting
policies  that require  management  to make  judgments  and  estimates  that are
subject  to  varying  degrees  of  uncertainty.  While  we  believe  that  these
accounting policies, and management's  judgments and estimates,  are reasonable,
actual  future events can and often do result in outcomes that can be materially
different from management's current judgments and estimates. We believe that the
accounting  policies and related matters  described in the paragraphs  below are
those that depend most heavily on management's judgments and estimates.

     Reserves  for  Uncollectible  Accounts.  At March 31,  2002,  our  accounts
receivable  balance was $109.7 million.  Our accounting policy is to reserve for
the accounts receivable of specific customers based on our assessment of certain
customers' financial condition. We make these assessments using our knowledge of
the  industry  and our  past  experiences.  This  policy  is  based  on our past
collection  experience.  During the fiscal  year ended  March 31,  2002 we added
approximately $960,000 to our reserve for uncollectible  accounts,  bringing the
total of that reserve to  approximately  $2.3 million at March 31, 2002.  We did
not write off any receivables during the fiscal year ended March 31, 2002.

     Inventory Obsolescence  Estimates.  We take physical inventories in each of
our  significant  warehouse  locations  at or near the end of each fiscal  year.
Inventories  at the balance  sheet  dates are valued  using the lower of average
cost (with  average cost  determined  using the first-in,  first-out  method) or
market reduced by estimated inventory obsolescence losses for the period between
the last  physical  inventory and the balance  sheet date.  These  estimates are
based on an inventory  analysis of the movement and expiration dates of specific
inventory  items.  In  addition,  we may  return  health  and  beauty  aids  and
prescription  pharmaceutical  products to our  suppliers  for full credit if the
products are damaged,  their shelf life has expired,  or they are  otherwise not
saleable.


                                      -15-
<PAGE>

     Inventories.    Inventories   are   principally   purchased   rather   than
manufactured.  They are  stated at the lower of cost or  market  value.  Cost is
principally determined by the first-in,  first-out method. We record adjustments
to the value of  inventory  based upon  forecasted  sales  projections,  and the
physical condition (e.g., age and quality) of the inventories. These adjustments
are estimates, which could vary significantly,  either favorably or unfavorably,
from actual  requirements  if future  economic  conditions,  customer  inventory
levels or competitive conditions differ from our expectations.

     Property, Plant and Equipment. Property, plant and equipment is recorded at
cost and is  depreciated  on  straight-line  and  accelerated  methods  over the
estimated  useful  lives  of  such  assets.  Changes  in  circumstances  such as
technological  advances  or changes in our  capital  strategy  can result in the
actual  useful  lives  differing  from our  estimates.  In those  cases where we
determine  that the  useful  life of  property,  plant and  equipment  should be
shortened,  we would  depreciate  the net book  value in excess  of the  salvage
value,  over its revised remaining useful life thereby  increasing  depreciation
expense.  Factors  such as changes in the planned use of fixtures or software or
closing of facilities could result in shortened useful lives.

     Long Lived Assets. Statement of Financial Accounting Standards ("SFAS") No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed Of," requires  management  judgments  regarding the future
operating and disposition plans for marginally  performing assets, and estimates
of expected realizable values for assets to be sold. The application of SFAS 121
has significantly affected the amount and timing of charges to operating results
in recent years.

     Goodwill.  Goodwill is reviewed  by the  Company  for  impairment  whenever
events or changes in circumstances indicate that the carrying amount of any such
asset may not be  recoverable.  The  estimate of cash flow is based upon,  among
other things,  certain assumptions about expected future operating  performance.
Our estimates of undiscounted cash flow may differ from actual cash flow due to,
among other things,  technological changes, economic conditions,  changes to our
business  model  or  changes  in our  operating  performance.  If the sum of the
undiscounted  cash flows is less than the carrying  value, we would recognize an
impairment loss,  measured as the amount by which the carrying value exceeds the
fair value of the asset.

     Income  Taxes.  Our  effective tax rate and the tax bases of our assets and
liabilities  reflect our best  estimate of the  ultimate  outcome of tax audits.
Valuation  allowances are established  where expected future taxable income does
not support the realization of the deferred tax assets.  Considerable management
judgment is also necessary in estimating future taxable income. Assumptions used
in these estimates are consistent with internal forecasts.

     Valuation  of  Contingent   Put  Warrants.   The  contingent  put  warrants
associated  with the  subordinated  debt are being  valued on a quarterly  basis
using the Black Scholes  Pricing  Model.  This model is subject to change in our
stock price, as well as the potential that the warrants will become exercisable,
due to market conditions, and the change in risk free interest rates.

FACTORS THAT COULD IMPACT OUR FINANCIAL CONDITION

     Substantial defaults in payment or a material reduction in purchases of our
products by large  customers  could have a  significant  negative  impact on our
financial condition and results of operations and liquidity.  In recent years, a
significant  portion of our  revenue  growth  has been with a limited  number of
large customers.  During the year ended March 31, 2002, sales to our ten largest
customers accounted for approximately 47% of our total revenues. Any defaults in
payment or a material  reduction in purchases  from us by these large  customers
could have a significant negative impact on our financial condition,  results of
operations and liquidity.


                                      -16-
<PAGE>

     Our business  could be hindered if we are unable to complete and  integrate
acquisitions successfully. An element of our strategy is to identify, pursue and
consummate   acquisitions   that  either  expand  or  complement  our  business.
Integration of acquisitions involves a number of risks,  including the diversion
of management's attention to the assimilation of the operations of businesses we
have acquired; difficulties in the integration of operations and systems and the
realization of potential operating synergies;  the assimilation and retention of
the personnel of the acquired  companies;  challenges in retaining the customers
of the combined businesses;  and potential adverse effects on operating results.
If we are unable to successfully  complete and integrate strategic  acquisitions
in a timely manner,  our business and our growth  strategies could be negatively
affected.

     We will require additional  financing to complete  acquisitions.  If we are
not able to secure additional  financing on terms we consider  acceptable to us,
we will  not be able to  execute  on our  business  and  growth  strategies.  In
addition,  if we experience  rapid growth,  we may require  additional  funds to
expand our  operations  or enlarge  our  organization  through  acquisitions  of
complementary businesses.


                                      -17-
<PAGE>

INFLATION AND SEASONALITY

     Inflation has not had any  significant  adverse effects on our business and
we do not believe it will have any  significant  effect on our future  business.
Our  fragrance  business is seasonal,  with greater  sales during the  Christmas
season than in other seasons. Our other product lines are not seasonal.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In July 2001, FASB issued statements of Financial  Accounting Standards No.
141,  Business  Combinations  ("SFAS  141"),  and No.  142,  Goodwill  and Other
Intangible  Assets  ("SFAS  142").  SFAS 141 requires all business  combinations
initiated  after June 30, 2001 to be accounted  for using the  purchase  method.
Under SFAS 142,  goodwill and  intangible  assets with  indefinite  lives are no
longer  amortized  but are reviewed  annually (or more  frequently if impairment
indicators  arise) for  impairment.  Separable  intangible  assets  that are not
deemed to have indefinite  lives will continue to be amortized over their useful
lives (but with maximum life). The amortization  provisions of SFAS 142 apply to
goodwill and intangible  assets  acquired  after June 30, 2001.  With respect to
goodwill and intangible  assets  acquired prior to July 1, 2001, we are required
to adopt SFAS 142 effective  April 1, 2002. We have determined that the adoption
of the provisions of SFAS 142 will not have a material  effect on our results of
operations and financial position,  other than the potential  discontinuation of
certain amortization expenses.

     In June  2001,  the  FASB  issued  SFAS  No.  143,  "Accounting  for  Asset
Retirement  Obligations."  This  statement  addresses  financial  and  reporting
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement  costs. It applies to legal  obligations  associated
with  the  retirement  of  long-lived   assets  that  result  from  acquisition,
construction,  development  and/or the normal  operation of a long-lived  asset,
except for certain  obligations  of lessees.  This  statement is  effective  for
financial  statements  issued for fiscal years beginning after June 15, 2002. We
believe  adoption of SFAS 143 will not have a material  effect on our  financial
position or results of operations.

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment or Disposal of Long-lived Assets". This statement addresses financial
accounting  and reporting for the  impairment of disposal of long-lived  assets.
SFAS No.  144  will be  effective  for  financial  statements  of  fiscal  years
beginning  after  December 15, 2001.  We expect to adopt this  statement for the
fiscal year ending March 31,  2003,  and do not  anticipate  that it will have a
material impact on our consolidated financial results.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     We are exposed to market risk related to the variable  interest rate on our
line of credit.  Interest on the loan balance is payable at .25% per annum above
the prime rate or, at our option,  2.75% per annum above the Eurodollar rate. We
do not practice derivative trading in the form of interest rate swaps.

     Currently,  our international  operations are not material and,  therefore,
the risk related to foreign currency exchange rates is not material.

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The  information  required  by this  Item  is set  forth  in the  Financial
Statements, commencing on page F-1 included herein.

ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

     None.


                                      -18-
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information called for by Item 10 to this Annual Report on Form 10-K is
incorporated  by  reference  to such  information  as it will be included in our
Definitive   Proxy  Statement  with  respect  to  our  2002  Annual  Meeting  of
Stockholders  to be filed  pursuant  to  Regulation  14A  under  the  Securities
Exchange Act of 1934.

ITEM. 11. EXECUTIVE COMPENSATION.

     The information called for by Item 11 to this Annual Report on Form 10-K is
incorporated  by  reference  to such  information  as it will be included in our
Definitive   Proxy  Statement  with  respect  to  our  2002  Annual  Meeting  of
Stockholders  to be filed  pursuant  to  Regulation  14A  under  the  Securities
Exchange Act of 1934.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information called for by Item 12 to this Annual Report on Form 10-K is
incorporated  by  reference  to such  information  as it will be included in our
Definitive   Proxy  Statement  with  respect  to  our  2002  Annual  Meeting  of
Stockholders  to be filed  pursuant  to  Regulation  14A  under  the  Securities
Exchange Act of 1934.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information called for by Item 13 to this Annual Report on Form 10-K is
incorporated  by  reference  to such  information  as it will be included in our
Definitive   Proxy  Statement  with  respect  to  our  2002  Annual  Meeting  of
Stockholders  to be filed  pursuant  to  Regulation  14A  under  the  Securities
Exchange Act of 1934.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a)  Documents filed as part of this Report.

          1.   Financial Statements

               See  index on page F-1.

          2.   Financial Statement Schedules

               See  index on page F-1.

     (b)  Reports on Form 8-K.

          None.

     (c)  Exhibits.


                                      -19-
<PAGE>

Exhibit No.                           Description
-----------                           -----------

    3.1        Restated  Certificate  of  Incorporation  of the Company as filed
               with the  Secretary of State of the State of Delaware on November
               8, 1996.

    3.2        Certificate of Amendment to the Company's Restated Certificate of
               Incorporation  as filed with the  Secretary of State of the State
               of Delaware on October 26, 1998.

    3.3*       By-Laws  of  the  Company,  as  amended.  (Exhibit  3(b)  to  the
               Company's Registration Statement on Form S-1, File No. 33-26981)

   10.1*       Employment Contract dated as of June 30, 1996 between the Company
               and Ramon Montes. (Exhibit 10.3 to the Company's Quarterly Report
               on Form  10-Q  for the  quarter  ended  June 30,  1996,  File No.
               1-10340)

   10.2        Employment  Contract  dated as of  August  1,  2001  between  the
               Company and Victor Jacobs.

   10.3        Employment  Contract  dated as of  August  1,  2001  between  the
               Company and Herman Jacobs.

   10.4        Employment  Contract  dated as of  August  1,  2001  between  the
               Company and Jack Jacobs.

   10.5*       Amended and Restated 1989 Incentive  Stock Option Plan.  (Exhibit
               10(e) to the  Company's  Annual  Report on Form 10-K for the year
               ended March 31, 1990, File No. 1-10340)

   10.6*       1992 Stock Option Plan. (Exhibit 10(e)(2) to the Company's Annual
               Report on Form 10-K for the year ended March 31,  1993,  File No.
               1-10340)

   10.7*       1995 Nonqualified Stock Option Plan.  (Exhibit A to the Company's
               definitive  Proxy Statement filed with the Commission on July 25,
               1996, File No. 1-10340)

   10.8*       1996 Stock Option Plan.  (Exhibit B to the  Company's  definitive
               Proxy Statement filed with the Securities and Exchange Commission
               on July 25, 1996, File No. 1-10340)

   10.9*       Lease   Agreement   dated   December   8,  1993   between   Allou
               Distributors,  Inc. and Brentwood Distribution Co. (Exhibit 10(f)
               to the  Company's  Annual  Report on Form 10-K for the year ended
               March 31, 1995, File No. 1-10340)


                                      -20-
<PAGE>

  10.10*       Loan and Security  Agreement dated September 4, 2001 by and among
               M. Sobol,  Inc., Allou  Distributors,  Inc.,  Direct  Fragrances,
               Inc., Stanford Personal Care  Manufacturing,  Inc., as Borrowers,
               and the Company,  Allou  Personal Care Corp.,  HBA National Sales
               Corp.,  HBA  Distributors,  Inc.,  Pastel Cosmetic & Beauty Aids,
               Inc., Trans World Grocers,  Inc., Russ Kalvin Personal Care Corp.
               and  Core   Marketing,   Inc.,  as   Guarantors,   the  financial
               institutions  from  time  to time  parties  thereto  as  lenders,
               whether by  execution  of the Loan and  Security  Agreement or an
               Assignment and Acceptance, and Congress Financial Corporation, as
               Agent and Arranger,  and Citibank,  N.A., as Documentation  Agent
               and Co-Arranger.  (Exhibit 10.1 to the Company's Quarterly Report
               on Form 10-Q for the quarter ended  September 30, 2001,  File No.
               1-10340)

     21*       List of subsidiaries.  (Exhibit 21 to the Company's Annual Report
               on Form  10-K/A  for the year  ended  March  31,  2000,  File No.
               1-10340)

     23        Consent of KPMG LLP

--------------------
*  Incorporated by reference to the document indicated.


                                      -21-
<PAGE>

                                   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 signed on
its behalf by the undersigned, thereunto duly authorized.

                                        ALLOU HEALTH & BEAUTY CARE, INC.

                                        By: /s/ Victor Jacobs
                                            ------------------------------------
                                                Victor Jacobs
                                                Chairman of the Board

Dated:  July 15, 2002

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

         SIGNATURE                             TITLE                                        DATE
         ---------                             -----                                        ----

  <S>                              <C>                                              <C>
  /s/ Victor Jacobs                Chairman of the Board                            July 15, 2002
  ---------------------------
  Victor Jacobs


  /s/ Herman Jacobs                Chief Executive Officer and Director             July 15, 2002
  ---------------------------
  Herman Jacobs


  /s/ David Shamilzadeh            President, Principal Financial Officer and       July 15, 2002
  ---------------------------      Principal Accounting Officer
  David Shamilzadeh


  /s/ Jack Jacobs                  Executive Vice President and Director            July 15, 2002
  ---------------------------
  Jack Jacobs


  /s/ Jeffrey Berg                 Director                                         July 15, 2002
  ---------------------------
  Jeffrey Berg


  /s/ Sol Naimark                  Director                                         July 15, 2002
  ---------------------------
  Sol Naimark


  /s/ Stuart Glasser               Director                                         July 15, 2002
  ---------------------------
  Stuart Glasser

</TABLE>


                                      -22-
<PAGE>

                  FINANCIAL STATEMENTS AND FINANCIAL SCHEDULES

                                                                            Page
                                                                            ----

Independent Auditors' Report................................................F-2

Report of Independent Public Accountants....................................F-3

Independent Auditors' Report................................................F-4

Consolidated Balance Sheets - March 31, 2002 and 2001.......................F-5

Consolidated Statements of Income - Years ended March 31, 2002, 2001 and
   2000.....................................................................F-6

Consolidated Statements of Stockholders' Equity - Years ended March 31, 2002,
   2001 and 2000............................................................F-7

Consolidated Statements of Cash Flows - Years ended March 31, 2002, 2001 and
   2000.....................................................................F-8

Notes to Consolidated Financial Statements..................................F-9

Reports of Independent Public Accountants on Schedule.......................F-21

Valuation and Qualifying Accounts and Reserves..............................F-23


                                      F-1
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Allou Health and Beauty Care, Inc.:

We have audited the accompanying  consolidated balance sheet of Allou Health and
Beauty  Care,  Inc.  and  subsidiaries  as of March 31,  2002,  and the  related
consolidated statements of income,  stockholders' equity, and cash flows for the
year then ended.  In  connection  with our audit of the  consolidated  financial
statements,  we also audited the accompanying financial statement schedule (Item
14(a)(2) - Valuation and Qualifying  Accounts and Reserves).  These consolidated
financial statements and the financial statement schedule are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these  consolidated  financial  statements and the financial  statement schedule
based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Allou Health and
Beauty Care,  Inc. and  subsidiaries at March 31, 2002, and the results of their
operations  and their cash flows for the year then  ended,  in  conformity  with
accounting principles generally accepted in the United States of America.  Also,
in our opinion, the related financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.

                                        /s/ KPMG LLP

Melville, New York
July 3, 2002


                                      F-2
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To Allou Health and Beauty Care, Inc.:

We have audited the accompanying  consolidated balance sheet of Allou Health and
Beauty Care,  Inc. (a Delaware  corporation)  and  subsidiaries  as of March 31,
2001, and the related  consolidated  statements of income,  stockholders' equity
and cash flows for the fiscal year then ended.  These  financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of Allou Health and Beauty Care,
Inc. and  subsidiaries as of March 31, 2001, and the results of their operations
and  their  cash  flows  for the  fiscal  year  then  ended in  conformity  with
accounting principles generally accepted in the United States.

                               ARTHUR ANDERSEN LLP

Melville, New York
July 2, 2001

This Report of Independent  Public  Accountants is a copy of a previously issued
Arthur Andersen LLP  ("Andersen")  report and has not been reissued by Andersen.
The  inclusion  of this  previously  issued  Andersen  report is pursuant to the
"Temporary  Final Rule and Final  Rule:  Requirements  for Arthur  Andersen  LLP
Auditing  Clients,"  issued by the U.S.  Securities  and Exchange  Commission in
March 2002.


                                      F-3
<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------

Board of Directors & Stockholders:
Allou Health & Beauty Care, Inc.
Brentwood, New York

     We  have  audited  the  accompanying  consolidated  statements  of  income,
stockholders'  equity and cash flows for the year ended  March 31,  2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

     We conducted  our audits in accordance  with  generally  accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present fairly, in all material respects,  the results of its operations and its
cash flows for the year ended  March 31,  2000,  in  conformity  with  generally
accepted accounting principles.


/s/ Mayer Rispler & Company, P.C.
Mayer Rispler & Company, P.C.

June 19, 2000


                                      F-4
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND 2001

<TABLE>
<CAPTION>

                              ASSETS                                                 2002                2001
                              ------                                         -----------------    ----------------
<S>                                                                          <C>                  <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                  $       1,245,521    $        263,774
  Accounts receivable, net of allowance for doubtful accounts
   of $2,297,396 and $1,337,075, respectively                                      109,655,884          85,579,734
  Inventories                                                                      185,470,903         176,396,785
  Prepaid inventory purchases                                                        7,707,085           9,187,510
  Prepaid and refundable income taxes                                                  324,526           3,042,904
  Other current assets                                                               1,990,326           2,996,330
  Deferred income taxes                                                              1,316,488           1,037,067
                                                                             -----------------    ----------------
               Total current assets                                                307,710,733         278,504,104

PROPERTY AND EQUIPMENT, net                                                         10,989,872           5,672,234
GOODWILL, net of accumulated amortization of
  $1,236,236 and $848,122 respectively                                               4,086,732           4,474,846
OTHER ASSETS                                                                         2,077,438           3,074,670
DEFERRED INCOME TAXES                                                                   76,623              38,312
                                                                             -----------------    ----------------
               TOTAL ASSETS                                                  $     324,941,398    $    291,764,166
                                                                             =================    ================

                       LIABILITIES & STOCKHOLDERS' EQUITY
                       ----------------------------------
CURRENT LIABILITIES:
  Line of credit                                                             $     191,285,333    $    170,674,820
  Current portion of long-term debt and capital leases                               2,094,172             915,010
  Accounts payable and accrued expenses                                             24,240,501          23,502,321
                                                                             -----------------    ----------------
               Total current liabilities                                           217,620,006         195,092,151
                                                                             -----------------    ----------------
LONG TERM LIABILITIES:
  Long-term debt and capital leases                                                  3,202,435           1,959,369
  Subordinated debt                                                                 11,859,348          11,243,060
  Common stock put warrants (Note 8)                                                 4,539,000           4,359,925
  Deferred income tax liability                                                        200,205             134,166
                                                                             -----------------    ----------------
               Total Long-term liabilities                                          19,800,988          17,696,520
                                                                             -----------------    ----------------

               TOTAL LIABILITIES                                                   237,420,994         212,788,671
                                                                             -----------------    ----------------
COMMITMENTS AND CONTINGENCIES (Note 10)

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,
   6,051,397 and 5,636,484 shares issued and outstanding, respectively                   6,051               5,636
  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                                                        33,133,207          31,178,371
  Retained earnings                                                                 54,379,946          47,790,288
                                                                             -----------------    ----------------
               TOTAL STOCKHOLDERS' EQUITY                                           87,520,404          78,975,495
                                                                             -----------------    ----------------

               TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                    $     324,941,398    $    291,764,166
                                                                             =================    ================

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-5
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
Years Ended March 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                                                      2002               2001               2000
                                                               ----------------   ----------------   ----------------
<S>                                                            <C>                <C>                <C>
Revenues, net                                                  $    564,151,260   $    548,146,953   $    421,046,773
Costs of revenues                                                   500,890,588        482,590,356        367,963,675
                                                               ----------------   ----------------   ----------------
               Gross profit                                          63,260,672         65,556,597         53,083,098
                                                               ----------------   ----------------   ----------------

OPERATING EXPENSES:
 Warehouse and delivery                                              12,917,553         15,120,997         12,306,859
 Selling, general and administrative                                 23,066,340         21,945,537         18,519,681
                                                               ----------------   ----------------   ----------------
               Total operating expenses                              35,983,893         37,066,534         30,826,540
                                                               ----------------   ----------------   ----------------

               Income from operations                                27,276,779         28,490,063         22,256,558
                                                               ----------------   ----------------   ----------------
OTHER (EXPENSE) INCOME:
 Interest expense, net                                              (16,369,706)       (18,801,734)       (10,902,244)
 Other                                                                   -                  -                  28,234
 Loss on impairment of investments (Note 2)                              -              (5,642,678)            -
                                                               ----------------   ----------------   ----------------
               Total                                                (16,369,706)       (24,444,412)       (10,874,010)
                                                               ----------------   ----------------   ----------------

               Income before provision for income taxes              10,907,073          4,045,651         11,382,548

PROVISION FOR INCOME TAXES                                            4,317,415          1,587,284          4,339,000
                                                               ----------------   ----------------   ----------------

INCOME FROM CONTINUING OPERATIONS                                     6,589,658          2,458,367          7,043,548
                                                               ----------------   ----------------   ----------------
DISCONTINUED OPERATIONS:
 Loss from discontinued operations, net of income taxes                 -                  -                 (516,764)
 Gain on disposal of segment, net of income taxes                       -                  -                8,432,401
                                                               ----------------   ----------------   ----------------
               Gain on discontinued operations                          -                  -                7,915,637
                                                               ----------------   ----------------   ----------------

               NET INCOME                                      $      6,589,658   $      2,458,367   $     14,959,185
                                                               ================   ================   ================
Earnings Per Common Share - Basic:
 Continuing operations                                         $            .95   $            .36   $           1.05
 Discontinued operations                                                -                  -                     1.17
                                                               ----------------   ----------------   ----------------
               Net earnings per common share                   $            .95   $            .36   $           2.22
                                                               ================   ================   ================

EARNINGS PER COMMON SHARE - DILUTED:
 Continuing operations                                         $            .91   $           .34    $            .97
 Discontinued operations                                                -                  -                     1.08
                                                               ----------------   ----------------   ----------------
               Net earnings per common share                   $            .91   $           .34    $           2.05
                                                               ================   ================   ================
SHARES USED IN COMPUTING EARNINGS PER
COMMON SHARE:
 Basic                                                                6,967,991          6,812,483          6,673,617
                                                               ================   ================   ================
 Diluted                                                              7,252,593          7,202,903          7,296,884
                                                               ================   ================   ================

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-6
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIAIRES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>

                                                   Common Stock Shares         Common Stock Amounts
                                                  ---------------------        --------------------          Additional
                                                  Class A       Class B        Class A      Class B       Paid-in Capital
                                                  -------       -------        -------      -------       ---------------
<S>                                              <C>           <C>         <C>           <C>              <C>
BALANCE, March 31, 1999                          5,339,122     1,200,000   $     5,339   $     1,200      $29,956,769

 Issuance of common stock                           85,304             -            86             -                -
 Net proceeds from exercise of common
   stock options                                    66,375             -            66             -          360,696
 Issuance of common stock in connection
   with debt payment to Tri State
   Pharmaceuticals Consultants Corp.
   (Note 7b)                                        75,472             -            75             -          500,693
 Net income                                              -             -             -             -                -
                                                 ---------     ---------   -----------   -----------      -----------

BALANCE, March 31, 2000                          5,566,273     1,200,000         5,566         1,200       30,818,158

 Net proceeds from exercise of common
   stock options                                    35,440             -            35             -          110,248
 Issuance of common stock in connection
   with debt repayment to Tri State
   Pharmaceuticals Consultants Corp.
   (Note 7b)                                        34,771             -            35             -          249,965
 Net income                                              -             -             -             -                -
                                                 ---------     ---------   -----------   -----------      -----------

BALANCE, March 31, 2001                          5,636,484     1,200,000         5,636         1,200       31,178,371
                                                 ---------     ---------   -----------   -----------      -----------
  Net proceeds from exercise of common
   stock options                                   248,558             -           249             -        1,205,002
   Issuance of common stock for compensation        44,404             -            44             -          249,956
   Issuance of common stock in connection
     with debt repayment to Tri State
     Pharmaceuticals Consultants Corp.
     (Note 7b)                                     121,951             -           122             -          499,878
   Net income                                            -             -             -             -                -
                                                 ---------     ---------   -----------   -----------      -----------
BALANCE, March 31, 2002                          6,051,397     1,200,000   $     6,051   $     1,200      $33,133,207
                                                 =========     =========   ===========   ===========      ===========

<CAPTION>

                                                    Retained
                                                    Earnings         Total
                                                    --------         -----
<S>                                               <C>           <C>
BALANCE, March 31, 1999                           $30,372,736   $60,336,044

 Issuance of common stock                                   -            86
 Net proceeds from exercise of common
   stock options                                            -       360,762
 Issuance of common stock in connection
   with debt payment to Tri State
   Pharmaceuticals Consultants Corp.
   (Note 7b)                                                -       500,768
 Net income                                        14,959,185    14,959,185
                                                  -----------   -----------

BALANCE, March 31, 2000                            45,331,921    76,156,845

 Net proceeds from exercise of common
   stock options                                            -       110,283
 Issuance of common stock in connection
   with debt repayment to Tri State
   Pharmaceuticals Consultants Corp.
   (Note 7b)                                                -       250,000
 Net income                                         2,458,367     2,458,367
                                                  -----------   -----------

BALANCE, March 31, 2001                            47,790,288    78,975,495
                                                  -----------   -----------
  Net proceeds from exercise of common
   stock options                                            -     1,205,251
   Issuance of common stock for compensation                -       250,000
   Issuance of common stock in connection
     with debt repayment to Tri State
     Pharmaceuticals Consultants Corp.
     (Note 7b)                                              -       500,000
   Net income                                       6,589,658     6,589,658
                                                  -----------   -----------
BALANCE, March 31, 2002                           $54,379,946   $87,520,404
                                                  ===========   ===========

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-7
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000

<TABLE>
<CAPTION>

                                                                            2002            2001            2000
                                                                       ------------    ------------    ------------
<S>                                                                    <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income from continuing operations                                 $  6,589,658    $  2,458,367    $  7,043,548
 Adjustments to reconcile net income to net cash used in operating
   activities:
   Income (loss) from discontinued operations                                   -               -         7,915,637
   Depreciation and amortization                                          1,725,739       2,033,136         939,198
   Deferred income taxes                                                   (251,693)       (941,213)       (725,600)
   Asset impairment                                                               -       5,642,678             -
   Common stock issued for compensation                                     250,000             -               -
   Amortization of discount on subordinated debt                            616,288         557,066             -
   Non-cash change in value of common stock put warrants (Note 9)           179,075          45,919             -
   Decrease (increase) in operating assets:
    Accounts receivable                                                 (24,076,150)     (9,725,776)    (25,691,508)
    Inventories                                                          (9,074,118)    (12,644,519)    (40,834,355)
    Other assets                                                          5,905,791     (14,469,085)     26,401,905
   Increase (decrease) in operating liabilities:
    Accounts payable and accrued expenses                                   738,180      (7,152,411)     (2,186,477)
                                                                       ------------    ------------    ------------
             Net cash used in operating activities                      (17,397,230)    (34,195,838)    (27,137,652)
                                                                       ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Acquisition of property and equipment                                   (3,672,648)       (994,308)       (712,090)
                                                                       ------------    ------------    ------------
             Net cash used in investing activities                       (3,672,648)       (994,308)       (712,090)
                                                                       ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Net increase in line of credit                                          20,610,513      22,204,128      25,099,464
 Borrowings                                                               2,482,571      15,000,000       3,993,256
 Repayment of debt                                                       (2,246,710)     (1,911,802)     (1,953,373)
 Net proceeds from exercise of options and issuance of common
  stock                                                                   1,205,251         110,283         361,616
                                                                       ------------    ------------    ------------
             Net cash provided by financing activities                   22,051,625      35,402,609      27,500,963
                                                                       ------------    ------------    ------------
             Net increase (decrease) in cash                                981,747         212,463        (348,779)

CASH AND CASH EQUIVALENTS, beginning of year                                263,774          51,311         400,090
                                                                       ------------    ------------    ------------

CASH AND CASH EQUIVALENTS, end of year                                 $  1,245,521    $    263,774    $     51,311
                                                                       ============    ============    ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
 Cash paid for:
  Interest                                                             $ 16,377,634    $ 18,050,106    $ 10,762,927
                                                                       ============    ============    ============
  Income taxes                                                         $  1,549,552    $  8,108,953    $  5,279,000
                                                                       ============    ============    ============
 Non-cash financing activities:
  Notes issued                                                         $  2,686,367    $  1,563,533    $  2,873,369
                                                                       ============    ============    ============
  Common stock issued for business acquisition                         $        -      $        -      $    500,000
                                                                       ============    ============    ============
  Common stock issued for debt repayment (Note 7b)                     $    500,000    $    250,000    $        -
                                                                       ============    ============    ============

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                      F-8
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

Description of Operations
-------------------------

     Allou Health and Beauty Care,  Inc.,  (the  "Company") is a distributor  of
brand name health and beauty aids, cosmetics,  fragrances,  grocery products and
pharmaceuticals.  The Company also  distributes  generic brand health and beauty
aids and  manufactures  hair and skin care  products.  The  Company  sells these
products primarily to retailers throughout the United States.

Principles of Consolidation
---------------------------

     The accompanying  consolidated financial statements include the accounts of
the  Company  and  its  subsidiaries,   all  of  which  are  wholly-owned.   All
intercompany transactions and balances have been eliminated in consolidation.

Cash and Cash Equivalents
-------------------------

     Cash and cash equivalents  include cash and highly liquid  investments with
original maturities of three months or less.

Revenue Recognition
-------------------

     The  Company  recognizes  revenues  in  accordance  with  Staff  Accounting
Bulletin No. 101, or other  specific  authoritative  literature,  as applicable.
Accordingly,  revenues from merchandise  sales are recorded when all four of the
following  criteria are met: (i) persuasive  evidence of an arrangement  exists;
(ii) delivery has occurred or services have been  rendered;  (iii) the Company's
price  to the  buyer  is  fixed or  determinable;  and  (iv)  collectibility  is
reasonably assured. The Company reports its sales levels on a net revenue basis,
with net revenues  being computed by deducting from gross revenues the amount of
actual  sales  returns and the amount of reserves  established  for  anticipated
sales returns.

     The Company's  shipping and handling costs billed to customers are included
in revenue in accordance  with  Emerging  Issues Task Force  ("EITF")  issue No.
00-10, "Accounting for Shipping and Handling Revenues and Costs." The purpose of
this issue discussion was to clarify the classification of shipping and handling
revenues  and costs.  The  consensus  reached was that all shipping and handling
billed to  customers  should be recorded as  revenue.  Accordingly,  the Company
records  its  shipping  and  handling  amounts  within  net sales and  operating
expenses. Shipping and handling billed to customers and included in revenues for
fiscal 2002,  2001,  and 2000 was not  material.  Shipping  and handling  costs,
included in warehouse and delivery expenses,  totaled approximately  $3,661,435,
$4,753,858  and  $4,233,624  for the years ended March 31, 2002,  2001 and 2000,
respectively.

Fair Value of Financial Instruments
-----------------------------------

     The carrying values of financial instruments  approximate fair value due to
the relatively  short period of time between  origination of the instruments and
their expected  realization or, in the case of notes payable,  because the notes
are at interest  rates  competitive  with those that would be  available  to the
Company in the current market  environment.  See Note 8 for a description of the
Company's  accounting  for  contingent  put  warrants  issued in fiscal  2001 in
connection with subordinated debt, the value of which has been marked to market.
At March  31,  2002,  the  carrying  value of all  other  financial  instruments
approximated fair value.


                                      F-9
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk
----------------------------

     The  Company  extends  credit  based  on an  evaluation  of the  customer's
financial condition, generally without requiring collateral.  Exposure to losses
on receivables is principally  dependent on each customer's financial condition.
The Company monitors its exposure for credit losses and maintains allowances for
anticipated losses.

     Concentration  of credit risk with respect to trade accounts  receivable is
limited due to the number of entities and the size of those entities  comprising
the Company's  customer base, which is primarily in the United States. No single
customer accounted for more than 10% of the Company's  consolidated net revenues
during fiscal years 2001 and 2000. For fiscal year 2002, one customer  accounted
for 10% of the Company's consolidated net revenue.

Inventories
-----------

     Inventories,  which consist  primarily of finished goods, are stated at the
lower of average cost method or market, utilizing the first in, first out (FIFO)
method.

Prepaid Inventory Purchases
---------------------------

     As is  customary  in the  industry,  the Company at times  prepays  certain
suppliers  for  merchandise  purchased.  These  prepaid  purchases are generally
converted to inventory within 90 days.

Long-Lived Assets
-----------------

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets  to  be  Disposed  of,  "  long-lived  assets  and  certain  identifiable
intangibles   are  reviewed  for  impairment   whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable. An impairment would be recorded in circumstances where undiscounted
cash flows expected to be generated by an asset are less than the carrying value
of that asset.  The Company has performed a review of its long-lived  assets and
has determined that no impairment of the respective carrying values has occurred
as of March 31, 2002.

Property and Equipment
----------------------

     Property and  equipment are stated at cost.  Depreciation  is provided over
the estimated useful lives of the assets by use of straight-line and accelerated
methods.

Goodwill, net
-------------

     Goodwill, representing the excess of the purchase price over the fair value
of net assets acquired,  is being amortized using the straight-line method, over
periods  ranging  from ten to forty  years.  The Company  periodically  performs
reviews to evaluate the recoverability of goodwill and takes into account events
or circumstances that warrant revised estimates of useful lives or that indicate
that an impairment  exists.  Management  believes that there is no impairment to
recorded goodwill as of March 31, 2002.

     Amortization  of  goodwill  charged to  operations  amounted  to  $388,114,
$366,700  and  $148,073  for the  years  ended  March 31,  2002,  2001 and 2000,
respectively.


                                      F-10
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes
------------

     The provision  for income taxes is  determined in accordance  with SFAS No.
109,  "Accounting for Income Taxes."  Deferred tax assets and liabilities  arise
from temporary  differences  between the tax bases of assets and liabilities and
their reported amounts in the consolidated financial statements that will result
in taxable or deductible amounts in future years (see Note 13).

Per Share Data
--------------

     The Company  follows the provisions of SFAS No. 128,  "Earnings Per Share."
Basic net income per common share ("Basic EPS") is based on the weighted  effect
of all common shares issued and  outstanding,  and is calculated by dividing net
income  available  to  common   stockholders  by  the  weighted  average  shares
outstanding  during the period.  Diluted net income per common  share  ("Diluted
EPS") is  calculated  by dividing net income by the weighted  average  number of
common shares used in the basic earnings per share  calculation  plus the number
of common shares that would be issued  assuming  conversion  of all  potentially
dilutive  common shares  outstanding  SFAS No. 128 requires the  presentation of
both Basic EPS and Diluted  EPS on the face of the  consolidated  statements  of
income.  See Note 14 for a description of the Company's  calculation of earnings
per share.

Stock Based Compensation
------------------------
     The Company  complies with the provisions of SFAS No. 123,  "Accounting for
Stock-Based  Compensation,"  by continuing to apply the provisions of Accounting
Principles Board Opinion No. 25,  "Accounting for Stock Issued to Employees" and
Financial  Accounting  Standards Board  Interpretation  No. 44,  "Accounting for
Certain Transactions  Involving Stock Compensation" while providing the required
pro forma disclosures as if the fair value method had been applied.

     Accordingly,   no   compensation   expense  has  been   recognized  in  the
consolidated  financial statements for options granted with an exercise price at
least  equal to  market  value at the  date of grant or in  connection  with the
Company's various employee stock option plans (see Note 11).

Catalog Costs
-------------
     The costs of producing and distributing the Company's  principal  catalogs,
which are produced  periodically  throughout the year, are charged to expense as
incurred.

Comprehensive Income
--------------------
     The  Company  complies  with  the  provisions  of SFAS No.  130  "Reporting
Comprehensive  Income",  which established the reporting of comprehensive income
and  its  components.  The  adoption  of this  statement  had no  impact  on the
Company's net income or  shareholders'  equity.  For fiscal years 2002, 2001 and
2000,  the  Company's  operations  did not  give  rise to  items  includable  in
comprehensive income which were not already included in net income. Accordingly,
the Company's comprehensive income is the same as its net income for all periods
presented.

Research and Development
------------------------
     Research and development costs associated with the Company's  manufacturing
segment are  expensed as  incurred.  Such costs were not  material for the years
ended March 31, 2002, 2001 and 2000.


                                      F-11
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Derivative Instruments
----------------------

     In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative  Instruments and Hedging  Activities." This statement
establishes  accounting  and  reporting  standards for  derivative  instruments,
including certain derivative  instruments  embedded in other contracts,  and for
hedging  activities.  SFAS No. 133, as amended by SFAS No. 137, is effective for
all fiscal years beginning after June 15, 2000 and does not require  retroactive
restatement of prior period financial  statements.  This statement  requires the
recognition of all derivative instruments as either assets or liabilities in the
balance sheet measured at fair value.  Derivative  instruments are recognized as
gains or losses in the period of change. If certain conditions are met where the
derivative instrument has been designated as a fair value hedge, the hedge items
may also be marked to market through  earnings,  thus creating an offset. If the
derivative is designed and  qualifies as a cash flow hedge,  the changes in fair
value of the derivative  instrument may be recorded in comprehensive income. The
Company  adopted this statement on April 1, 2001, and the impact of adoption did
not have a material effect on the Company's financial position.

     See Note 8 for a description of the Company's accounting for contingent put
warrants issued in fiscal 2001 in connection with  subordinated  debt. The value
of these warrants has been accounted for as a derivative since issuance.

Use of Estimates
----------------
     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of the revenues
and expenses during the reported period.  Actual results could differ from those
estimates.

Recently Issued Accounting Pronouncements
-----------------------------------------
     In July 2001, the Financial Accounting Standards Board issued statements of
Financial Accounting  Standards No. 141. Business  combinations ("SFAS 141") and
No. 142 Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141 requires all
business  combinations  initiated  after June 30, 2001 to be accounted for using
the  purchase  method.  Under SFAS 142,  goodwill  and  intangible  assets  with
indefinite  lives are no longer  amortized  but are  reviewed  annually (or more
frequently if impairment indicators arise) for impairment.  Separable intangible
assets  that  are not  deemed  to have  indefinite  lives  will  continue  to be
amortized  over their  useful lives (but with maximum  life).  The  amortization
provisions of SFAS 142 apply to goodwill and  intangible  assets  acquired after
June 30, 2001. With respect to goodwill and intangible  assets acquired prior to
July 1, 2001, the Company is required to adopt SFAS 142 effective April 1, 2002.
The Company has determined  that the adoption of the provisions of SFAS 142 will
have no material  impact on its results of operations  and  financial  position,
other than amortization  expense of approximately  $388,000 which will no longer
be charged to operations.

     In August 2001, the Financial  Accounting  standards  board issued SFAS No.
144,  "Accounting  for the  Impairment or Disposal of Long-lived  Assets".  This
statement  addresses  financial  accounting  and reporting for the impairment or
disposal of  long-lived  assets.  SFAS No. 144 will be effective  for  financial
statements  of fiscal years  beginning  after  December  15,  2001.  The Company
expects to adopt this  statement for the fiscal year ending March 31, 2003,  and
does  not  anticipate  that it will  have a  material  impact  on the  Company's
consolidated financial results.

Reclassifications
-----------------
     Certain prior year amounts have been reclassified to conform to the current
year presentation.


                                      F-12
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   ACQUISITIONS, INVESTMENTS AND DISPOSITIONS
     ------------------------------------------
     On April 23, 1999,  the Company sold a majority  interest in The  Fragrance
Counter Inc., then a wholly-owned subsidiary, for net proceeds of $11,296,584 in
cash  and  $8,900,000  in  notes.  $400,000  was due and  paid in July  1999 and
$8,500,000 was due in April 2000 with accrued  interest.  The Company retained a
minority interest in ibeauty.com, the successor to the Fragrance Counter Inc.

     In April 2000,  the Company was notified that the makers of the notes would
not honor their obligation.  As a result,  effective March 31, 2000, the Company
recorded a  valuation  allowance  of  $8,500,000  equal to the face value of the
notes. As a result of the sale, the Company  recognized a gain of $8,432,401 net
of taxes in fiscal 2000,  after the provision for the  valuation  allowance.  At
March  31,  2001,  the  Company   determined  that  its  minority   interest  in
ibeauty.com,  successor to the Fragrance  Counter Inc.,  had become  permanently
impaired.  Consequently, the Company provided for a full allowance of $3,000,000
in fiscal 2001.

     On  January  3,  2000,  the  Company  purchased  the  intangible  assets of
Tri-State  Pharmaceutical  Consultants Corp., a pharmaceutical  wholesaler,  for
cash, stock and notes payable (see Note 7b) aggregating $ 2,873,368. The Company
also entered into an  employment  contract  with  Tri-State's  former  principal
shareholder.

     On  February 8, 2000,  the Company  entered  into an  agreement  whereby it
obtained a 50% interest in Discreet Medical  Solutions,  LLC ("DMS"),  a company
formed to create an  internet  portal to  provide  on-line  delivery  of certain
medical products and content. The terms of the agreement required the Company to
advance up to $5,000,000 for general working capital purposes. During the fourth
quarter of fiscal  2001,  the use of Discreet  Medical  Solutions as an internet
portal  was  abandoned,   resulting  in  an  impairment  charge  of  $2,642,678,
representing the amount advanced and invested to date. No further investments or
advances have been made.

3.   OTHER CURRENT ASSETS
     --------------------

The components of other current assets are:

<TABLE>
<CAPTION>

                                                    March 31, 2002        March 31, 2001
                                                    --------------        --------------
<S>                                                  <C>                   <C>
Interest bearing loans to officers (Note 15)         $     232,324         $  1,300,000
Prepaid expenses and other                               1,758,002            1,696,330
                                                     -------------         ------------
                                                     $   1,990,326         $  2,996,330
                                                     =============         ============
</TABLE>

4.   PROPERTY AND EQUIPMENT
     ----------------------

Property and equipment consists of:

<TABLE>
<CAPTION>

                                                          March 31,
                                             ----------------- -----------------
                                                   2002              2001                 Estimated Useful Lives
                                                   ----              ----            --------------------------------
<S>                                              <C>               <C>               <C>
Machinery and equipment                          $     3,968,044   $     2,971,003   5 years
Furniture, fixtures and office equipment               6,776,084         3,648,480   3-10 years
Leasehold Improvements                                 6,875,447         4,641,077   lesser of lease term or estimated
                                                 ---------------   ---------------   useful life
                                                      17,619,575        11,260,560

Less:  Accumulated depreciation and                    6,629,703         5,588,326
       amortization                              ---------------   ---------------

                                                 $    10,989,872   $     5,672,234
                                                 ===============   ===============

</TABLE>

Depreciation  expense for the years ended March 31, 2002, 2001 and 2000 amounted
to $1,041,377, $810,150 and $627,454, respectively.


                                      F-13
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.   OTHER ASSETS
     ------------

The components of other assets are:

<TABLE>
<CAPTION>

                                                                        March 31,
                                                           ----------------------------------
                                                                 2002             2001
                                                           ----------------- ----------------
<S>                                                        <C>               <C>
     Deferred financing costs                              $     1,150,729   $       862,752
     Interest bearing loans to officers (Note 15)                     -            1,371,016
     Cash Surrender value of life insurance                        876,626           793,216
     Other                                                          50,083            47,686
                                                           ---------------   ---------------
                                                           $     2,077,438   $     3,074,670
                                                           ===============   ===============

</TABLE>

     Deferred financing costs represent fees paid to our lenders for our various
financing  arrangements.  These costs are  amortized  on a straight  line basis,
which  approximates  the effective  interest method over the term of the related
debt. Amortization expense for the years ended March 31, 2002, 2001 and 2000 was
approximately $296,000, $856,000 and $164,000, respectively.

6.   LINE OF CREDIT
     --------------

     The Company had a secured line of credit  agreement  with a  consortium  of
banks which  expired in September  2001.  The financing  agreement  provided for
advances of up to 85% of eligible  receivables  and 60% of eligible  inventories
with aggregate  maximum advances of  $180,000,000.  Interest on the loan balance
was payable  monthly at 13/4% above the prime rate or 31/2% above the Eurodollar
rate, at the option of the Company. The loan was collateralized by the Company's
accounts  receivable and inventories.  In addition,  the Company was required to
abide by certain financial covenants.

     On  September  4, 2001,  the Company  entered  into a three year  financing
agreement  with Congress  Financial  Corp.  and Citibank N.A. for a $200,000,000
revolving credit facility. Interest is being charged at a rate of .25% per annum
above the  prime  rate or at the  Company's  option  2.75%  per annum  above the
Eurodollar rate. The credit facility is secured by all of the Company's  assets,
except for those secured by equipment  leases.  Certain  officers of the Company
have personally  guaranteed the credit  facility for a maximum of  approximately
$10,000,000.  In addition,  there are various financial covenants with which the
Company must comply. At March 31, 2002, the Company was in compliance with these
financial covenants. The effective interest rate charged to the Company at March
31, 2002 and 2001 was 4.59% and 7.85%, respectively.

     In accordance with EITF Issue No 95-22,  "Balance Sheet  Classification  of
Borrowings  Outstanding  under  Revolving  Credit  Agreement that Include both a
Subjective Acceleration Clause and a Lock Box Arrangement", the Company accounts
for the secured line of credit as a short-term obligation.

7.   LONG-TERM DEBT AND CAPITAL LEASES
     ---------------------------------

Long-term debt and capital leases consists of:

(a)  Capital  leases  collateralized  by certain of the Company's  equipment and
     leasehold  improvements,  payable  in  aggregate  monthly  installments  of
     approximately  $67,885,  which include  interest at rates varying from 3/8%
     above the prime rate to 11.4%.  At March 31, 2002 and 2001,  the  principal
     balance outstanding was $5,296,607 and $2,433,442, respectively.

(b)  Notes   payable  to  former   stockholders   of  Tri-State   Pharmaceutical
     Consultants  Corp. (Note 2), with interest payable on the declining balance
     at 6% per annum through July 1, 2002. During fiscal 2001,  $250,000 of this
     debt and related  accrued  expenses  was repaid with the issuance of 34,771
     shares of the Company's common stock.  During fiscal 2002, $500,000 of this
     debt and  related  accrued  interest  was repaid  through  the  issuance of


                                      F-14
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     121,951  shares of common stock.  At March 31, 2002 and 2001, the principal
     balance outstanding was $- 0 - and $440,057, respectively.

The aggregate long-term debt is payable as follows:

       Year Ending March 31,
       2003                                                  $2,094,172
       2004                                                   2,291,645
       2005                                                     614,433
       2006                                                     296,357
                                                          -------------
                                                          $   5,296,607

       Less current portion:                                 (2,094,172)
                                                          -------------
                                                          $   3,202,435
                                                          =============

8.   SUBORDINATED DEBT
     -----------------

     During  fiscal 2001,  the Company  issued to an  institutional  investor an
aggregate  of  $15,000,000  of 12% senior  subordinated  notes due July 2005 and
seven  year  warrants  to  purchase  an  aggregate  of  1,700,000  shares of the
Company'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.  In the event that these  warrants have not been  converted to
common  stock,  the investor may have the right,  under  certain  circumstances,
presently to be based on  financial  results for the year ending March 31, 2003,
to put the  warrants  to the  Company  after  five  years  at a price  of $8 per
warrant.   These  warrants  were  initially   valued  at  $4,314,006  using  the
Black-Scholes  Pricing Model.  The initial value of the warrants was established
as a discount to the subordinated debt, and this discount is being accreted over
the life of the subordinated notes. Included in interest expense for fiscal 2002
and 2001 is $616,288 and $557,066, representing such accretion, respectively.

     The value of these  contingent  common  stock put warrants put warrants has
been reflected as a liability in the accompanying  consolidated  balance sheets.
In accordance with EITF Issue No. 00-19,  "Accounting  for Derivative  Financial
Instruments  Indexed to, and Potentially Settled in, a Company's Own Stock", the
warrants will be marked to market  through  earnings on a quarterly  basis.  The
value  of  these  common  stock  put  warrants  at  March  31,  2002 and 2001 is
$4,539,000 and $4,359,925, respectively. Included in interest expense for fiscal
2002 and 2001 is $179,075  and $45,919  representing  the change in the value of
these warrants for fiscal 2002 and 2001 respectively.

9.   ACCOUNTS PAYABLE AND ACCRUED EXPENSES
     -------------------------------------

Accounts payable and accrued expenses consist of:

<TABLE>
<CAPTION>

                                                                        March 31,
                                                           ----------------------------------
                                                                 2002             2001
                                                           ----------------- ----------------
<S>                                                         <C>               <C>
     Accounts payable for inventory purchases               $    21,499,032   $    20,902,427
     Accrued selling, general and administrative expenses         1,317,862           947,551
     Accrued interest                                               783,970           970,974
     Accrued payroll                                                639,637           681,369
                                                            ---------------   ---------------
                                                            $    24,240,501   $    23,502,321
                                                            ===============   ===============

</TABLE>


                                      F-15
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  COMMITMENTS AND CONTINGENCIES
     -----------------------------

Operating Leases
----------------

     The Company is obligated  under real  property  operating  leases  expiring
through  September  2010. As of March 31, 2002,  total minimum  annual  rentals,
excluding additional payments for real estate taxes and certain expenses, are as
follows:

    Year Ending March 31,
    2003                                $1,281,192
    2004                                 1,094,151
    2005                                 1,104,670
    2006                                   475,574
    2007-2010                              409,327

     Rent expense for the years ended March 31, 2002,  2001 and 2000 amounted to
$1,404,985, $1,330,845 and $1,157,837, respectively.

Collective Bargaining Agreement
-------------------------------

     The Company has an agreement with the National  Organization  of Industrial
Trade Unions which  terminates on December 14, 2003.  The  agreement  covers all
warehouse and receiving employees,  excluding supervisory personnel and provides
for salaries, pension and certain other benefits as defined in the agreement.

Defined Contribution Plan
-------------------------

     Effective  April 1, 1996,  the Company  established a defined  contribution
plan  (401k) for  substantially  all  employees  not  covered  under  collective
bargaining agreements.  All employees over the age of 21, with at least one year
of service to the Company, can contribute from 2% to 15% of their gross salaries
limited to Internal  Revenue Service  regulations.  Contributions by the Company
are optional. For the years ended March 31, 2002, 2001 and 2000, the Company did
not contribute to this plan.

Employment Agreements
---------------------

     The  Company  has  three-year  employment  agreements  with  three  of  its
officers,  which expire July 31, 2004. These agreements provide for each officer
to receive an annual  salary of  $500,000  and  bonuses  based on the  Company's
earnings.  For the years  ended  March 31,  2002,  2001 and 2000,  such  bonuses
aggregated $- 0 -, $330,000 and $1,536,000, respectively.

Legal Proceedings
-----------------

     The Company is a party to a number of legal proceedings as either plaintiff
or defendant,  all of which are considered routine litigation  incidental to the
business of the  Company.  Management  believes  that the results of these legal
proceedings will not have a material  adverse effect on the Company's  financial
condition, results of operations or liquidity.

11.  STOCK OPTION PLANS
     ------------------

     The Company  has  adopted  four Stock  Option  Plans which  provide for the
granting of stock options to certain  employees and  directors.  An aggregate of
3,800,000  shares of common stock are  reserved  for  issuance  under the Plans.
Incentive  stock  options are  granted at no less than fair market  value of the
shares on the date of grant. Options granted to individuals owning more than 10%
of the voting power of the  Company's  capital  stock are granted at 110% of the
fair market value at the date of grant.


                                      F-16
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Option  activity for the years ended March 31, 2002,  2001 and 2000, was as
follows:

<TABLE>
<CAPTION>

                                                         Weighted                      Weighted                       Weighted
                                                          Average                       Average                        Average
                                                         Exercise                      Exercise                       Exercise
                                            2002           Price           2001          Price           2000           Price
                                            ----           -----           ----          -----           ----           -----
<S>                                          <C>            <C>      <C>                   <C>      <C>                   <C>
Options outstanding at beginning
of year                                      2,938,342      $5.65           2,774,465      $5.81           2,489,420      $5.64
    Granted                                    771,471       3.51             255,832       3.81            388,300       6.77
    Exercised                                 (248,557)      4.85             (35,440)      5.36           ( 66,375)      5.44
    Cancelled                                 (363,539)      6.65             (56,515)      5.38            (36,880)      5.37
                                             ---------                      ---------                      ---------
Options outstanding at end of year           3,097,717       5.06           2,938,342       5.65          2,774,465       5.81
                                             =========                      =========                     =========
Option price range at end of year      $3.25 to $7.70                $3.00 to $10.00                $4.00 to $10.00
                                       =====    =====                =====    ======                =====    ======
Weighted - average fair value of
options granted during the year                 $3.32                          $3.56                          $6.07
                                                =====                          =====                          =====

</TABLE>

     The  Company has adopted the  disclosure  only  provisions  of SFAS No. 123
"Accounting  for  Stock-Based  Compensation."  If the  Company  had  elected  to
recognize  compensation  costs  based on the fair value at the date of grant for
awards  consistent  with the  provisions  of SFAS No. 123, net income per common
share from continuing operations would have been reduced to the following:

<TABLE>
<CAPTION>

                                                                             Years Ended March 31,
                                                             ---------------------------------------------------
                                                                  2002              2001              2000
                                                             -------------     ------------      ---------------
     <S>                                                      <C>              <C>               <C>
     Net Income from Continuing Operations - Pro Forma        $  5,461,853     $  1,356,769      $  6,210,756
     Diluted Earnings Per Common Share from Continuing
       Operations - Pro Forma                                 $        .75     $        .19      $        .86

</TABLE>

     The  weighted  average  fair  values at date of grant for  options  granted
during fiscal 2002, 2001 and 2000 were $1.83, $2.51 and $3.09, respectively, and
were  estimated  using the  Black-Scholes  option  pricing  model  utilizing the
following assumptions: No dividend yield; expected volatility rates of 69%, 60%,
and 54%  respectively;  risk free interest rates  approximating  6%, 6%, and 4%,
respectively, and expected lives of 5 years.

12.  STOCKHOLDERS' EQUITY
     --------------------

     The  Company is  authorized  to issue  15,000,000  shares of Class A common
stock.  The Company is also  authorized to issue  1,000,000  shares of preferred
stock.  Holders of Class A Common  Stock and Class B Common Stock share pro rata
in all  dividends  declared  by the Board of  Directors.  The holders of Class A
Common  Stock and Class B Common  Stock are  entitled  to one and five votes per
share,  respectively,  for every matter on which the stockholders of the Company
are entitled to vote.  Each share of Class B Common Stock is  convertible at the
option of the holder  into one share of Class A Common  Stock.  All  outstanding
shares of Class A Common Stock and Class B Common Stock are freely transferable,
subject to applicable law. The Company is authorized to issue  2,200,000  shares
of Class B Common Stock.

     During fiscal 2000,  employees of the Company  exercised  stock options for
66,375 shares, which resulted in net proceeds to the Company of $360,762.

     On January 4, 2000,  the Company  issued  75,472  common  shares  valued at
$500,768,   in  connection   with  its  purchase  of  Tri-State   Pharmaceutical
Consultants Corp (see Note 2).

     During fiscal 2001,  employees of the Company  exercised  stock options for
35,440 shares which resulted in net proceeds to the Company of $110,283.  During
fiscal 2001,  the Company  issued  34,771  shares  valued at $250,000 as partial
repayment  of  the  debt  to  the  former  owner  of  Tri-State   Pharmaceutical
Consultants Corp. (see Note 7b).


                                      F-17
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     During fiscal 2002,  employees of the Company  exercised  stock options for
248,558 shares which resulted in net proceeds to the Company o $1,205,251.

     During  fiscal  2002,  the Company  issued  121,951  shares of common stock
valued at $500,000  as a partial  repayment  of the debt to the former  owner of
Tri-State Pharmaceutical Consultants Corp. (see Note 7b).

     During fiscal 2002, the Company issued 44,404 shares of common stock valued
at $250,000 for employee compensation.

13.  INCOME TAXES
     ------------

     The  components  of income  tax  expense  from  continuing  operations  are
summarized as follows:

                                           Years Ended March 31,
                            ---------------------------------------------------
                                  2002             2001              2000
                            -------------     --------------   ----------------
     Current:
       Federal              $    4,321,427    $    1,618,154   $    3,553,000
       State                       683,113           275,383          679,600
                            --------------    --------------   --------------
                                 5,004,540         1,893,537        4,232,600
                            --------------    --------------   --------------
     Deferred:
       Federal                    (613,248)         (263,811)          98,000
       State                       (73,877)          (42,442)           8,400
                            --------------    ---------------  --------------
                                  (687,125)         (306,253)         106,400
                            ---------------   --------------   --------------
     Total                  $    4,317,415    $    1,587,284   $    4,339,000
                            ==============    ==============   ==============

The following is a  reconciliation  of the federal  statutory income tax rate to
the effective tax on income from continuing operations:

                                                          Years Ended March 31,
                                                       -------------------------
                                                       2002     2001      2000
                                                       ------   ------    -----

     Federal Statutory Income Tax Rate                 34.0%    34.0%     34.0%
     Increase in Tax Rates Resulting from:
      State Income Taxes, Net of Federal Tax Benefits   4.1%     4.5%      4.1%
      Other                                             1.5%     0.7%      0.0%
                                                       ------   ------    -----
     Effective Tax Rate From Continuing Operations     39.6%    39.2%     38.1%

Deferred tax assets (liabilities) as of March 31, 2002 and 2001 are comprised of
the following:

     Accounts receivable valuation allowance    $   919,087    $    534,958
     Inventory cost capitalization                  240,000         502,109
     Depreciation                                  (187,046)       (126,840)
     Other                                          220,865          30,987
                                                -----------   -------------
     Net deferred tax asset                     $ 1,192,906    $    941,213
                                                ===========    ============


                                      F-18
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14.  EARNINGS PER COMMON SHARE
     -------------------------

The following table sets forth a reconciliation of the  weighted-average  shares
(denominator)  used  in the  computation  of  basic  and  diluted  EPS  for  the
statements of income presented herein.

<TABLE>
<CAPTION>

                                                                                    Years Ended March 31,
                                                                    ------------------------------------------------
                                                                         2002              2001             2000
                                                                    -------------     -------------    -------------
    <S>                                                                 <C>               <C>              <C>
     Basic                                                              6,967,991         6,812,483        6,673,617
     Assumed exercise of stock options and warrants                       284,602           390,420          623,267
                                                                    -------------     -------------    -------------
     Diluted                                                            7,252,593         7,202,903        7,296,884
                                                                    =============     =============    =============
     Potentially dilutive securities excluded from computations         1,394,700         1,620,090          320,250
       because they are anti-dilutive                               =============     =============    =============

</TABLE>

Net income as presented in the consolidated  statements of income is used as the
numerator  in the EPS  calculation  for  both  the  Basic  EPS and  Diluted  EPS
computations.

15.  RELATED PARTY TRANSACTIONS
     --------------------------

     The Company purchases inventories from various entities that are controlled
by certain of the Company's  officers.  For the years ended March 31, 2002, 2001
and 2000, purchases from related parties amounted to $21,871,115, $2,513,523 and
$12,229,183, respectively.

     The  company has issued  loans to certain  shareholders,  which  management
believes were extended on terms which are  equivalent to market value (see Notes
3 and 5). The loans bear interest at 9%.

16.  SEGMENT DATA
     ------------

     The Company  follows the  provisions  of SFAS No. 131,  "Disclosures  about
Segments  of  an  Enterprise  and  Related  Information."  Reportable  operating
segments  are  determined  based  on  the  Company's  management  approach.  The
management  approach,  as defined by SFAS No.  131, is based on the way that the
chief operating  decision-maker  organizes the segments within an enterprise for
making operating decisions and assessing performance.  The operating segments of
the Company are managed  separately  because each segment represents a strategic
business unit that offers different products or a different customer base.

The Company's reportable operating segments are:

     a)   Wholesale  distribution  of cosmetics,  fragrances,  health and beauty
          aids and non-perishable food products.
     b)   Wholesale distribution of pharmaceuticals.
     c)   Manufacturing of hair and skin care products.

     The accounting policies of the Company's operating segments are the same as
those  described in Note 1 - Summary of  Significant  Accounting  Policies.  The
Company evaluates the performance of its segments based on segment profit, which
includes the overhead charges directly  attributable to the segment and excludes
certain expenses,  which are managed outside the reportable segments.  Corporate
expenses  including interest are being allocated based on percentage of sales by
segment.


                                      F-19
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Segment data from continuing  operations for each of the three years in the
period ended March 31, 2002 was as follows:

<TABLE>
<CAPTION>

                                               Wholesale           Pharmaceuticals
                                             Distribution           Distribution          Manufacturing         Consolidated
                                             ------------           ------------          -------------         ------------
   <S>                                        <C>                    <C>                    <C>                 <C>
   Year Ended March 31, 2002

     Revenue                                  $332,605,784           $223,330,103           $8,215,373          $564,151,260

     Depreciation and
     amortization                                1,285,203                 55,680              384,856             1,725,739
     Income (loss) from
     operations
       before taxes                              7,908,752              7,031,454           (4,033,133)           10,907,073
     Segment assets                            269,203,567             47,176,117            8,561,714           324,941,398

   Year Ended March 31, 2001

      Revenue, net                            $311,619,400           $228,533,005           $7,994,548          $548,146,953

      Depreciation and                           1,748,057                 61,154              223,925             2,033,136
      amortization
      Income (loss) from
      operations
       before taxes                             (1,610,282)             9,583,925           (3,927,992)            4,045,651
      Segment assets                           231,916,593             52,376,525            7,471,048           291,764,166

   Year Ended March 31, 2000

      Revenue                                 $325,801,012            $87,918,425           $7,327,336          $421,046,773

      Depreciation and                             743,110                 53,700              142,388               939,198
      amortization
      Income (loss) from
      operations
       before taxes                             11,250,797                406,067             (274,316)           11,382,548
      Segment assets                           210,165,467             43,453,064            6,336,921           259,955,452

</TABLE>


                                      F-20
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Allou Health and Beauty Care, Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States,  the financial  statements of Allou Health and Beauty Care,  Inc.
included  in this Form 10-K and have  issued  our report  thereon  dated July 2,
2001.  Our audits  were made for the  purpose of forming an opinion on the basic
financial  statements taken as a whole. This schedule (Schedule II - Schedule of
Valuation and  Qualifying  Accounts) is presented for purposes of complying with
the  Securities  and  Exchange  Commission's  rules and is not part of the basic
financial statements. This schedule, for the year ended March 31, 2001, has been
subjected  to the  auditing  procedures  applied  in  our  audits  of the  basic
financial statements and, in our opinion, fairly states in all material respects
the  financial  data  required to be set forth  therein in relation to the basic
financial statements taken as a whole.


                                        ARTHUR ANDERSEN LLP

Melville, New York
July 2, 2001

This  Report  of  Independent  Public  Accountants  on  Schedule  is a copy of a
previously  issued  Arthur  Andersen  LLP  ("Andersen")  report and has not been
reissued by Andersen. The inclusion of this previously issued Andersen report is
pursuant to the "Temporary  Final Rule and Final Rule:  Requirements  for Arthur
Andersen  LLP  Auditing  Clients,"  issued by the U.S.  Securities  and Exchange
Commission  in March 2002.  Note that this  previously  issued  Andersen  report
refers to the Schedule as of and for the year ended March 31, 2001.


                                      F-21
<PAGE>

              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE

To Allou Health and Beauty Care, Inc.:

We have audited, in accordance with auditing standards generally accepted in the
United States,  the financial  statements of Allou Health and Beauty Care,  Inc.
included  in this Form 10-K and have  issued our report  thereon  dated June 19,
2000.  Our audits  were made for the  purpose of forming an opinion on the basic
financial  statements taken as a whole. This schedule (Schedule II - Schedule of
Valuation and  Qualifying  Accounts) is presented for purposes of complying with
the  Securities  and  Exchange  Commission's  rules and is not part of the basic
financial statements. This schedule, for the year ended March 31, 2000, has been
subjected  to the  auditing  procedures  applied  in  our  audits  of the  basic
financial statements and, in our opinion, fairly states in all material respects
the  financial  data  required to be set forth  therein in relation to the basic
financial statements taken as a whole.


/s/ Mayer Rispler & Company, P.C.
Mayer Rispler & Company, P.C.
Certified Public Accountants


                                      F-22
<PAGE>

ALLOU HEALTH AND BEAUTY CARE, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<TABLE>
<CAPTION>

                                                                        Column C          Column D
                     Column A                         Column B         Additions         Deductions         Column E
----------------------------------------------        ----------       ----------       -------------     -------------

                                                      Balance at       Charged to        Write-off of
                                                      Beginning        Costs and        Uncollectible       Balance at
                   Description                        of Period         Expenses           Accounts       End of Period
----------------------------------------------        ----------       ----------       -------------     -------------
<S>                                                   <C>               <C>                <C>              <C>
March 31, 2000
       Allowance for Doubtful Accounts                $1,615,965        $1,471,547         $1,802,512       $1,285,000
                                                      ==========        ==========         ==========       ==========
March 31, 2001
       Allowance for Doubtful Accounts                $1,285,000          $780,000           $727,925       $1,337,075
                                                      ==========          ========           ========       ==========

March 31, 2002
       Allowance for Doubtful Accounts                $1,337,075          $960,321          $   - 0 -       $2,297,396
                                                      ==========          ========          =========       ==========

</TABLE>

                        See Independent Auditor's Report


                                      F-23