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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K

[X]         ANNUAL  REPORT  PURSUANT  TO SECTION  13 OR 15(D) OF THE  SECURITIES
            EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998

                                       OR

[_]         TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
            EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ______

                           Commission file no. 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
 incorporation or organization)                              Identification No.)

50 EMJAY BOULEVARD, BRENTWOOD, NEW YORK                               11717
---------------------------------------                            -------------
(Address of principal executive offices)                            (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (516) 273-4000

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

                                                           Name of Each Exchange
Title of Each Class                                         On Which Registered
-------------------                                         -------------------

Class A Common Stock, par value $.001 per share          American Stock Exchange

        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. [_]

            The  aggregate  market value of the Common  Stock of the  Registrant
held by non-affiliates of the Registrant on June 23, 1998 was $73,120,880.  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.

            The number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:  4,651,155 shares of Class A
Common  Stock and  1,200,000  shares of Class B Common  Stock as of the close of
business on June 23, 1998.

                       DOCUMENTS INCORPORATED BY REFERENCE

            Certain portions of the Registrant's Proxy Statement relating to the
Registrant's  1998 Annual Meeting of Stockholders  are incorporated by reference
into Part III of this Form 10-K.



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<PAGE>



                                     PART I

ITEM 1.        BUSINESS

           Allou  Health & Beauty Care,  Inc.  (the  "Company" or "Allou"),  was
incorporated  under the laws of the State of  Delaware  in  January  1989 as the
successor  to Allou  Distributors,  Inc.  As used  herein,  unless  the  context
otherwise  requires,  the term  "Company"  refers to Allou Health & Beauty Care,
Inc. and its wholly-owned subsidiaries Allou Distributors,  Inc., M. Sobol, Inc.
("Sobol"),  Allou Personal Care Corp.  ("Allou Personal Care") and The Fragrance
Counter, Inc. ("The Fragrance Counter").

           The  Company  distributes  national  brand name health and beauty aid
("HBA") products,  fragrances and cosmetics,  non-perishable packaged food items
and prescription  pharmaceuticals  primarily to independent retailers in the New
York,  New  Jersey,  Connecticut,  Philadelphia  and  Miami  area.  The  Company
purchases  approximately 8,000 HBA products from such manufacturers as Procter &
Gamble Co.,  Johnson & Johnson and Gillette Co. and 7,000 fragrance and cosmetic
products directly from manufacturers  such as Revlon,  Inc. and Coty (a division
of Pfizer  Inc.) and from  secondary  sources for sale to more than 4,200 retail
outlets including small discount chains,  individual HBA suppliers and non-chain
supermarkets.  Fragrance and cosmetic  products are also marketed  nationally to
discount chain stores such as Wal-Mart  Stores,  Inc. and Sears,  Roebuck & Co.,
independent retail stores and pharmacies directly or through Company catalogues.
The Company also  distributes  approximately 50 HBA products under the trademark
"Allou Brands." Although this activity has accounted for only a small percentage
of revenues to date,  the Company is  expanding  its  marketing  efforts in this
area.

           In addition, the Company,  through its wholly-owned subsidiary Sobol,
serves  as  a  direct   manufacturers'   distributor  of  branded   prescription
pharmaceuticals.

           In  October  1995,  the  Company  purchased  selected  assets of Russ
Kalvin's, Inc. ("Russ Kalvin's").  The Russ Kalvin's acquisition has enabled the
Company to manufacture and distribute  salon quality hair and skin care products
through its wholly-owned subsidiary, Allou Personal Care.

           In April 1997,  the Company  launched an internet  retail store under
the Fragrance  Counter(TM)  name.  The  operations of The Fragrance  Counter are
conducted by the  Company's  subsidiary,  The Fragrance  Counter.  The Fragrance
Counter sells  fragrances  from  designers  such as Ralph Lauren,  Calvin Klein,
Versace, Estee Lauder, Chanel and Georgio Armani.

PRODUCTS

           The Company  distributes  five general  categories of products:  name
brand health and beauty aids, fragrances and cosmetics,  Allou Brands health and
beauty aids, food and prescription pharmaceuticals.




<PAGE>



           HBA Products
           ------------

           The Company  distributes  approximately 8,000 national name brand HBA
products.  Set  forth  below  are some of the 76  different  types  of  products
available from the Company in the national HBA line. However,  specific products
may vary depending upon the merchandise  which the Company is able to acquire at
a given time:

Allergy Relief                               Insecticides
Adhesive Strips and Bandages                 Liniments and Rubs  
Antacids                                     Lip Balms and Medication 
Baby Needs                                   Nail Care 
Bath Preps, Talcs, Colognes                  Nasal Sprays, Drops & Vapors 
Batteries and Flashlights                    Oral Antiseptics and Sprays 
Candy, Gum, Mints & Food                     Oral Hygiene
Cotton Products and Swabs                    Pain Relief
Cough and Cold Remedies                      Razor and Blades 
Denture Products                             Rubber Products and Gloves 
Deodorants                                   Sedatives and Awakeners 
Depilatories, Ladies Shave Preparations      Shampoos
Feminine Hygiene Products                    Shave Creams 
Film, Cameras, Flashbulbs                    Shave Lotions and Colognes  
First Aid Needs                              Shoe Care 
Foot Care                                    Skin Care Products  
Hair Accessories                             Soaps 
Hair Coloring                                Stationery and School Supplies
Hair Sprays                                  Toothbrushes
Hosiery                                      Toothpaste and Powders 
Household Light Bulbs                        Vitamins and Tonics 
Household Paper Products

           The sales of these products  accounted for approximately 33%, 33% and
35% of the Company's revenues, respectively, during the fiscal years ended March
31, 1996, 1997 and 1998.

           The Company currently markets  approximately 50 health and beauty aid
products under the "Allou Brands"  tradename.  Sales of its own products account
for  only  a  small   percentage   of  the  Company's   business,   representing
approximately  1%, 1% and 1/2% of revenues  during the fiscal  years ended March
31, 1996, 1997 and 1998, respectively.

           Fragrances and Cosmetics
           ------------------------

           Fragrances  distributed  by the  Company  include  those  produced by
Faberge,  Inc.,  Chanel,  Inc. and Revlon,  Inc. Among the cosmetic products are
eyeshadows, lipsticks, mascaras and skin care products produced by Revlon, Inc.,
Coty (a division  of Pfizer  Inc.),  Lancome (a  division of Cosmair,  Inc.) and
Estee Lauder,  Inc. See  "Manufacturers  and Suppliers." During the fiscal years
ended March 31, 1996,  1997 and 1998 fragrance and cosmetic sales  accounted for
approximately  32%, 36% and 39% of the  Company's  revenues,  respectively.  The
profit  margins on such  sales are  typically  greater  than those on name brand
health and beauty aids, and accordingly,  the Company has sought to increase its
sales and  marketing  efforts in this area.  Management  has  expanded it direct
sales of  fragrances  and  cosmetics  to consumers  through its  internet  sales
subsidiary,  The  Fragrance  Counter,  located at  www.fragrancecounter.com  and
www.cosmeticcounter.com.



                                       2
<PAGE>




           Food
           ----

           The Company  sells  non-perishable  packaged  food items.  These food
items,  which are purchased almost exclusively at discount prices from the major
food  companies,  are sold to existing  customers.  This product  line  requires
little  additional  operating  costs  to the  Company  since  sales  of food are
pre-sold and drop-shipped directly to the customers from the vendors. During the
fiscal  years ended March 31,  1996,  1997 and 1998,  food items  accounted  for
approximately 17%, 13% and 9%, respectively, of the Company's revenues.

           Prescription Pharmaceuticals
           ----------------------------

           During fiscal 1994, the Company  acquired the capital stock of Sobol,
a manufacturers' distributor of branded prescription pharmaceuticals.  Sobol was
founded in 1928 and currently  distributes  pharmaceuticals to approximately 700
independent  pharmacies in the Northeast.  The Company  purchases  approximately
4,000 branded  pharmaceuticals from such manufacturers as Eli Lilly and Company,
Glaxo Holdings p.l.c.,  Burroughs  Wellcome Co. and Merck Sharp and Dohme,  Inc.
Additionally,  the Company distributes 3,000 generic prescription pharmaceutical
products which are purchased from manufacturers such as Schein  Pharmaceuticals,
Inc., Barre National,  Inc., and Sidmak Laboratories,  Inc. For the fiscal years
ended March 31, 1996, 1997 and 1998, pharmaceuticals accounted for approximately
18%, 17% and 15%, respectively, of the Company's revenues.

           Hair and Skin Care Products
           ---------------------------

           During fiscal 1996, the Company purchased the selected assets of Russ
Kalvin's,  which assets included accounts receivable,  inventory,  equipment and
intellectual property (patents,  trademarks, etc.). This acquisition has enabled
the Company to  manufacture  and  distribute  salon  quality  hair and skin care
products to convenience stores, pharmacies and national mass merchandisers.  For
the fiscal years ended March 31, 1996,  1997 and 1998,  revenues  generated from
the sales of such products were not material.

MANUFACTURERS AND SUPPLIERS

           The products the Company distributes are manufactured and supplied by
independent foreign and domestic  companies,  many of which also manufacture and
supply  HBA  products,  fragrances  and  cosmetics  for  many  of the  Company's
competitors.  The Company purchases  approximately  8,000 HBA products from such
manufacturers  as Procter & Gamble Co.,  Johnson & Johnson and  Gillette Co. and
approximately  7,000 fragrance and cosmetic products directly from manufacturers
such as Coty (a division of Pfizer  Inc.) and Revlon,  Inc.  and from  secondary
sources.  The Company  contracts with  manufacturers to produce the Allou Brands
products and  manufactures  it proprietary  line of Russ Kalvin's  generic brand
hair and skin care products through its wholly-owned subsidiary,  Allou Personal
Care.

           The Company  typically  purchases  goods 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,  the  Company  does  not have any
licensing  or other  supply  agreements  with its  manufacturers  or  suppliers.
Therefore,  any of these companies could terminate their  relationship  with the
Company at any time.  Management believes the absence of such agreements between
the Company and its  suppliers  does not have a material  adverse  impact on the
Company,  since the Company has  experienced  no difficulty to date in obtaining
products  as needed  and  believes  there are a number of  alternate  sources of
supply for virtually all of the products that it sells. However, there can be no
assurance  the  Company  will  not  experience  difficulties  with  its  present
manufacturers or suppliers,  such as delays in obtaining  products,  which could
materially adversely affect its operations or relationship with customers.



                                       3
<PAGE>




MARKETING AND SALES

           The  Company  markets  national  brand and Allou  Brand HBA  products
primarily to retail  outlets  including  small discount  chains,  individual HBA
suppliers  and  non-chain  supermarkets  in  the  New  York  metropolitan  area,
Philadelphia,  Pennsylvania and Miami, Florida. In addition, the Company markets
fragrances  and  cosmetics to these  customers  and  nationally  to  independent
retailers,  pharmacies and chain stores,  including  Wal-Mart  Stores,  Inc. and
Sears,  Roebuck & Co. The  Company  currently  has  approximately  4,200  active
accounts.  No single  customer  accounted for 10% or more of the Company's sales
during the last three fiscal years.

           Sales are made by the Company's in-house sales staff of telemarketing
professionals.  In-house  sales persons are paid a base salary plus a commission
based on sales.

           The Company  publishes  an HBA and a fragrance  catalogue  each month
containing order forms, descriptions of all products carried by the Company, the
manufacturer's  suggested  retail price and net cost per unit or per dozen which
are mailed to each of the Company's active  customers.  The catalogues also help
serve the advertising needs of the manufacturers  which provide the Company with
rebates to pay for the cost of preparing,  printing and mailing the  catalogues.
In addition to the monthly  catalogues,  the  Company  frequently  supplies  its
customers with flyers advising them of items being sold at a discount.  The sale
of fragrances  nationally to independent  stores is handled  exclusively by mail
order through the catalogues.

           The Company holds an annual exclusive trade show in New York City for
HBA  retailers  which is subsidized  by  manufacturers  who display their wares,
introduce  products  and meet with  customers.  The Company also  coordinates  a
program  sponsored by approximately  80 HBA retailers  whereby the retailers are
provided with circulars to send to their  customers,  point-of-sale  promotional
materials and product samples supplied by the manufacturers.

OPERATIONS

           The Company  maintains a 143,894 square foot warehouse  facility with
sales and administrative offices in Brentwood,  New York. The warehouse contains
inventory for  approximately  three months of  distribution  to  customers.  The
Company uses a computerized data base system which enables management to monitor
sales,  purchases and inventory status. The Company has not experienced problems
with product  shelf lives,  as most  products it sells are not  perishable.  HBA
products that are perishable  generally can be returned to the  manufacturer  if
they are not sold by the expiration date.

           The Company  contracts with local carriers and  independent  trucking
agents to make deliveries to its customers' orders.  From the time it is placed,
a customer's  order will be delivered within 48 hours if within the metropolitan
New York City area, and within five days if out-of-state.

           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.

           Since the  acquisition  of the  selected  assets of Russ  Kalvin's in
October  1995,  the Company has been  engaged in  consolidating  operations  and
reducing  overhead at Russ  Kalvin's,  as well as  positioning  itself to market
nationally the Russ Kalvin's  generic brand hair and skin care products  through
its wholly-owned  subsidiary,  Allou Personal Care. The Company has consolidated
all administrative  functions of Russ Kalvin's at the Company's  Brentwood,  New
York  facility.  In addition,  the Company leases 80,000 square feet of space in
Saugus,  California  which is used to manufacture and distribute its proprietary
line of Russ Kalvin's generic brand hair care and skin care products.



                                       4
<PAGE>



MANAGEMENT INFORMATION AND CONTROL SYSTEM

           The Company uses a  proprietary,  computerized  data base  management
system which  collects,  integrates and analyzes data  concerning  sales,  order
processing, shipping, purchases, receiving, inventories and financial reporting.
At any given time, the Company is able to determine the quantity of each item in
inventory by brand, style, cost, list price and other characteristics.

           The system enables the Company to better manage its inventories.  The
system keeps a running  inventory of goods on hand for each item it distributes.
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 to the  manufacturer  with the
weekly orders.

           By eliminating  much of the paper flow and  dispensing  comprehensive
information,   this   system   has   enabled   the   Company   to   reduce   its
receipt-of-order-to-shipment time capability for New York City metropolitan area
customers to less than 48 hours,  substantially  reducing such customers need to
stock inventory, thereby saving the customer the cost of financing its inventory
requirements.

COMPETITION

           The  distribution  of HBA  products  is  extremely  competitive.  The
Company competes with  pharmaceutical  wholesalers that carry HBA products as an
accommodation  for  their  customers.  Many of such  distributors  have  greater
financial  and other  resources  than the  Company.  However,  to the  Company's
knowledge,  there is no significant competitor which distributes to its customer
base of  independent  retail  stores the  assortment  of HBA  products  that the
Company  distributes.  The Company believes it competes on the basis of services
rendered  to its  customer,  including  quick  delivery  and low  minimum  order
requirements.

           The  distribution of fragrance and high priced cosmetic items is very
competitive.  The Company  competes to obtain its  fragrances and cosmetics from
manufacturers  and importers  who also supply  competing  distributors  and sell
directly to retailers.  It competes on the basis of price and services  rendered
to its customers, including quick delivery and low minimum order requirements.

           In addition,  the Company faces intensive competition with respect to
marketing its own brand of HBA products and the Russ  Kalvin's  generic brand of
hair and skin care products.  The Company competes with major HBA companies,  as
well as hair and skin care companies, with well-established product lines, which
spend large sums for  advertising  and marketing and have far greater  financial
and other  resources  than the  Company.  The Company also  competes  with these
companies for shelf space and product  placement in the various retail  outlets.
Additionally,  the Company  competes for the  manufacture  of its products  from
suppliers who also supply these and other  companies.  The Company believes that
it can offer customers substantial savings on its generic products.

EMPLOYEES

           As of March 31, 1998, the Company employed  approximately 240 persons
on a full time basis, including 5 in executive positions,  22 in purchasing,  65
in  marketing  and  sales,  40 in  administration  and  accounting,  and  108 in
warehousing and receiving.  Certain of the sales personnel are partially paid on
a commission  basis.  During peak selling  seasons the Company also employs part
time personnel.

           The Company is a party to a collective  bargaining agreement expiring
December  14, 2000 with the National  Organization  of  Industrial  Trade Unions
covering all warehouse and receiving employees.  The Company has not experienced
any work  stoppages.  The Company  believes its relations with its employees are
satisfactory.



                                       5
<PAGE>



TRADENAMES AND TRADEMARKS

           The Company uses the unregistered  tradename "Allou Brand" on generic
products  that it  distributes.  With the  introduction  of  additional  generic
products,  the Company may adopt other  unregistered  tradenames and trademarks.
During fiscal 1996, the Company  acquired the patents,  trademarks and all other
intellectual property of Russ Kalvin's.
 The Company  believes that no single  trademark,  tradename or  servicemark  is
material to the Company's business as a whole.

GOVERNMENT REGULATION

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


ITEM 2.        PROPERTIES

           The Company leases approximately 143,894 square feet of space for its
principal  executive  offices,  warehouse and distribution  facilities and sales
headquarters in the Brentwood  Industrial Park, 50 Emjay  Boulevard,  Brentwood,
New York  11717,  under a ten-year  lease  which  expires on May 31,  2005,  and
includes a five-year option for renewal, at a base annual rental of $546,797.20,
with additional  charges for insurance,  fuel and taxes and increases during the
initial term of the lease.  The Company  leases  80,000  square feet of space in
Saugus,  California,  which is used to manufacture  and distribute hair and skin
care  products.  The  proposed  term of the lease is five years with a five-year
option for renewal at a base annual rental of $300,000 with  additional  charges
for insurance, fuel, taxes and increases during the initial term of the lease.

ITEM 3.        LEGAL PROCEEDINGS

           The  Company  is a party to a number of legal  proceedings  as either
plaintiff  or defendant in  connection  with claims made for goods sold,  all of
which are  considered  routine  litigation  incidental  to the  business  of the
Company.

            No legal proceedings were terminated during the fiscal quarter ended
March 31, 1998 (other than routine litigation  incidental to the business of the
Company).


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

           During the fourth  quarter of the fiscal year covered by this Report,
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
------------------

           The  Company's  Class A Common Stock is listed on the American  Stock
Exchange under the symbol "ALU".  There is no established  public trading market
for the Company's Class B Common Stock.

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


                                                        HIGH            LOW

FISCAL YEAR ENDED MARCH 31, 1997:
Quarter ending June 28, 1996...........................$7.000         $6.625
Quarter ending September 30, 1996...................... 6.875          4.875
Quarter ending December 31, 1996....................... 7.312          5.750
Quarter ending March 31, 1997.......................... 6.937          6.125

FISCAL YEAR ENDED MARCH 31, 1998:
Quarter ending June 30, 1997...........................$7.125         $5.000
Quarter ending September 30, 1997...................... 8.250          6.750
Quarter ending December 31, 1997....................... 8.187          7.375
Quarter ending March 31, 1998.......................... 8.875          7.125

FISCAL YEAR ENDING MARCH 31, 1999:
Quarter ending June 30, 1998
     (through June 23, 1998)..........................$16.000         $7.937

Holders
-------

           As of June  23,  1998,  there  were  110  holders  of  record  of the
Company's  Class A Common Stock and 4 holders of record of the Company's 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
---------

           The  Company  has not paid a dividend on its shares of Class A Common
Stock or Class B Common Stock and has no present  expectation of doing so in the
foreseeable future.




                                       7
<PAGE>



ITEM 6.              SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

                                           ALLOU HEALTH & BEAUTY CARE, INC.
                                                 YEAR ENDED MARCH 31,
                                   1998       1997       1996       1995       1994
                                 --------   --------   --------   --------   --------
INCOME STATEMENT DATA:                 (In thousands, except for per share data)
<S>                              <C>        <C>        <C>        <C>        <C>     
Revenues .....................   $301,756   $285,311   $273,322   $237,542   $205,520
Costs of revenues ............    262,601    250,843    241,734    208,906    181,372
                                 --------   --------   --------   --------   --------
Gross profit .................     39,155     34,468     31,588     28,636     24,148

Warehouse and delivery expense      9,317      8,592      8,063      6,864      5,391
Selling, general and
  administrative expense .....     14,458     12,766     11,894     10,250     10,226
                                 --------   --------   --------   --------   --------
Income from operations .......     15,380     13,110     11,631     11,522      8,531
Interest and other ...........      8,470      6,567      5,513      3,956      2,609
                                 --------   --------   --------   --------   --------
Income before income taxes ...      6,910      6,543      6,118      7,566      5,922
                                 --------   --------   --------   --------   --------
Net income ...................   $  4,280   $  4,059   $  3,757   $  4,681   $  3,738
                                 ========   ========   ========   ========   ========
Net income per common share(1)
    Basic ....................   $    .74   $    .71   $    .66   $    .84   $    .94
                                 ========   ========   ========   ========   ========
    Diluted ..................   $    .72   $    .70   $    .65   $    .80   $    .78
                                 ========   ========   ========   ========   ========


                                                 AS OF MARCH 31,
                                1998       1997       1996       1995       1994
                              --------   --------   --------   --------   --------
BALANCE SHEET DATA:
Working capital ...........   $ 43,959   $ 42,052   $ 37,557   $ 36,193   $ 32,094
Total assets ..............    178,384    161,348    126,185    106,214     84,770
Total long-term liabilities      1,354      1,841        560        814        895
Total liabilities .........    125,771    113,121     82,016     66,038     50,743
Stockholders' equity ......     52,613     48,227     44,168     40,176     34,027
</TABLE>

---------------------
(1)   Net income per common  share for fiscal 1997 and prior  periods  have been
      restated  in  accordance  with  Financial  Accounting  Standards  No. 128,
      "Earnings Per Share,  which  requires  presentation  of basic earnings per
      share and diluted earnings per share.





                                       8
<PAGE>



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

RESULTS OF OPERATIONS

           FISCAL 1998 COMPARED TO FISCAL 1997
           -----------------------------------

           Revenues  for the fiscal year ended March 31,  1998  ("fiscal  1998")
were $301,756,467 representing a 5.8% increase over revenues of $285,311,441 for
the fiscal  year ended March 31,  1997  ("fiscal  1997"),  which  resulted  from
increased  revenues from certain segments of the Company's business as described
below. The increased demand for the Company's products resulted from an expanded
customer base and increases in same store sales.

           Contributions  to this increase in revenues by product  segment is as
follows:  Health and beauty  aids  increased  12.8% in fiscal  1998  compared to
fiscal 1997 due to increases in same store sales.  Prestige designer  fragrances
grew 14% in fiscal 1998 compared to fiscal 1997 due to an increase in same store
sales and an expanded  customer  base,  thus  increasing  the volume of products
sold. Nationally  advertised branded  non-perishable food products decreased 22%
in fiscal 1998, when compared to fiscal 1997.  This segment of Allou's  business
is categorized by the Company's  ability to purchase  off-price,  non-perishable
branded  foods.  During  fiscal 1998 demand  out-paced  supply  resulting  in an
increase  in the price that Allou  would  have to pay for  merchandise  which it
would  distribute.  Management  decided  to limit  sales in this  segment of its
business to a level which would  result in  improved  profit  margins.  Sales of
prescription  pharmaceuticals  remain  relatively  constant when compared to the
prior year. In each segment of the Company's businesses, revenues are recognized
at the time  merchandise  is shipped to the  customer,  either  directly  by the
Company  or, in the case of food  products,  drop-shipped  by third  parties  on
behalf of the Company.

           Cost of goods sold decreased as a percentage of revenues to 87.0% for
fiscal 1998 from 87.9% for fiscal 1997.  This decrease in the cost of goods sold
resulted primarily from improved profit margins associated with the distribution
of fragrance products.

           Warehouse   and   delivery   expenses,   selling   and   general  and
administrative expenses increased as a percentage of revenues to 7.9% for fiscal
1998 from 7.5% for fiscal 1997.  This  increase  was due, in part,  to increased
expenses  associated with the Company's  wholly-owned  subsidiary Allou Personal
Care and  advertising  expenditures  relating to the  Company's  internet  sales
subsidiary, The Fragrance Counter.

           Inventories increased by approximately $15,869,556 or 16.4% in fiscal
1998  from   $96,661,103  in  fiscal  1997.   This  increase  in  inventory  was
attributable to merchandise purchased in anticipation of increased sales.

           Interest  expense as a percentage  of revenues  increased to 2.8% for
fiscal 1998 from 2.3% for fiscal 1997 due to  increased  borrowings  at a higher
rate.

           Net income for fiscal 1998 was $4,280,210, which was an 5.5% increase
over the net income for fiscal 1997 of $4,058,535,  due primarily to the factors
discussed above.

           FISCAL 1997 COMPARED TO FISCAL 1996
           -----------------------------------

           Revenues  for  fiscal  1997 were  $285,311,441,  representing  a 4.4%
increase over revenues of $273,322,102  for the fiscal year ended March 31, 1996
("fiscal 1996"), which resulted from increased revenues from certain segments of
the  Company's  business  as  described  below.  The  increased  demand  for the
Company's products resulted from an expanded customer base and increases in same
store sales.

           Contributions  to this increase in revenues by product  segment is as
follows: Health and beauty aids increased 5.4% in fiscal 1997 compared to fiscal
1996 due to increases in same store sales.  Prestige  designer  fragrances  grew


                                       9
<PAGE>



18.8% in fiscal  1997  compared  to fiscal 1996 due to an increase in same store
sales and an expanded  customer  base,  thus  increasing  the volume of products
sold. Nationally  advertised branded  non-perishable food products decreased 24%
in fiscal 1997, when compared to fiscal 1996.  This segment of Allou's  business
is categorized by the Company's  ability to purchase  off-price,  non-perishable
branded  foods.  During  fiscal 1997 demand  out-paced  supply  resulting  in an
increase  in the price that Allou  would  have to pay for  merchandise  which it
would  distribute.  Management  decided  to limit  sales in this  segment of its
business to a level which would  result in  improved  profit  margins.  Sales of
prescription  pharmaceuticals  remain  relatively  constant when compared to the
prior year. In each segment of the Company's businesses, revenues are recognized
at the time  merchandise  is shipped to the  customer,  either  directly  by the
Company  or, in the case of food  products,  drop-shipped  by third  parties  on
behalf of the Company.

           Cost of goods sold decreased as a percentage of revenues to 87.9% for
fiscal 1997 from 88.4% for fiscal 1996.  This decrease in the cost of goods sold
results  from  improved  profit  margins  associated  with the  distribution  of
fragrance products.

           Toward the end of fiscal 1997,  certain  opportunities  arose for the
purchase  of  fragrance  products  which are only  available  to the  Company at
unpredictable intervals. Fragrance products are purchased from secondary sources
of supply.  This method of purchasing  requires the Company to pre-pay for these
products in advance of delivery in order to ensure product  delivery.  Since the
merchandise  corresponding  to the  pre-payments  was not received during fiscal
1997,  neither  inventory  valuation nor cost of goods sold was affected for the
period.

           Warehouse   and   delivery   expenses,   selling   and   general  and
administrative expenses increased as a percentage of revenues to 7.5% for fiscal
1997 from 7.3% for fiscal 1996.  This  increase  was due, in part,  to increased
expenses  associated with the Company's purchase of its wholly-owned  subsidiary
Allou Personal Care.

           Inventories increased by approximately $25.0 million or 35% in fiscal
1997 from $72.0 in fiscal 1996.  This increase in inventory is  attributable  to
merchandise purchased in anticipation of increased sales.

           Interest  expense as a percentage  of revenues  increased to 2.3% for
fiscal 1997 from 2.0% for fiscal 1996 due to  increased  borrowings  at a higher
rate.

           Net income for fiscal 1997 was $4,058,535,  which is an 8.0% increase
over the net income for fiscal 1996 of $3,756,686,  due primarily to the factors
discussed above.

LIQUIDITY AND CAPITAL RESOURCES

           The Company meets its working  capital  requirements  from internally
generated funds and from a financing agreement with a consortium of banks led by
the  First  National  Bank  of  Boston  for  financing  the  Company's  accounts
receivable  and inventory.  As of March 31, 1998,  the Company had  $110,596,761
outstanding   under  its  $145,000,000   bank  line  of  credit.   The  loan  is
collateralized by the Company's inventory and accounts  receivable.  Interest on
the loan balance is payable monthly at 3/8% above the prime rate or 2% above the
Eurodollar  rate at the  option of the  Company.  The  effective  interest  rate
charged  to the  Company  at March  31,  1998 was  7.89%,  which  was based on a
combination of 2% above the  Eurodollar  rate and 3/8% above the prime rate. The
Company utilizes cash generated from operations to reduce short-term borrowings,
which in turn acts to increase loan  availability  consistent with the Company's
financing agreement.

           The Company's accounts receivable decreased to $44,117,911 for fiscal
1998 from  $48,424,882  for fiscal 1997  representing an decrease of 8.9% due to
customers who had previously paid the Company an average of 60 days at March 31,
1997 paying the Company in an amount of 52 days at March 31, 1998.



                                       10
<PAGE>




           The Company  has  minimal  capital  investment  requirements  and any
significant capital expenditures are financed through long-term lease agreements
and would not adversely impact cash flow. The Company believes that,  except for
The Fragrance Counter, its internally generated funds and its current and future
bank line of credit will be sufficient to meet its anticipated  cash and capital
needs  through  the fiscal year ending  March 31,  1999.  The Company is seeking
means of providing  financing for The Fragrance  Counter that are independent of
its  revolving  line of  credit.  In April,  May and June 1998,  Messrs.  Victor
Jacobs,  Herman  Jacobs and Jack Jacobs  collectively  loaned an aggregate of $3
million on an unsecured basis to The Fragrance Counter (the "Bridge Financing").
Amounts loaned under the Bridge  Financing accrue interest at the rate of 8-3/4%
per annum and become due and payable in October 1998.

INFLATION AND SEASONALITY

           Inflation  has  not  had  any  significant  adverse  effects  on  the
Company's business and the Company does not believe it will have any significant
effect on its future  business.  The Company's  fragrance  business is seasonal,
with  greater  sales  during the  Christmas  season than in other  seasons.  The
Company's other product lines are not seasonal.

YEAR 2000

           The  Company  does not  expect  that the cost to  modify  or  replace
software that it uses so that such software will properly recognize dates beyond
December 31, 1999 ("year 2000  compliance")  will be  material.  The Company has
initiated formal  communications  with its significant  vendors and customers to
determine the extent that year 2000 compliance issues of such parties may affect
the Company.  There can be no guarantee that the systems of such other companies
will be timely  converted,  or that their  conversion  will be  compatible  with
information included in the Company's systems, without a material adverse effect
on the Company's business, financial condition or results of operations.











                                       11
<PAGE>



ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

           The  information  required by this time 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.


                                    PART III

           The  information  called for by Part III (Items  10,11,12  and 13) is
incorporated  by  reference  to such  information  as it will be included in the
Registrant's  definitive Proxy Statement with respect to the  Registrant's  1997
Annual Meeting of  Stockholders to be filed pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended.

















                                       12
<PAGE>



                                     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
                                                                            Page
                                                                            ----
                        Report of Independent Auditor........................F-1

                        Consolidated Balance Sheet--March 31, 1998 and 1997..F-2

                        Consolidated Statement of Operations--Years ended March 
                        31, 1998, 1997 and 1996..............................F-3

                        Consolidated Statement of Shareholders' Equity--Years
                        ended March 31, 1998, 1997 and 1996..................F-4

                        Consolidated Statement of Cash Flows--Years ended March 
                        31, 1998, 1997 and 1996..............................F-5

                        Notes to Consolidated Financial Statements...........F-6

                  2.    Financial Statement Schedules

                        Schedule VIII - Valuation and Qualifying Accounts and 
                        Reserve..............................................S-1

            (b)   Reports on Form 8-K.

            No reports on Form 8-K were filed by the Registrant  during the last
fiscal quarter of the period covered by this Report.

            (c)   Exhibits.

            The following Exhibits are filed as a part of this Report:

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

3.1        Restated  Certificate of  Incorporation  of the Registrant  (filed as
           Exhibit  3.1 to  Registrant's  Quarterly  Report on Form 10-Q for the
           fiscal quarter ended  September 30, 1996  Commission File No. 1-10340
           and incorporated herein by reference).

3.2        By-Laws  of the  Registrant  (filed  as  Exhibit  3b to  Registration
           Statement No.  33-26981 on Form S-1  ("Registrant's  Form S-1"),  and
           incorporated herein by reference).

10.1       Employment Contract dated as of August 1, 1995 between the Registrant
           and Victor  Jacobs  (filed as  Exhibit  10.1 to  Registrant's  Annual
           Report  on Form  10-K  for the  fiscal  year  ended  March  31,  1996
           Commission File No. 1-10340 ("1996 10-K") and incorporated  herein by
           reference).

10.2       Employment Contract dated as of August 1, 1995 between Registrant and
           Herman  Jacobs (filed as Exhibit 10.2 to  Registrant's  1996 10-K and
           incorporated herein by reference).



                                       13
<PAGE>




10.3       Employment Contract dated as of August 1, 1995 between the Registrant
           and Jack Jacobs (filed as Exhibit 10.3 to Registrant's  1996 10-K and
           incorporated herein by reference).

10.4       Employment  Contract dated as of June 30, 1996 between the Registrant
           and Ramon  Montes  (filed as Exhibit 10.3 to  Registrant's  Quarterly
           Report  on Form  10-Q for the  fiscal  quarter  ended  June 30,  1996
           Commission File No. 1-10340 and incorporated herein by reference).

10.5       Amended  and  Restated  1989  Incentive  Stock  Option Plan (filed as
           Exhibit  10(e) to  Registrant's  Annual  Report  on From 10-K for the
           fiscal  year ended  March 31, 1990  Commission  File No.  1-10340 and
           incorporated herein by reference).

10.6       1991 Stock  Option  Plan (filed as Exhibit  10(e)(1) to  Registrant's
           Post-Effective   Amendment  No.  1  to  Registrant's   Form  S-1  and
           incorporated herein by reference).

10.7       1992 Stock  Option  Plan (filed as Exhibit  10(e)(2) to  Registrant's
           Annual  Report on From 10-K for the fiscal  year ended March 31, 1993
           Commission File No. 1-10340 and incorporated herein by reference).

10.8       1995   Nonqualified   Stock  Option  Plan  (filed  as  Exhibit  A  to
           Registrant's   1996  Definitive   Proxy  Statement  on  Schedule  14A
           Commission File No. 1-10340 and incorporated herein by reference).

10.9       1996  Stock  Option  Plan  (filed as Exhibit B to  Registrant's  1996
           Definitive  Proxy  Statement  on  Schedule  14A  Commission  File No.
           1-10340 and incorporated herein by reference).

10.10      Lease  Agreement  dated December 8, 1993 between Allou  Distributors,
           Inc.  and  Brentwood  Distribution  Co.  (filed as  Exhibit  10(f) to
           Registrant's  Annual  Report on Form 10-K for the  fiscal  year ended
           March 31, 1995  Commission  File No.  1-10340  ("1995 Form 10-K") and
           incorporated herein by reference).

10.11      Lease  Agreement  dated March 4, 1980 between  Registrant  and Pueblo
           Supermarkets, Inc. (filed as Exhibit 10g to Registrant's Form S-1 and
           incorporated herein by reference).

10.12      Lease  Agreement  dated  January 1, 1993  between M. Sobol,  Inc. and
           Simon and Barbara J. Mandell (filed as Exhibit 10(g) to  Registrant's
           Annual  Report on Form 10-K for the fiscal  year ended March 31, 1994
           Commission  File No.  1-10340  ("1994  Form  10-K") and  incorporated
           herein by reference).

10.13      Agreement  dated December 13, 1994 between Allou  Distributors,  Inc.
           and the National  Organization  of Industrial  Trade Unions (filed as
           Exhibit  10(i) to the  Registrant's  1995 Form 10-K and  incorporated
           herein by reference).

*10.14     Agreement  dated December 15, 1997 between Allou  Distributors,  Inc.
           and Local No. 1.

*10.15     Third Restated and Amended  Revolving  Credit and Security  Agreement
           dated October 22, 1997 among  BankBoston,  N.A.,  IBJ Schroder Bank &
           Trust Company,  Sanwa Business Credit  Corporation,  LaSalle Business
           Credit,  Inc., Bank Leumi Trust Company of New York, The Dime Savings
           Bank of New York,  FSB,  The First  National  Bank of  Maryland,  Key
           Corporate Capital, Inc.

10.16      Master  Lease  Finance  Agreement  dated as of April 24, 1996 between
           BankBoston  Leasing  Inc.  and  Allou  Distributors,  Inc.  (filed as
           Exhibit 10.14 to Registrant's  1996 10-K and  incorporated  herein by
           reference).

21         Subsidiaries  of the Registrant  (filed as Exhibit 21 to Registrant's
           1996 10-K and incorporated herein by reference).

                                       14
<PAGE>



*23        Consent of Mayer Rispler & Co.

*27        Financial Data Schedule

----------------
* Filed herewith



                                       15
<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 and
                                                    Chief Executive Officer

Dated:   June 29, 1998

           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.

SIGNATURES                                TITLE                       DATE
----------                                -----                       ----

/s/  Victor Jacobs                 Chairman of the Board and       June 29, 1998
--------------------------         Chief Executive Officer
     Victor Jacobs


/s/  Herman Jacobs                 President and Director          June 29, 1998
--------------------------
     Herman Jacobs


/s/  David Shamilzadeh             Chief Financial Officer,        June 29, 1998
--------------------------         Chief Accounting
     David Shamilzadeh             Officer and Director


/s/  Jack Jacobs                   Director                        June 29, 1998
--------------------------         
     Jack Jacobs


                                   Director                        
--------------------------         
     Ramon Montes


/s/  Sol Naimark                   Director                        June 29, 1998
--------------------------         
     Sol Naimark


/s/  Jeffrey Berg                  Director                        June 29, 1998
--------------------------         
     Jeffrey Berg





<PAGE>



                          INDEPENDENT AUDITORS' REPORT



Board of Directors & Stockholders:

Allou Health & Beauty Care, Inc.

Brentwood, New York

           We have audited the accompanying  consolidated balance sheet of Allou
Health  &  Beauty  Care,  Inc.  as of March  31,  1998 and 1997 and the  related
consolidated  statements of operations,  stockholders' equity and cash flows for
each of the years in the three-year period ended March 31, 1998. 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,  such financial  statements  present  fairly,  in all
material respects,  the financial position of Allou Health and Beauty Care, Inc.
at March 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the  years  in the  three-year  period  ended  March  31,  1998,  in
conformity with generally accepted accounting principles.


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

June 18, 1998
New York, New York



                                       F-1

<PAGE>



                        ALLOU HEALTH & BEAUTY CARE, INC.
                           CONSOLIDATED BALANCE SHEET

                                     ASSETS
                                     ------
                                                       March 31,      March 31,
                                                         1998           1997
                                                     ------------   ------------
Current Assets
--------------
   Cash ..........................................   $     46,675   $     76,531
   Accounts Receivable (less allowance for
    doubtful accounts of $371,475 at March 31,
    1998 and $555,682 at March 31, 1997 ..........     44,117,911     48,424,882
   Inventories ...................................    112,530,659     96,661,103
   Other Current Assets ..........................     11,680,718      8,168,603
                                                     ------------   ------------
         Total Current Assets ....................   $168,375,963   $153,331,119
   Property and Equipment, Less Accumulated
    Depreciation .................................      3,613,223      3,642,758
   Other Assets ..................................      6,395,110      4,373,918
                                                     ------------   ------------
           TOTAL ASSETS ..........................   $178,384,296   $161,347,795
                                                     ============   ============

                       LIABILITIES & STOCKHOLDERS' EQUITY
                       ----------------------------------

Current Liabilities
-------------------
   Amounts Due Bank ..............................   $110,596,761   $ 96,740,253
   Current Portion of Long-Term Debt .............        645,233        540,500
   Accounts Payable and Accrued Expenses .........     13,174,949     13,998,641
                                                     ------------   ------------
Total Current Liabilities ........................   $124,416,943   $111,279,394
                                                     ------------   ------------
Long Term Liabilities
---------------------
   Long-Term Debt, Less Current Portion ..........      1,354,462      1,841,470
                                                     ------------   ------------
         Total Long Term Liabilities .............      1,354,462      1,841,470
                                                     ------------   ------------
           TOTAL LIABILITIES .....................   $125,771,405   $113,120,864
                                                     ------------   ------------
Commitments & Contingencies

Stockholders' Equity
--------------------

Preferred Stock, $.001 par value,
   1,000,000 shares  authorized, none issued
   and outstanding

Class A Common Stock, $.001
   par value; 10,000,000 shares authorized;
   4,569,850 and 4,552,225 shares issued
   and outstanding at March 31, 1998
   and 1997 ......................................   $      4,570   $      4,552

Class B Common Stock, $.001 par value;
   2,200,000 shares authorized;
   1,200,000 issued and outstanding at
   March 31, 1998 and 1997 .......................          1,200          1,200
Additional Paid-In Capital .......................     23,582,240     23,476,508
Retained Earnings ................................     29,024,881     24,744,671
                                                     ------------   ------------
TOTAL STOCKHOLDERS' EQUITY .......................     52,612,891     48,226,931
                                                     ------------   ------------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .........   $178,384,296   $161,347,795
                                                     ============   ============


                  
    The accompanying notes are an integral part of this financial statement.




                                       F-2

<PAGE>



                        ALLOU HEALTH & BEAUTY CARE, INC.
                      CONSOLIDATED STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
                                                      Years ended March 31,
                                            1998             1997             1996
                                            ----             ----             ----
<S>                                    <C>              <C>              <C>          
Revenues ...........................   $ 301,756,467    $ 285,311,441    $ 273,322,102

Costs of Revenues ..................     262,600,862      250,843,851      241,734,316
                                       -------------    -------------    -------------

   Gross Profit ....................      39,155,605       34,467,590       31,587,786
                                       -------------    -------------    -------------
Operating Expenses
   Warehouse & Delivery ............       9,317,132        8,592,051        8,062,827
   Selling, General & Administrative      14,458,182       12,765,898       11,893,687
                                       -------------    -------------    -------------
         Total Operating Expenses ..      23,775,314       21,357,949       19,956,514
                                       -------------    -------------    -------------
         Income From Operations ....      15,380,291       13,109,641       11,631,272
                                       -------------    -------------    -------------

Other Charges (Credits)
   Interest Expense ................       8,482,859        6,614,797        5,524,543
   Other ...........................         (13,168)         (47,804)         (11,204)
                                       -------------    -------------    -------------
         Total .....................       8,469,691        6,566,993        5,513,339
                                       -------------    -------------    -------------
         Income Before Income Taxes        6,910,600        6,542,648        6,117,933

Provision for Income Taxes .........       2,630,390        2,484,113        2,361,247
                                       -------------    -------------    -------------

         NET INCOME ................   $   4,280,210    $   4,058,535    $   3,756,686
                                       =============    =============    =============

Net Income Per Common Share:
Basic                                  $         .74    $         .71    $         .66
                                       =============    =============    =============
Diluted                                $         .72    $         .70    $         .65
                                       =============    =============    =============
</TABLE>



    The accompanying notes are an integral part of this financial statement.

                                       F-3

<PAGE>



                        ALLOU HEALTH & BEAUTY CARE, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                    YEARS ENDED MARCH 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                            Additional
                               Common        Paid In       Retained
                                Stock        Capital       Earnings       Total
                             -----------   -----------   -----------   -----------
<S>                          <C>           <C>           <C>           <C>        
Balance, March 31, 1995 ..   $     5,662   $23,241,098   $16,929,450   $40,176,210

Net Proceeds from Exercise
  of Options .............            90       235,410          --         235,500

Net Income ...............          --            --       3,756,686     3,756,686
                             -----------   -----------   -----------   -----------

Balance, March 31, 1996 ..   $     5,752   $23,476,508   $20,686,136   $44,168,396

Net Income ...............          --            --       4,058,535     4,058,535
                             -----------   -----------   -----------   -----------

Balance, March 31, 1997 ..   $     5,752   $23,476,508   $24,744,671   $48,226,931

Net Proceeds From Exercise
  of Options .............            18       105,732          --         105,750

Net Income ...............          --            --       4,280,210     4,280,210
                             -----------   -----------   -----------   -----------

Balance, March 31, 1998 ..   $     5,770   $23,582,240   $29,024,881   $52,612,891
                             ===========   ===========   ===========   ===========
</TABLE>



    The accompanying notes are an integral part of this financial statement.



                                       F-4

<PAGE>



                         ALLOU HEALTH & BEAUTY CARE INC.
                      CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                Years Ended March 31,
                                                         1998            1997            1996
                                                         ----            ----            ----
Cash Flows From Operating Activities
------------------------------------
<S>                                                  <C>             <C>             <C>         
Net Income .......................................   $  4,280,210    $  4,058,535    $  3,756,686
Adjustments to Reconcile Net Income to Net Cash
  Used in Operating Activities:
Depreciation and Amortization ....................        687,604         666,508         562,529
Decrease (Increase) In Assets:
Accounts Receivable ..............................      4,306,971     (14,461,052)     (5,490,810)
Inventories ......................................    (15,869,556)    (24,970,782)    (14,419,611)
Other Assets .....................................     (5,638,365)      4,160,904       1,342,875

Increase (Decrease) In Liabilities:

Accounts Payable & Accrued Expenses ..............       (823,692)      3,573,638          98,938
Income Taxes Payable .............................           --           (30,422)       (555,887)
                                                     ------------    ------------    ------------
Net Cash Used In Operating Activities ............    (13,056,828)    (27,002,671)    (14,705,280)
                                                     ------------    ------------    ------------

Cash Flows From Investing Activities
------------------------------------
Acquisition of Fixed Assets ......................       (553,011)       (626,255)     (1,947,844)
                                                     ------------    ------------    ------------
Cash Flows From Financing Activities
------------------------------------
Net Increase in Amounts Due Bank .................     13,856,508      25,931,152      16,680,621
Borrowings .......................................        215,771       2,010,376            --
Repayment of Debt ................................       (598,046)       (380,189)       (245,116)
Net Proceeds from Exercise of Options ............        105,750            --           235,500
                                                     ------------    ------------    ------------

Net Cash Provided By Financing Activities ........     13,579,983      27,561,339      16,671,005
                                                     ------------    ------------    ------------

           NET (DECREASE) INCREASE IN CASH .......        (29,856)        (67,587)         17,881

           CASH AT BEGINNING OF YEAR .............         76,531         144,118         126,237
                                                     ------------    ------------    ------------
           CASH AT END OF YEAR ...................   $     46,675    $     76,531    $    144,118
                                                     ============    ============    ============
Supplemental Disclosures of Cash Flow Information:
Cash Paid For:
Interest .........................................   $  8,364,098    $  6,438,593    $  5,464,832
Income Taxes .....................................   $  2,773,345    $  2,302,293    $  3,243,631
</TABLE>

The Company issued equipment notes for $215,771 and $2,010,376  during the years
ended March 31, 1998 and 1997, respectively.



    The accompanying notes are an integral part of this financial statement.

                                       F-5

<PAGE>



                        ALLOU HEALTH & BEAUTY CARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

           A.         ORGANIZATION AND PRINCIPLES OF CONSOLIDATION:

           Allou Health & Beauty Care, Inc. (the "Company") was  incorporated on
January  20,  1989  under the laws of the state of  Delaware,  on which  date it
acquired all of the outstanding shares of Allou  Distributors,  Inc. in exchange
for 1,200,000 shares of its Class B Common Stock,  thus making it a wholly-owned
subsidiary.

           Effective April 1, 1993, the Company  acquired all of the outstanding
shares  of  M.  Sobol,  Inc.,  a  wholesaler  of  pharmaceutical  products  in a
transaction  accounted  for under the purchase  method.  The purchase  price was
$1,472,382.

           On October 2, 1995,  the  Company  purchased  certain  assets of Russ
Kalvin Inc., a manufacturer of hair care products located in southern California
for $2,296,735. These assets included accounts receivable,  inventory, equipment
and intangibles. The Company manufactures and distributes these products through
wholly-owned subsidiaries.

           The  accompanying  financial  statements  include the accounts of the
Company and its  subsidiaries.  All significant  intercompany  transactions have
been eliminated.

           B.        DESCRIPTION OF OPERATIONS:

           The  Company is engaged in the  business of  distributing  brand name
health  and  beauty   aids,   cosmetics,   fragrances,   grocery   products  and
pharmaceuticals.  The Company also  distributes  generic brand health and beauty
aids and hair care  products.  The  Company  sells these  products to  retailers
throughout the United States.

           C.        REVENUE RECOGNITION:

           The Company  recognizes  revenue at the time the products are shipped
to the customer.

           D.        FAIR VALUE OF FINANCIAL INSTRUMENTS:

           The fair value of the Company's  financial  instruments  approximates
cost due to their short term nature,  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.

           E.        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.

           F.        INVENTORIES:

           Inventories,  which  consists  of finished  goods,  are stated at the
lower of average cost or market.


                                       F-6

<PAGE>


                        ALLOU HEALTH & BEAUTY CARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


           G.        PROPERTY & EQUIPMENT:

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

           H.        USE OF ESTIMATES:

           The preparation of financial  statements in conformity with generally
accepted  accounting  principles  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.

           I.        STOCK BASED COMPENSATION:

           The Company  accounts for stock  options as prescribed by APB Opinion
No. 25 and includes pro forma  information  in the stock  options  footnote,  as
permitted by Statement of Financial Accounting Standards No. 123.

           J.        RECENT ACCOUNTING PRONOUNCEMENTS:

           The  financial  accounting  standards  board has issued SFAS No. 130,
Reporting Comprehensive Income and SFAS No. 131, Disclosure About Segments of an
Enterprise  and Related  Information.  Both  statements are effective for fiscal
years  beginning  after December 15, 1997.  The financial  statements for fiscal
1998 are not affected since the Company did not generate any revenues, expenses,
gains and losses  that have been  excluded  from net income but are  included in
comprehensive  income  and the  Company  does not  maintain  separate  operating
segments as defined under SFAS No. 131.

2.         OTHER CURRENT ASSETS:

           Included  in other  current  assets  at March  31,  1998 and 1997 are
$9,816,237 and $6,091,422, respectively, of prepayments on merchandise.

3.         PROPERTY AND EQUIPMENT:

                                   March 31,       March 31,        Estimated
                                     1998            1997          Useful Lives
                                     ----            ----          ------------
Machinery & Equipment .........   $1,904,604      $1,765,908         5 years
Furniture, Fixtures &                                              
Office Equipment ..............    2,575,258       2,295,084         5-10 years
Transportation Equipment ......         --            96,750         3-5 years
Leasehold Improvements ........    2,714,254       2,578,957         10-33 years
                                  ----------      ----------
                                   7,194,116       6,736,699
Less:  Accumulated Depreciation    3,580,893       3,093,941
                                  ----------      ----------
                                  $3,613,223      $3,642,758
                                  ==========      ==========

           Depreciation  expense for the years ended  March 31,  1998,  1997 and
1996 amounted to $582,546, $608,644 and $509,665, respectively.



                                       F-7

<PAGE>


                        ALLOU HEALTH & BEAUTY CARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


4.         OTHER ASSETS:

           Included in other assets are the following:

           (a) Goodwill,  net of  amortization  of $1,696,279 in fiscal 1998 and
$1,763,143  in fiscal 1997  created  upon the purchase of the shares of M. Sobol
Inc., the Company's wholly-owned subsidiary, and the purchase of selected assets
of Russ Kalvin Inc. (Note 1-A). The goodwill is being amortized over forty years
and fifteen years, respectively.  Amortization expense for the years ended March
31,  1998,   1997  and  1996,   amounted  to  $105,058,   $57,864  and  $52,884,
respectively.

           (b) Officers  loans of  $3,557,433  in fiscal 1998 and  $2,056,364 in
fiscal 1997, which bear interest at 8% per annum.

5.         AMOUNTS DUE BANK:

           The Company has a secured line of credit with a consortium  of banks.
The  financing  agreement  provides  for  advances  of up  to  85%  of  eligible
receivables and 60% of eligible  inventories with aggregate  maximum advances of
$145,000,000, with a $15,000,000 sublimit for overadvances. Interest on the loan
balance  is  payable  monthly  at 3/8%  above  the  prime  rate or 2% above  the
Eurodollar rate, at the option of the Company. The loan is collateralized by the
Company's   accounts   receivable  and  inventories  and  the  overadvances  are
guaranteed by the Company's principal stockholders.  In addition, the Company is
required to abide by certain financial  covenants.  The effective  interest rate
charged  to the  Company  at  March  31,  1998 and 1997  was  7.89%  and  8.37%,
respectively.

6.         LONG-TERM DEBT:

           Long-term debt consists of:

           (a) Notes  collateralized  by certain of the Company's  equipment and
leasehold   improvements,   payable  in  aggregate   monthly   installments   of
approximately  $49,200,  which include interest at rates varying from 3/8% above
the prime rate to 3.36% above the treasury  rate.  At March 31, 1998,  principal
balance outstanding was $1,689,157.

           (b) A loan payable to the previous stockholder of M. Sobol, Inc. (see
Note  1-A).  Interest  payable  on the  declining  principal  balance  has  been
calculated  at 5.45%  per  annum,  through  April 1,  2000.  At March  31,  1998
principal  balance  outstanding  was $310,538.  The aggregate  long-term debt is
payable as follows:


                 Year Ending
                  March 31,
                     1999         $   645,233
                     2000             677,138
                     2001             579,336
                     2002              97,988
                                  -----------
                                  $ 1,999,695
                                  ===========


                                       F-8

<PAGE>


                        ALLOU HEALTH & BEAUTY CARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




7.         ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

                                                     March 31,         March 31,
                                                       1998              1997
                                                   -----------       -----------
Accounts Payable, Purchases ................       $10,270,572       $12,066,836
Selling, General & Administrative
   Expenses Payable ........................         1,722,656           928,967
Accrued Interest Payable to Bank ...........           669,194           550,433
Accrued Payroll ............................           512,527           452,405
                                                   -----------       -----------
                                                   $13,174,949       $13,998,641
                                                   ===========       ===========

8.         COMMITMENTS AND CONTINGENCIES:

           A.        OPERATING LEASES:

           The  Company  is  obligated  under  real  property  operating  leases
expiring  through  May 2005.  Additionally,  commencing  on October 2, 1995,  in
connection  with  the  operations  of  its   wholly-owned   hair  care  products
subsidiaries, the Company entered into a five year real property operating lease
for space located in  California.  As of March 31, 1998,  total  minimum  annual
rentals,  excluding  additional  payments  for real  estate  taxes  and  certain
expenses, are as follows:

                           Year Ending
                            March 31,
                            ---------
                               1999       $  879,314
                               2000          878,684
                               2001          768,749
                               2002          625,939
                               2003          625,939
                          2004-2006        1,356,200

           Rent  expense  for the  years  ended  March 31,  1998,  1997 and 1996
amounted to $895,879, $896,910 and $744,505, respectively.

           B.         UNION CONTRACT:

           The  Company  has an  agreement  with the  National  Organization  of
Industrial  Trade Unions which  terminates  on December 14, 2000.  The agreement
covers all warehouse and receiving employees, excluding supervisory personnel.

           C.         DEFINED CONTRIBUTION PLAN:

           Effective April 1, 1996, the Company  established a  non-contributory
defined  contribution  plan (401k) for  substantially  all employees not covered
under collective bargaining agreements.


                                       F-9

<PAGE>


                        ALLOU HEALTH & BEAUTY CARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




           D.         EMPLOYMENT AGREEMENTS:

           The Company has three year  employment  agreements  with three of its
officers  which  expire  July 31,  1998.  These  agreements  provide for each to
receive an annual salary of $300,000 and a bonus of 3% of the first  $2,000,000,
2% of the next  $1,000,000  and 1% of the remaining  increase over the Company's
prior year  earnings  before  interest and taxes.  For the years ended March 31,
1998 and 1997, these three officers  received bonuses  aggregating  $206,482 and
$145,221,  respectively. For the year ended March 31, 1996, these three officers
received no bonus.

           Effective  September 30, 1996, the Company  entered into a three year
employment  agreement with a fourth  officer,  providing for an annual salary of
$225,000 and a $75,000 bonus.

           E.         LETTERS OF CREDIT:

           At March 31, 1998, the Company had an  irrevocable  standby letter of
credit in the sum of $75,000 expiring June 2, 1998.

           F.         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.

9.         STOCK OPTION PLANS:

           The Company  has adopted  Stock  Option  Plans which  provide for the
granting of stock options to certain  employees and  directors.  An aggregate of
2,800,000  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.

           Option  activity for the years ended March 31, 1998,  1997,  and 1996
was as follows:

<TABLE>
<CAPTION>
                                              1998              1997              1996
                                           ----------        ----------        ----------
<S>                                         <C>                 <C>               <C>    
Options outstanding at beginning of year    1,381,150         1,184,500         1,176,950
     Granted ...........................    1,136,100           375,000           136,550
     Exercised .........................      (17,625)             --             (90,500)
     Cancelled .........................     (463,600)         (178,350)          (38,500)
                                           ----------        ----------        ----------
Options outstanding at end of year .....    2,036,025         1,381,150         1,184,500
                                           ==========        ==========        ==========
Option price range at end of year.......$5.80 to $10.00   $5.80 to $10.00   $5.75 to $10.00
</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 in fiscal 1997 and 1996  consistent  with the provisions of SFAS No. 123,
net income per common share would have been reduced to the  following  pro forma
amounts:




                                      F-10

<PAGE>


                        ALLOU HEALTH & BEAUTY CARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


                                                            March 31,
                                                       1998           1997
                                                    ----------     ----------
Net Income -- Pro Forma .......................     $4,060,011     $3,582,793
Earnings Per Common Share -- Pro Forma ........     $      .68     $      .62

           The pro  forma  amounts  are not  indicative  of  anticipated  future
disclosures  because SFAS 123 does not apply to options  granted  before  fiscal
1996.

           The weighted  average fair value at date of grant for options granted
during  fiscal  1998  and 1997  was  $2.43  and  $1.50,  respectively,  and were
estimated  using  the   Black-Scholes   option  pricing  model.   The  following
assumptions were applied:  no dividend yield;  expected  volatility rates of 31%
and 25%; risk free interest rates approximating 6% and 5%; and expected lives of
5 years and 3.3 years, respectively.

10.        STOCKHOLDERS' EQUITY:

           On September 11, 1996, the  stockholders  of the Company  approved an
increase  on the  number  of  authorized  shares  of Class B Common  Stock  from
1,700,000 to 2,200,000 shares. The number of authorized shares of Class A Common
Stock is currently  10,000,000  shares.  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.

11.        PROVISION FOR INCOME TAXES:

                                                        March 31,
                                             1998          1997          1996
                                          ----------    ----------    ----------

Income  Before Income Taxes ..........    $6,910,600    $6,542,648    $6,117,933
                                          ==========    ==========    ==========
  Federal Income Tax .................    $2,153,045    $2,072,291    $1,959,880
  State Income Taxes .................    $  477,345       411,822       401,367
                                          ----------    ----------    ----------
Total Provision for Income Taxes .....    $2,630,390    $2,484,113    $2,361,247
                                          ==========    ==========    ==========

           The following is a reconciliation of the statutory income tax rate to
the total effective tax rates:

                                                            March 31,
                                                   1998       1997       1996
                                                   ----       ----       ----
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 ....................................     5.3%       5.3%       6.0%
Net Operating Loss Carryforward from
 Subsidiary ...................................    (1.2%)     (1.3%)     (1.4%)
                                                   ----       ----       ----
        Total Effective Tax Rates .............    38.1%      38.0%      38.6%
                                                   ====       ====       ====



                                      F-11

<PAGE>


                        ALLOU HEALTH & BEAUTY CARE, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)



           At March 31, 1998, net operating loss  carryforwards of approximately
$55,000 are available to offset future earnings.  These losses were generated by
the Company's subsidiary M. Sobol Inc., prior to its acquisition by the Company,
and as such are  limited to $85,000  per year as per  Internal  Revenue  Service
regulations.

12.        EARNINGS PER SHARE:

           The Company adopted  Statement of Financial  Accounting  Standard No.
128  ("SFAS"),  "Earnings  per Share".  SFAS 128  replaces the  presentation  of
earnings  per share  ("EPS")  with a  presentation  of basic EPS based  upon the
weighted-average  number of common shares for the period.  It also requires dual
presentation  of basic and  diluted  EPS for  companies  with  "complex  capital
structures",  as  defined.  EPS for the  current  and  prior  periods  has  been
presented in conformity  with the provisions of SFAS 128. The following table is
a  reconciliation  of the  weighted-average  shares  (denominator)  used  in the
computation  of basic and diluted EPS for the  statement of  operations  periods
presented herein.


                                                   Year Ended March 31,
                                            1998         1997         1996
                                            ----         ----         ----

Basic ................................    5,757,328    5,752,225    5,669,907
Assumed exercise of stock options ....      215,064       56,857       94,864
                                          ---------    ---------    ---------
Diluted ..............................    5,972,392    5,809,082    5,764,771
                                          =========    =========    =========

           Net income as presented in the  consolidated  statement of operations
is used as the numerator in the EPS  calculation  for both the basic and diluted
computations.

           Options to purchase 415,300, 548,400 and 478,250 shares for the years
ended  March 31,  1998,  1997 and 1996,  respectively  were not  included in the
computation of diluted  earnings per share because the option exercise price was
greater than the average market price of the common shares.

13.        RELATED PARTY TRANSACTIONS:

           The  Company  purchases  from,  and on  occasion,  sells  to  various
entities that are  controlled by some of the Company's  officers.  For the years
ended March 31, 1998, 1997 and 1996,  purchases from related parties amounted to
$4,443,634, $1,705,355 and $1,735,661, respectively.



                                      F-12

<PAGE>

14.        SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):


                                                                    Diluted
                                                                    Earnings Per
                                        Gross          Net          Common
Quarters Ended           Revenues       Profit         Income       Share
--------------           --------       ------         ------       -----

June 30, 1997          $64,855,684    $ 9,706,275    $   987,970    $  .16
June 30, 1996          $68,958,061    $ 8,130,446    $   802,667    $  .14

September 30, 1997     $83,341,115    $ 9,290,085    $ 1,228,750    $  .21
September 30, 1996     $76,838,439    $ 8,372,060    $ 1,076,844    $  .19

December 31, 1997      $76,349,440    $10,653,164    $ 1,322,032    $  .22
December 31, 1996      $65,657,248    $ 8,358,715    $   934,315    $  .16

March 31, 1998         $77,210,228    $ 9,506,081    $   741,458    $  .12
March 31, 1997         $73,857,693    $ 9,606,369    $ 1,244,709    $  .21


                                       F-13
<PAGE>


                                                                   SCHEDULE VIII
                                                                   -------------



                        ALLOU HEALTH & 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    Balance
                                    Beginning     costs and    uncollectible   at end
       Description                  of period     expenses     accounts        of period
       -----------                  ---------     --------     --------        ---------
<S>                                 <C>           <C>           <C>           <C>     
March 31, 1996
 Allowance for Doubtful Accounts    $286,165      $412,000      $324,275      $373,890
                                                                             
March 31, 1997                                                               
 Allowance for Doubtful Accounts    $373,890      $560,000      $378,208      $555,682
                                                                             
March 31, 1998                                                               
 Allowance for Doubtful Accounts    $555,682      $695,225      $879,432      $371,475
                                                                          
</TABLE>







                                       S-1

<PAGE>




                                Index to Exhibits

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

3.1        Restated  Certificate of  Incorporation  of the Registrant
           (filed as Exhibit 3.1 to Registrant's  Quarterly Report on
           Form 10-Q for the fiscal quarter ended  September 30, 1996
           Commission  File No.  1-10340 and  incorporated  herein by
           reference).

3.2        By-Laws  of  the  Registrant   (filed  as  Exhibit  3b  to
           Registration   Statement   No.   33-26981   on  Form   S-1
           ("Registrant's  Form  S-1"),  and  incorporated  herein by
           reference).

10.1       Employment Contract dated as of August 1, 1995 between the
           Registrant  and Victor  Jacobs  (filed as Exhibit  10.1 to
           Registrant's  Annual  Report on Form  10-K for the  fiscal
           year ended  March 31,  1996  Commission  File No.  1-10340
           ("1996 10-K") and incorporated herein by reference).

10.2       Employment  Contract  dated as of August  1, 1995  between
           Registrant  and Herman  Jacobs  (filed as Exhibit  10.2 to
           Registrant's   1996  10-K  and   incorporated   herein  by
           reference).

10.3       Employment Contract dated as of August 1, 1995 between the
           Registrant  and Jack  Jacobs  (filed  as  Exhibit  10.3 to
           Registrant's   1996  10-K  and   incorporated   herein  by
           reference).

10.4       Employment  Contract dated as of June 30, 1996 between the
           Registrant  and Ramon  Montes  (filed as  Exhibit  10.3 to
           Registrant's  Quarterly Report on Form 10-Q for the fiscal
           quarter ended June 30, 1996  Commission  File No.  1-10340
           and incorporated herein by reference).

10.5       Amended and  Restated  1989  Incentive  Stock  Option Plan
           (filed as Exhibit 10(e) to  Registrant's  Annual Report on
           From  10-K  for the  fiscal  year  ended  March  31,  1990
           Commission  File No.  1-10340 and  incorporated  herein by
           reference).

10.6       1991  Stock  Option  Plan  (filed as Exhibit  10(e)(1)  to
           Registrant's    Post-Effective    Amendment   No.   1   to
           Registrant's   Form  S-1  and   incorporated   herein   by
           reference).

10.7       1992  Stock  Option  Plan  (filed as Exhibit  10(e)(2)  to
           Registrant's  Annual  Report on From  10-K for the  fiscal
           year ended March 31, 1993  Commission File No. 1-10340 and
           incorporated herein by reference).

10.8       1995 Nonqualified Stock Option Plan (filed as Exhibit A to
           Registrant's  1996 Definitive  Proxy Statement on Schedule
           14A Commission File No. 1-10340 and incorporated herein by
           reference).

10.9       1996 Stock Option Plan (filed as Exhibit B to Registrant's
           1996 Definitive Proxy Statement on Schedule 14A Commission
           File No. 1-10340 and incorporated herein by reference).

10.10      Lease  Agreement  dated  December  8, 1993  between  Allou
           Distributors,  Inc. and Brentwood  Distribution Co. (filed
           as Exhibit  10(f) to  Registrant's  Annual  Report on Form
           10-K for the fiscal year ended  March 31, 1995  Commission
           File No.  1-10340  ("1995  Form  10-K")  and  incorporated
           herein by reference).

10.11      Lease Agreement dated March 4, 1980 between Registrant and
           Pueblo  Supermarkets,   Inc.  (filed  as  Exhibit  10g  to
           Registrant's   Form  S-1  and   incorporated   herein   by
           reference).



<PAGE>



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

10.12      Lease  Agreement  dated  January 1, 1993 between M. Sobol,
           Inc.  and Simon and Barbara J.  Mandell  (filed as Exhibit
           10(g) to  Registrant's  Annual Report on Form 10-K for the
           fiscal  year  ended  March 31,  1994  Commission  File No.
           1-10340  ("1994  Form  10-K") and  incorporated  herein by
           reference).

10.13      Agreement   dated   December   13,  1994   between   Allou
           Distributors,   Inc.  and  the  National  Organization  of
           Industrial  Trade  Unions  (filed as Exhibit  10(i) to the
           Registrant's  1995  Form 10-K and  incorporated  herein by
           reference).

*10.14     Agreement   dated   December   15,  1997   between   Allou
           Distributors, Inc. and Local No. 1.

*10.15     Third Restated and Amended  Revolving  Credit and Security
           Agreement dated October 22, 1997 among  BankBoston,  N.A.,
           IBJ Schroder Bank & Trust Company,  Sanwa Business  Credit
           Corporation,  LaSalle  Business  Credit,  Inc., Bank Leumi
           Trust  Company of New York,  The Dime  Savings Bank of New
           York,  FSB,  The  First  National  Bank of  Maryland,  Key
           Corporate Capital, Inc.

10.16      Master Lease Finance  Agreement dated as of April 24, 1996
           between  BankBoston  Leasing Inc. and Allou  Distributors,
           Inc. (filed as Exhibit 10-14 to Registrant's 1996 10-K and
           incorporated herein by reference).

21         Subsidiaries  of the  Registrant  (filed as  Exhibit 21 to
           Registrant's   1996  10-K  and   incorporated   herein  by
           reference).

*23        Consent of Mayer Rispler & Co.

*27        Financial Data Schedule

----------------
* Filed herewith