EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT


          AGREEMENT  made as of  August 1, 2001  between  ALLOU  HEALTH & BEAUTY
CARE,  INC.,  a  Delaware  corporation  with  offices  at  50  Emjay  Boulevard,
Brentwood,  New York 11717 (the "Company"),  and HERMAN JACOBS,  residing at 116
Rutledge Street, Brooklyn, New York 11211 ("Employee").

                              W I T N E S S E T H :
                               - - - - - - - - - -

          WHEREAS,  Employee  has been  employed by the Company and has rendered
substantial services to the Company; and

          WHEREAS,  the Company believes that the  contributions  that have been
made and can continue to be made by Employee  toward the success of the business
of the Company are  valuable  and wishes to retain the  services of Employee for
its benefit; and

          WHEREAS,  the Company  desires to  continue to retain the  services of
Employee as its Chief Executive Officer and Chief Operating Officer; and

          WHEREAS,  Employee  is willing to  continue as such upon the terms and
conditions  herein set forth;

          NOW,  THEREFORE,  in  consideration  of the  premises  and the  mutual
covenants and  agreements  herein  contained,  the Company and Employee agree as
follows:

          1. Term.  The Company  hereby employs  Employee,  and Employee  hereby
accepts employment by the Company,  on the terms and conditions herein contained
for a term commencing August 1, 2001 (the  "Commencement  Date") and terminating
on July 31, 2004 ("Original  Term") unless sooner  terminated as herein provided
(the "Term").


<PAGE>

          2. Employment Duties.

            (a) During the Term,  Employee  shall  serve as the Chief  Executive
Officer and Chief Operating  Officer of the Company and Employee shall have such
responsibilities,  powers and duties as are  substantially  consistent  with his
present  responsibilities,  powers and duties.  Employee shall be subject to the
reasonable  direction of the Board of Directors of the Company.  Employee agrees
that during the Term he will devote his full time and attention  during  regular
business hours to the business and affairs of the Company except during vacation
periods and periods of illness or incapacity.  Notwithstanding the foregoing and
so long as his  activities do not interfere  with the  performance of his duties
hereunder,  Employee will be permitted to acquire,  own or deal in securities or
other  investments  except  that,  without  the  prior  written  consent  of the
Company's Board of Directors,  Employee may not invest in any business which has
business  relations or competes with the Company or any of its  subsidiaries  or
affiliates  unless  the  securities  of such  business  are listed on a national
securities exchange or traded in the over-the-counter market and the interest of
Employee does not exceed one (1%) percent of the  outstanding  securities of any
class of that  business.  In addition,  nothing  contained  herein shall prevent
Employee  from  serving as a director  or  trustee of any  corporation  or other
organization,  and in any other  capacity  with any  non-commercial  enterprise,
provided that such service does not materially interfere with the performance of
his duties hereunder and such business or organization does not compete with the
Company or any of its subsidiaries or affiliates.

            (b) It is understood that,  except for limited business travel which
shall be only such as is  reasonably  required  for him to  perform  his  duties
hereunder,  Employee's


<PAGE>

duties under this paragraph 2 are performed at the Company's principal executive
office in Brentwood, New York.

          3. Compensation and Benefits.

            (a) For the full,  prompt  and  faithful  performance  of all of the
duties and services to be performed by Employee hereunder, the Company agrees to
pay  Employee a salary  ("Base  Salary")  at the rate of Five  Hundred  Thousand
Dollars ($500,000) per year,  payable in equal  semi-monthly  installments or in
such other  manner as shall be mutually  agreeable  to Employee and the Company.
The Company's  Board of Directors may, in its  discretion,  at any time and from
time to time,  increase such Base Salary for Employee and grant  Employee  other
compensation,  including  bonuses,  in addition to that provided for  hereunder.
Employee's  compensation shall be reviewed at least once each year. Any increase
in Base Salary or other  compensation  shall in no way limit or reduce any other
obligation of the Company under this Agreement.

            (b) As additional  compensation,  Employee shall receive a sum equal
to:  (i) three  percent  (3%) of the  amount of any  increase  in the  Company's
earnings before interest and taxes ("EBIT") (as hereinafter  defined) at the end
of each fiscal year  during the term of this  Agreement  as compared to the EBIT
for the prior  fiscal year (an  "Increase")  for amounts of such  Increase up to
$2,000,000;  (ii) two percent (2%) of the amount of any Increase that is greater
than $2,000,000 but less than or equal to $3,000,000; and (iii) one percent (1%)
of the amount of any  Increase  exceeding  $3,000,000.  For the purposes of this
Agreement,  "EBIT"  shall be the annual  earnings  of the Company for the fiscal
year computed before any charges for interest expense and any federal,  state or
other taxes  relating to income,  and shall be  determined  in


<PAGE>

accordance with generally accepted accounting principles by the certified public
accountants  regularly  employed by the  Company  whose  determination  shall be
binding on the parties.

            The computation of "EBIT" shall be made as soon as practicable after
the end of each fiscal year and the computation provided for in the section 3(b)
may be paid in full  after  the end of each  fiscal  year.  If at the end of any
fiscal year,  the  Company's  EBIT does not exceed the EBIT for the prior fiscal
year,  Employee  shall not receive any additional  compensation  as set forth in
this section 3(b).

            (c) In addition to the  compensation  provided for herein,  Employee
shall  be  entitled  to  participate  in  any  bonus,  incentive   compensation,
retirement,   profit-sharing,   medical  payment,  disability,  health  or  life
insurance and other  benefit  arrangements  which may be or become  available to
executives of the Company.

            (d)  Throughout  the Original  Term,  the Company shall  continue to
provide  Employee  with  life  insurance  with  the  beneficiary  thereof  to be
designated by Employee in an amount not less than that in effect for Employee at
the date hereof and shall pay all premiums due thereunder.

            (e) Employee shall be entitled to reimbursement, not less frequently
than monthly,  for expenses  reasonably  incurred by him in  furtherance  of the
business of the Company and in the  performance of his duties  hereunder,  on an
accountable  basis  with  such  substantiation  as the  Company  may at the time
require from its senior executive officers.

            (f) During the Term,  Employee  shall be  entitled  to  continue  to
receive the fringe  benefits and perquisites  presently  provided for him by the
Company.  In order to enable  Employee  to most  effectively  perform his duties
hereunder, the Company will provide Employee with the use of an automobile to be
comparable  and equivalent to the price category


<PAGE>

car  presently  used by  Employee,  under a two-year  replacement  program,  and
payment of all expenses associated therewith.

            (g) Employee shall be entitled to four (4) weeks of vacation in each
twelve (12) month  period  during the Term,  to be taken at such times as may be
mutually and reasonably agreed upon by the Company and Employee.

          4.  Termination  upon Death.  The Term shall  terminate on the date of
Employee's death, except that Employee's Base Salary shall be paid to his estate
for a period  of one (1) year  after  the date of his  death.  If  Employee  was
entitled to receive any bonus,  incentive or similar form of compensation  under
any arrangement  with the Company which was to be based upon a period  extending
beyond the date of Employee's death, payment of a portion thereof,  equal to the
amount which would have been payable for the full period in which death  occurs,
multiplied  by a fraction,  the numerator of which is the number of days in such
period  through  the date of death  and the  denominator  of which is the  total
number of days in the full period,  shall be made at the time it would have been
made in accordance with such arrangement.

          5. Disability.  If during the Term Employee shall, because of physical
or mental  illness or incapacity,  become  totally unable to perform,  or in the
judgment of the Company  evidenced  by a  resolution  adopted in good faith by a
majority of its Board of Directors unable adequately to perform,  the duties and
services  required of him pursuant to paragraph 2(a) for a period of one hundred
eighty (180)  consecutive  days, the Company may, upon at least ninety (90) days
prior written  notice given at any time after the expiration of such one hundred
eighty (180) day period to Employee of its  intention to do so,  accelerate  the
end of the  Term to such  date as may be set  forth  in such  notice;  provided,
however,  that  the  end of the  Term  shall  not be  accelerated  prior  to the
effective  date of such  proposed  termination  of the Term  and the


<PAGE>

Term shall  remain in full force and effect if Employee  shall have  resumed the
full-time performance of his duties hereunder until such date of termination. In
case of such acceleration of the end of the Term,  Employee shall be entitled to
receive,  and the Company agrees to pay, his Base Salary for a period of one (1)
year after the date of his  termination due to disability and a pro rata portion
of the amount of any bonus,  incentive or similar form of compensation  which he
would have otherwise  been entitled to for the period in which the  acceleration
of the end of the Term occurs.

          6.  Confidential  Information.   All  confidential  information  which
Employee may now know or which  hereby may become known to Employee  relating to
the business of the Company or any customer or supplier of the Company shall not
be disclosed by Employee to any other person or entity either during the Term or
thereafter.  Such confidential information shall be returned to the Company upon
termination of Employee's employment.

          7. Non-Competition.

            (a) Employee agrees that during the Term and for a period of one (1)
year after the termination of his employment  with the Company,  he will not (i)
engage in or have any interest in any person, firm or corporation which engages,
directly or indirectly,  in competition  with the Company or its subsidiaries or
affiliates in the United States, in the sale of products or services of the type
in which  Employee  has been  directly  involved  during the Term in or have any
interest in any person,  firm or company which engages,  directly or indirectly,
in competition  with the Company or its subsidiaries or affiliates in the United
States for the business of any entity which was a customer of the Company or its
subsidiaries  or  affiliates  at any time  during the Term or (ii)  solicit  any
employees of the Company or any of its parents,  subsidiaries  or  affiliates to
leave their employ.


<PAGE>

            (b) For the purposes of this  paragraph 7,  Employee  will be deemed
directly or indirectly engaged in a business if he participates in such business
as a  proprietor,  partner,  joint  venturer,  shareholder,  director,  officer,
lender,  manager,  employee,  consultant,  adviser  or agent or if he in any way
controls such  business.  Employee shall not for purposes of this paragraph 7 be
deemed a shareholder or lender if he holds less than one (1%) of the outstanding
securities of any class of any publicly- or privately-owned  corporation engaged
in the same or similar  business to that of the Company or its  subsidiaries  or
affiliates,   provided  that  Employee  shall  not  be  in  a  control  position
(individually or as part of a group) with regard to such corporation.

            (c) In the event of a breach or threatened breach by Employee of any
of the  provisions  of this  paragraph 7, the Company  shall be  entitled,  upon
establishing the existence of such breach or threatened breach, to an injunction
to be issued by any tribunal of competent jurisdiction to restrain Employee from
committing or continuing any such violation. In any proceeding for an injunction
and upon any motion for temporary or permanent injunction,  Employee agrees that
his  ability  to answer in  damages  shall  not be a bar or be  interposed  as a
defense to the granting of such temporary or permanent  injunction  against him.
Employee  acknowledges  that the Company will not have an adequate remedy at law
in the event of any breach by him as  aforesaid  and that the Company may suffer
irreparable  damage  and  injury in the  event of such a breach by him.  Nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other  remedy  or  remedies  available  to  the  Company,   including,   without
limitation, the recovery of damages from Employee.

          8.  Representation by Employee.  Employee represents and warrants that
he  has  not  entered  into  any  other  agreement  or  understanding  which  is
inconsistent  with  the


<PAGE>

execution of this Agreement or which in any way will prevent full  compliance by
him with the terms of this Agreement.

          9.  Assignability.  This Agreement may not be assigned by Employee and
all of its terms and  conditions  shall be binding upon and inure to the benefit
of  Employee  and his heirs and legal  representatives  and the  Company and its
successors  and  assigns.  Successors  of the  Company  shall  include,  without
limitation, any corporation or corporations acquiring directly or indirectly all
or  substantially   all  of  the  assets  of  the  Company  whether  by  merger,
consolidation,  purchase, lease or otherwise and such successor shall thereafter
be deemed the "Company" for purposes hereof.

          10. Notices. All notices,  requests,  demands and other communications
provided  for hereby  shall be in writing  and shall be deemed to have been duly
given when delivered  personally,  sent by facsimile  transmission (with receipt
confirmed) or two days after being sent by registered or certified mail,  return
receipt  requested,  to the party  entitled  thereto at the address  first above
written or to such changed  address as the addressee may have given by a similar
notice.

          11. Modification. This Agreement may be modified or amended only by an
instrument  in writing  signed by Employee  and the  Company  and any  provision
hereof may be waived only by an instrument in writing signed by the party hereto
against whom any such waiver is sought to be enforced.

          12. Severability.  The invalidity or unenforceability of any provision
hereof  shall in no way  affect  the  validity  or  enforceability  of any other
provision contained herein.

          13.  Governing Law. This Agreement  shall be governed by and construed
in accordance with the laws of the State of New York.


<PAGE>

          14.  Captions.  The captioned  headings here  convenience of reference
only and are not intended to be construed to have any substantive effect.

          IN WITNESS  WHEREOF,  the parties hereto have this Agreement as of the
date first above written.

                                    ALLOU HEALTH & BEAUTY CARE, INC.



                                    By: /s/ David Shamilzadeh
                                        ----------------------------------------
                                        Name:    David Shamilzadeh
                                        Title:   President and
                                                 Chief Financial Officer




                                                 /s/ Herman Jacobs
                                          --------------------------------------
                                                   HERMAN JACOBS