<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
======================================
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 1995
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 Number 0-11434
ALFIN, INC.
__________________________________________________________________
(Exact name of registrant as specified in its charter)
New York 13-3032734
_____________________________________ _________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
720 Fifth Avenue, New York, N.Y. 10019
___________________________________________________________________
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 333-7700
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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuer's classes of common stock, as of the
latest practicable date: 11,402,904 shares of common stock, $.01 par
value per share, at March 13, 1995.
1
<PAGE> 2
ALFIN, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
January 31, 1995 and July 31, 1994 3-4
Condensed Consolidated Statements of
Operations for the three months and
six months ended January 31, 1995 and
1994. 5
Condensed Consolidated Statements of
Cash Flows for the six months ended
January 31, 1995 and 1994. 6
Notes to Condensed Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-13
Part II - OTHER INFORMATION 14
------- -----------------
Signatures 15
</TABLE>
2
<PAGE> 3
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1995 1994
ASSETS ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 328,398 $ 10,444
Accounts receivable, net of allowance for
doubtful accounts and chargebacks of
$1,478,560 and $1,475,650 at January 31,
1995 and July 31, 1994, respectively and
sales allowances of $397,871 and $357,471
at January 31, 1995 and July 31, 1994,
respectively 1,227,654 2,688,848
Inventories 2,837,648 2,553,333
Prepaid expenses and other current assets 201,139 282,381
---------- ----------
Total current assets 4,594,839 5,535,006
---------- ----------
PROPERTY AND EQUIPMENT 8,101,264 7,948,931
Less-accumulated depreciation and
amortization 5,537,916 5,093,042
---------- ----------
Property and equipment, net 2,563,348 2,855,889
---------- ----------
OTHER ASSETS
License agreement and trademarks,
net of amortization of $818,022 and
$776,760 at January 31, 1995 and
July 31, 1994, respectively 916,347 957,609
Goodwill, net of accumulated amorti-
zation of $354,718 and $315,305 at
January 31, 1995 and July 31, 1994,
respectively 2,798,320 2,837,733
Other 175,945 175,945
----------
----------
Total other assets 3,890,612 3,971,287
---------- ----------
Total assets $11,048,799 $12,362,182
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
ALFIN, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, JULY 31
1995 1994
----------- -------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of mortgage, note
and other loans payable $ 4,299,743 $ 5,120,644
Due to Related Parties 300,000 300,000
Accounts Payable 2,728,005 3,789,276
Accrued salaries and commissions 546,691 566,163
Accrued construction costs 168,929 136,962
Accrued expenses-other 1,377,286 1,526,891
---------- ----------
Total current liabilities 9,420,654 11,439,936
NOTE PAYABLE 148,582 148,582
---------- ----------
Total liabilities 9,569,236 11,588,518
---------- ----------
REDEEMABLE PREFERRED STOCK 750,000 750,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
17,000,000 shares authorized;
11,402,904 shares issued and
outstanding at January 31, 1995
and July 31, 1994, respectively 114,029 114,029
Additional paid-in capital 12,522,390 12,522,390
Accumulated deficit (11,906,856) (12,612,755)
---------- ----------
Total shareholders' equity 729,563 23,664
---------- ----------
Total liabilities and share-
holders' equity $11,048,799 $12,362,182
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
ALFIN, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 8,771,169 $ 6,754,032 $16,032,756 $14,904,729
Cost of goods sold 2,786,502 1,529,508 4,832,622 3,717,874
---------- ---------- ---------- ----------
Gross profit on sales 5,984,667 5,224,524 11,200,134 11,186,855
Selling, general and
administrative expenses 5,166,846 5,880,875 10,229,096 11,739,807
---------- ---------- ---------- ----------
Operating Profit (Loss) 817,821 (656,351) 971,038 (552,952)
Other income (expense)
Interest expense (116,333) (116,644) (219,349) (207,495)
Other (45,790) 20,254 (45,790) 18,840
---------- ---------- ---------- ----------
Total (162,123) (96,390) (265,139) (188,655)
---------- ---------- ---------- ----------
NET Income (Loss) $ 655,698 $ (752,741) $ 705,899 $ (741,607)
========== =========== ========== ===========
Weighted average number
of common and common
equivalent shares 11,402,904 10,289,390 11,402,904 10,289,356
---------- ---------- ---------- ----------
Net Income (loss) per
common and common
equivalent shares $ 0.06 ($0.07) $ 0.06 ($0.07)
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE> 6
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Six Months Ended
----------------
January 31,
-----------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities
- ------------------------------------
Net Income (Loss) $ 705,899 $ (741,607)
--------- ----------
Adjustments to Reconcile Net Income (Loss)
to Net Cash:
Depreciation & Amortization 525,549 625,385
(Increase) Decrease in Assets
Accounts Receivable, net 1,461,194 (874,364)
Inventory (284,315) 549,156
Prepaid Expenses & Other Assets 81,242 62,483
Increase (Decrease) in liabilities
Accounts Payable & Accrued Expenses (1,198,381) 377,555
--------- ----------
Total Adjustments 585,289 740,215
--------- ----------
Net Cash Provided by (Used for)
Operating Activities 1,291,188 (1,392)
--------- ----------
Cash Flows from Investing Activities
- ------------------------------------
Capital Expenditures (152,333) (110,837)
Proceeds from Sale of Stock - 1,300,000
--------- ----------
Net Cash (Used for)Provided by
Investing Activities (152,333) 1,189,163
--------- ----------
Cash Flows from Financing Activities
- ------------------------------------
Payment of Line of Credit (316,490) (257,528)
Payment of Related Parties - (1,530,064)
Payment of Note Payable (300,000) (500,000)
Principal Payments of Term Promissory Note (150,000) (32,897)
Principal Payments on Construction Note (54,411) -
---------- ----------
Net Cash Used for Financing Activities (820,901) (2,320,489)
---------- ----------
Net Increase (Decrease) in Cash 317,954 (1,132,718)
Cash at Beginning of Year 10,444 1,133,518
--------- ----------
Cash at End of Period $ 328,398 $ 800
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE> 7
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED
JANUARY 31, 1995, and 1994
(Unaudited)
(1) Summary of significant accounting policies:
In the opinion of management, the accompanying condensed
consolidated financial statements contain all of the adjustments
necessary to present fairly the Company's financial position at
January 31, 1995 (unaudited) and July 31, 1994, the results of its
operations for the three and six months ended January 31, 1995 and
1994 and the cash flows for the six months ended January 31 1995
and 1994. All adjustments are of a normal recurring nature.
All significant intercompany transactions and accounts have been
eliminated in consolidation. Interim period results are not
necessarily indicative of the results of operations for a full
year.
These quarterly financial statements should be read in conjunction
with the Company's audited financial statements contained in the
Annual Report on Form 10-K for the fiscal year ended July 31, 1994,
filed with the Securities and Exchange Commission.
(2) Inventory
Inventory at January 31, 1995 and July 31, 1994 was comprised of
finished goods amounting to $1,354,224 and $1,284,736 and raw
materials and semi-finished goods of $1,483,424 and $1,268,597,
respectively.
(3) Other Assets
License agreements and trademarks are recorded at cost and are
amortized over their estimated useful lives of 19 years. Goodwill
is amortized using the straight line method over 40 years.
7
<PAGE> 8
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(4) Notes Payable:
The Company presently has a $5.0 million, five-year term loan with
Midlantic National Bank ("Midlantic") which bears interest at a rate
of .5% above the bank's prime lending rate. The balance under the
term loan was $700,000 and $1,000,000 at January 31, 1995 and January
31, 1994, respectively. At July 31, 1994 the balance under the term
loan was $1,000,000. The term loan agreement contains financial
covenants which required the Company to have consolidated working
capital of not less than a $125,000 deficit at January 31, 1995. The
actual consolidated working capital at January 31, 1995 was a deficit
of $4,825,815. During August 1994, the Company and Midlantic agreed to
modify this term loan to be repaid in equal monthly installments of
$50,000.
The issuance of a going concern audit opinion as of July 31, 1994 is
an event of default under the loan agreement with Midlantic. Due to
this event of default and the default of the financial covenants
described above, the long-term portion of the term loan and mortgage
of $975,000 has been classified as a current liability.
The Company also maintains a $700,000 ($1.0 million at January 31,
1994) secured line of credit with Midlantic with bears interest at
1.5% above the bank's lending rate. The Company is required to
maintain a compensating balance equal to 5% of the line of credit.
Borrowings under this line of credit were $324,743 and $1,475,715 at
January 31, 1995 and January 31, 1994, respectively. At January 31,
1994 the Company was allowed an overadvance of $700,000 on this line
of credit. At July 31, 1994 borrowings under this line of credit were
$641,233.
8
<PAGE> 9
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
During February 1994, the Company refinanced its mortgage with
Midlantic in the amount of $623,442 which was due to be paid on
January 31, 1994 into a term promissory note, in the amount of
$1,450,000. The Company and Midlantic agreed that the net proceeds
from the refinancing of the term promissory note would be applied
against the outstanding balance under the secured line of credit.
Principal installments under the term promissory note are $25,000 and
are due on the first day of each month until December 1, 1998. At
January 31, 1995 the term promissory note had a balance of $1,175,000.
At July 31, 1994 the term promissory note had a balance of $1,325,000.
In addition, the Company maintains a revolving secured line of credit
of up to $2,100,000 ($2,5 million at January 31, 1994) with Credit
Lyonnais. The loan is secured by the domestic accounts receivable of
Adrien Arpel, Inc. Borrowings under this line of credit were
$2,100,000 and $2,111,777 at January 31, 1995 and 1994 respectively.
At July 31, 1994 borrowings under this line of credit were $2,100,000.
At January 31, 1995 the Company had advances from Fine Fragrances
Distribution, Inc. ("FFD") in the amount of $300,000. These advances
are due on demand and bear interest at a rate of 1.5% above the prime
lending rate of Midlantic. At January 31, 1994 advances from FFD
totaled $13,649.
(5) Computation of net income (loss) per common
and common equivalent share:
Net income per common and common equivalent share was computed by
dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding during the periods.
Common stock equivalents include the number of shares issuable on
exercise of the outstanding options and warrants less the number of
shares that could have been purchased with the proceeds from the
exercise of the options and warrants based on the average price of
common stock during the period.
(6) Redeemable Preferred Stock
During March 1995 The Company's Board of Directors approved the
issuance of 115,846 shares of common stock as dividens to holders of
the Company's 30,000 shares of $25.00, 14.5% Preferred Stock.
9
<PAGE> 10
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Results of Operations:
Six months ended January 31, 1995 and 1994
The Company achieved net income for the six months ended January 31, 1995 of
$705,899 as compared to a net loss of ($741,607) recorded for the six months
ended January 31, 1994. This is the third consecutive quarter during which the
Company has recorded profits. The Company's plans to become profitable during
fiscal 1995 at reduced staff and sales levels are on target. The Company has
been restructuring its operations over the last two fiscal years and has
implemented cost reduction programs in order to achieve this goal.
Net sales for the six months ended January 31, 1995 increased 7.6% to
$16,032,756 as compared to $14,904,729 for the six months ended January 31,
1994. Sales of cosmetic products increased 32.5% to $15,364,701 as compared to
$11,596,694 in the same period of the prior fiscal year, while sales of
fragrance products decreased 79.8% from $3,308,035 to $668,055.
The cosmetic sales increase of $3,768,007 is attributable to sales of specialty
packaged cosmetic products sold through television marketing in the amount of
$8,042,666. This increase was offset by sales decreases of approximately
$2,375,000 attributable to the discontinuance of sales to Premier Salons
International, and decreases of approximately $1,900,000 on comparative six
month sales due to orders which could not be filled. The inability of the
Company to fill all orders negatively impacted revenues and profits. The
Company's ability to fill orders, however, has been improving with the
improvement in cash flow resulting from profitable operations.
The decrease in fragrance sales of $2,639,980 is primarily attributable to
$2,052,000 of nonrecurring special sales made during the first six months of
the prior fiscal year. These special sales consisted of slow moving inventory
and discontinued product lines. Sales of fragrance products, which the Company
continues to distribute, decreased approximately $588,000 due primarily to
orders which could not be filled. Cash flow demands have limited the amount of
inventory purchases.
10
<PAGE> 11
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(CONTINUED)
Cost of goods sold as a percentage of net sales was 30.1% for the six months
ended January 31, 1995 as compared to 24.9% for the six months ended January
31, 1994. The cost of goods sold percentage on fragrance products improved to
33.5% as compared to 45.5% recorded during the prior fiscal year. The improved
cost of goods sold percentage on fragrance products is more typical of
management's expectations for the product lines which the Company continues to
distribute. The prior year six months cost of goods sold percentage reflects
lower margins earned on sales of slow moving and discontinued product lines.
The cost of goods sold percentage on cosmetic products increased to 30.0% for
the six months ended January 31, 1995, as compared to 19.1% for the six months
ended January 31, 1994. The increase is attributable to the increased cost of
the specialty packaged cosmetic products sold through television marketing. The
higher cost of goods sold percentage on products sold through television is
more than offset by savings on lower selling, general and administrative costs
associated with this type of business.
Advertising, promotional, selling and general and administrative expenses
decreased 12.9% or $1,510,711 to $10,229,096 for the six months ended January
31, 1995 as compared to January 31, 1994. The decrease reflects the continued
effects of the Company's cost reduction programs coupled with the lower cost of
marketing through television. This quarter marks the seventh consecutive
quarter that these expenses have decreased.
Expenses from nonoperating items increased 40.5% or $76,484 to $265,139 for the
six months ended January 31, 1995 as compared to $188,655 for the six months
ended January 31, 1994. The increase is primarily related to a nonrecurring
expense adjustment coupled with a small increase in interest rates on
borrowing.
Net income per common and common equivalent share for the six months ended
January 31, 1995, was $0.06 as compared to a net loss of ($0.07) for the six
months ended January 31, 1994.
11
<PAGE> 12
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(CONTINUED)
Three Months Ended January 31, 1995 and 1994
The Company achieved net income of $655,698 for the three months ended January
31, 1995 as compared to a net loss of $(752,741) for the three months ended
January 31, 1994.
Net sales for the three months ended January 31, 1995 increased 29.9% to
$8,771,169 as compared to $6,754,032 for the three months ended January 31,
1994. Sales of cosmetic products increased 55.7% from $5,535,952 to $8,621,621
while sales of fragrance products decreased 87.7% from $1,218,080 to $149,548.
Sales of products through television marketing were $4,477,628 for the three
months ended January 31, 1995 and zero in 1994. Since the Company did not start
sales through television marketing until the third quarter ended April 30,
1994, there were no comparative sales for the three months ended January 31,
1994.
Cost of goods sold as a percentage of net sales was 31.8% for the quarter ended
January 31, 1995 as compared to 22.6% for the quarter ended January 31, 1994.
The cost of goods sold percentage on fragrance products improved from 46.0% to
36.4% while the cost of goods sold percentage on cosmetic products increased
from 17.5% to 31.7% during the three months ended January 31, 1995 as compared
to the same period of the prior fiscal year.
Advertising, promotional, selling and general and administrative expenses
decreased 12.1% or $714,029 to $5,166,846 for the three months ended January
31, 1995 as compared to January 31, 1994.
Expenses from non operating items increased 68.2% or $65,733 to $162,123 during
the three months ended January 31, 1995 as compared to the same period of the
prior fiscal year.
Net income per common and common equivalent share for the three months ended
January 31, 1995 was $0.06 as compared to a net loss of ($0.07) for three
months ended January 31, 1994.
12
<PAGE> 13
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
(CONTINUED)
Liquidity and Capital Resources
During the six months ended January 31, 1995 working capital increased
$1,079,115 to a deficit of ($4,825,815) as compared to a deficit of
($5,904,930) for the period ended July 31, 1994. The Company's term loan
agreement with Midlantic National Bank contains financial covenants which
required the Company to have consolidated working capital of not less than a
$125,000 deficit at January 31, 1995. The actual consolidated working capital
at January 31, 1995 was a deficit of $4,825,815. The issuance of a going
concern audit opinion as of July 31, 1994 is an event of default under the loan
agreement with Midlantic National Bank. Due to the default of the financial
covenant and the default due to the issuance of a going concern audit opinion
the long term portion of the term loan and mortgage in the amount of $975,000
has been reclassified as current debt.
The Company's management has requested that Midlantic National Bank waive the
event of default under the financial covenants, particularly in light of the
fact that the financial covenant originated as part of the Company's June 1992
loan agreement with Midlantic and the Company and Midlantic have re-negotiated
repayment of the current loan facilities during August 1994.
At January 31, 1995 the Company had total bank borrowings of $4,299,743. Total
bank borrowings have been reduced by $911,191 from $5,210,934 at January 31,
1994 and by $766,490 from $5,066,233 at July 31, 1994.
The company has been successful in working with vendors to schedule the payment
of old accounts payable invoices which had accumulated during the prior two
fiscal years. Based on the extended schedule a portion of the Company's funds
which would otherwise be dedicated currently to the purchase of inventory were
required for these payments.
13
<PAGE> 14
ALFIN, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
It was recently brought to the Director's knowledge that a judgment has
been entered against an inactive wholly-owned subsidiary of Alfin,
Suisse Laboratories Ltd., ("Suisse Labs"), for approximately $720,000
in New Jersey state income taxes for the period July 31, 1986 through
July 31, 1989. The judgment is based on an arbitrary assessment for
alleged insufficiencies in information. The Company and its auditors
are attempting to open this judgment and to establish by fuller
documentation that no material amount is owed. Suisse Labs has minimal
assets and, to date, no claim has been made against the Company. While
the Company believes that it has no material liability, there can be no
assurance that the state will not seek to hold the Company liable for
whatever the obligations of Suisse Labs are determined to be.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements 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.
ALFIN, INC.
-------------------------------------
(Registrant)
/S/ Mayer D. Moyal
Mayer D. Moyal -------------------------------------
Chairman of the Board
/S/ Michael D. Ficke
-------------------------------------
Michael D. Ficke
Principal Financial
& Accounting Officer
Dated: March 2, 1995
- -------------------------
15
<PAGE> 16
EXHIBIT INDEX
-------------
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALFIN, INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF OPERATIONS FOR
THE SIX MONTHS ENDED JANUARY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JAN-31-1995
<EXCHANGE-RATE> 1
<CASH> 328,398
<SECURITIES> 0
<RECEIVABLES> 1,227,654
<ALLOWANCES> 1,876,431
<INVENTORY> 2,837,648
<CURRENT-ASSETS> 4,594,839
<PP&E> 8,101,264
<DEPRECIATION> 5,537,916
<TOTAL-ASSETS> 11,048,799
<CURRENT-LIABILITIES> 9,420,654
<BONDS> 0
<COMMON> 114,029
750,000
0
<OTHER-SE> 615,534
<TOTAL-LIABILITY-AND-EQUITY> 11,048,799
<SALES> 16,032,756
<TOTAL-REVENUES> 16,032,756
<CGS> 4,832,672
<TOTAL-COSTS> 10,229,096
<OTHER-EXPENSES> 265,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219,349
<INCOME-PRETAX> 705,899
<INCOME-TAX> 0
<INCOME-CONTINUING> 705,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705,899
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
