<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 October 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: 11,519,311 shares of common stock, $.01 par value per share,
at December 14, 1995.
<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 -
October 31, 1995 and July 31, 1995 2-3
Condensed Consolidated Statements of 4
Operations for the three months ended
October 31, 1995 and 1994
Condensed Consolidated Statements of 5
Cash Flows for the three months ended
October 31, 1995 and 1994
Notes to Condensed Consolidated
Financial Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results 9-10
of Operations
Exhibit 11 Schedule of Computation
of Earnings per share 11
Signatures 12
</TABLE>
1
<PAGE> 3
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS October 31, July 31,
------ 1995 1995
----------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 622,772 $ 515,636
Accounts receivable, net of allowances for
doubtful accounts and chargebacks of
$673,630 and $634,593 at October 31,
and July 31,1995, respectively and sales
allowances of $406,264 at October 31,
and July 31, 1995 1,599,446 1,392,315
Inventories 3,266,661 3,326,567
Prepaid expenses and other current assets - 29,288
----------- ---------
Total current assets 5,488,879 5,263,806
----------- ---------
PROPERTY AND EQUIPMENT 7,452,759 7,350,970
Less-accumulated depreciation and
amortization (5,797,895) (5,621,515)
----------- ---------
Property and equipment, net 1,654,864 1,729,455
----------- ---------
OTHER ASSETS:
License agreement and trademarks,
net of accumulated amortization of
$890,761 and $867,961 at October 31,
and July 31, 1995, respectively 843,608 866,408
Goodwill, net of accumulated amortization
of $413,837 and $394,131 at October 31,
and July 31, 1995, respectively 2,739,201 2,758,907
Other 137,694 137,694
----------- ---------
Total other assets 3,720,503 3,763,009
Total assets $10,864,246 $10,756,270
=========== ==========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
2
<PAGE> 4
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY October 31, July 31,
------------------------------------ 1995 1995
---------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of mortgage, note
and other loans payable $ 2,872,477 $ 2,828,019
Due to related parties 34,826 34,826
Accounts payable 2,708,947 3,106,090
Accrued expenses-other 2,024,582 1,924,025
----------- -----------
Total current liabilities 7,640,832 7,892,960
NOTES PAYABLE 650,000 725,000
----------- -----------
Total liabilities 8,290,832 8,617,960
----------- -----------
REDEEMABLE PREFERRED STOCK 750,000 750,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
17,000,000 shares authorized;
11,519,311 shares issued and
outstanding at October 31, 1995
and July 31,1995, respectively: 115,193 115,193
Additional paid-in capital 12,629,976 12,629,976
Accumulated deficit (10,921,755) (11,356,859)
----------- -----------
Total shareholders' equity 1,823,414 1,388,310
----------- -----------
Total liabilities and share-
holders' equity $ 10,864,246 $ 10,756,270
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
3
<PAGE> 5
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31, October 31.
1995 1994
----------- -----------
<S> <C> <C>
Net sales $ 7,673,898 $ 7,261,587
Cost of goods sold 2,171,052 2,046,120
------------- ------------
Gross profit on sales 5,502,846 5,215,467
Selling, general and
administrative expenses 4,928,482 5,062,250
------------- ------------
Operating profit 574,364 153,217
Other expense
Interest expense (83,638) (103,016)
Other (15,622) -
------------- ------------
Total other expense (99,260) (103,016)
------------- ------------
Income before provision for
Income Taxes 475,104 50,201
Provision for income taxes 40,000 -
------------- ------------
NET INCOME $ 435,104 $ 50,201
============= ============
Weighted average number of common
and common equivalent shares 11,788,396 11,406,851
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ 0.04 $ 0.00
============= ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements.
4
<PAGE> 6
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
- - ------------------------------------
Net Income $ 435,104 $ 50,201
---------- ----------
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation & Amortization 218,886 270,932
(Increase) Decrease Accounts Receivable (207,131) 964,811
Decrease (Increase) Inventory 59,906 (291,780)
Decrease Prepaid Expenses & Other Assets 29,288 162,658
(Decrease) Accounts Payable & Accrued Expenses (291,107) (184,526)
---------- ----------
Total Adjustments (190,158) 922,095
---------- ----------
Net Cash Provided by
Operating Activities 244,946 972,296
---------- ----------
Cash Flows from Investing Activities
- - ------------------------------------
Capital Expenditures (101,789) (80,428)
---------- ----------
Cash Flows from Financing Activities
- - ------------------------------------
Proceeds (Payment) of Lines of Credit, net 188,979 (132,524)
Payment of Term Promissory Note (150,000) (150,000)
Principal Payments of Mortgage Note (75,000) (75,000)
Payment of Construction Note - (20,912)
---------- ----------
Net Cash Used in Financing Activities (36,021) (378,436)
Net Increase in Cash 107,136 513,432
Cash at Beginning of Period 515,636 10,444
---------- ----------
Cash at End of Period $ 622,772 $ 523,876
========== ==========
Cash Paid during the quarter ended
Interest $ 92,934 $ 98,442
Income Taxes 13,147 6,966
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated statements
5
<PAGE> 7
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(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 October 31,1995 and July 31,
1995, the results of its operations for the three months ended October
31, 1995 and 1994 and the cash flows for the three months ended October
31, 1995 and 1994. All adjustments are of a normal recurring nature. The
condensed consolidated balance sheet at July 31, 1995 was taken from
audited consolidated financial statements previously filed with the
Securities and Exchange Commission in the Company's Form 10K.
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, 1995, filed with the
Securities and Exchange Commission.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade receivables.
The Company's major customers are department stores and a television
shopping network. Concentration of credit risk with respect to trade
receivables is significant due to the dependence of certain customers in
the Company's customer base. On October 31, 1995 a television shopping
network accounted for 45% of sales and 41% of accounts receivable.
(2) Inventory:
Inventory at October 31, 1995 and July 31, 1995 was comprised of finished
goods amounting to $1,044,948 and $1,424,009 respectively and raw
materials and semi-finished goods of $2,221,713 and $1,902,558,
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.
6
<PAGE> 8
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(Unaudited)
(4) Debt:
Term Loan:
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 $250,000 and $850,000 at October 31, 1995 and 1994,
respectively. At July 31, 1995 the balance under the term loan was
$400,000.
Term Promissory Note:
At October 31, 1995, the Company had a Term promissory note due to
Midlantic in the amount of $950,000. The term promissory note is
collateralized by a distribution and administration facility and bears
interest at a rate of 2% above Midlantic's prime lending rate. The balance
under this term promissory note was $1,025,000 and $1,250,000 at July
31, 1995 and October 31, 1994 respectively
Lines of Credit:
The Company also maintains a $700,000 secured line of credit with
Midlantic which bears interest at 1.5% above the bank's prime 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 $188,979 and $508,709 at October 31, 1995 and October 31,
1994. At July 31, 1995 borrowings under this line of credit were $0.
In addition, the Company maintains a revolving secured line of credit
of up to $2,100,000 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 at October 31, 1995 and 1994,
respectively . At July 31, 1995 borrowings under this line of credit
were $2,100,000.
The Company's loan agreement with Midlantic contains financial
covenants which require the Company to have a Consolidated Tangible
Net Worth of not less than $1,000,000 and Consolidated Capital
Expenditures not to exceed $400,000 for the fiscal year ending July
31, 1996. These financial covenants do not have to be met on a
quarterly basis.
7
<PAGE> 9
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1995
(Unaudited)
Related Party Loans:
At October 31, 1995 and July 31, 1995, the Company had advances from
FFD in the amount of $34,826. These advances are due on demand and
bear interest at a rate of 1.5% above the prime lending rate of
Midlantic. At October 31, 1994 advances from FFD totaled $300,000.
(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) Income Taxes
The Company maintains approximately $8.5 million of Federal operating
loss carry forwards with expiration dates from 2005 to 2009; however,
the annual use of pre-acquisition loss carry forwards is limited by the
Internal Revenue Code. As such, the Company has reflected a tax
provision of $40,000 in its condensed consolidated statement of
operations for the quarter ended October 31, 1995 which primarily
relates to the Federal alternative minimum tax and to state income taxes.
(7) Commitments
One officer of the Company has an employment agreement which provides
for salary, fringe benefits and commission payments based upon 33% of
the net profits attributable to television shopping sales.
One officer of the Company has 975,000 warrants outstanding which
expire in November 1998.
8
<PAGE> 10
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 1995
Results of Operations:
The Company recorded net income for the three months ended October 31,
1995 of $435,104 as compared to net income of $50,201 recorded for the
three months ended October 31, 1994. Net income per common and common
equivalent share was $0.04 for the three months ended October 31, 1995 as
compared to $0.00 for the three months ended October 31, 1994.
Net sales for the three months ended October 31, 1995 increased 5.7% to
$7,673,898 as compared to $7,261,587 for the same period of the prior
fiscal year. Sales of cosmetic products increased 10.3% to $7,435,330
from $6,743,080, while sales of fragrance products decreased 54.0% to
$238,568 from $518,507.
The cosmetic sales increase of $692,250 is primarily attributable to
increased sales in Adrien Arpel's department store business of $811,714
when compared to the same period of the prior fiscal year. Sales of
Adrien Arpel products to the Home Shopping Network decreased 3.3% or
$119,464 from $3,565,038 to $3,445,574 for the first quarter of fiscal
1995 as compared to fiscal 1995.
The fragrance sales decrease of $279,939 is primarily attributable to the
Company's decision to temporarily suspend its fragrance business. This
decision was made during the latter part of fiscal 1995 due to limited
working capital and the unprofitability of the fragrance business at the
reported sales levels.
Cost of goods sold as a percentage of net sales was 28.3% for the quarter
ended October 31, 1995 as compared to 28.2% for the quarter ended October
31, 1994.
Selling, general and administrative expenses decreased 2.6% or $133,768 to
$4,928,482 for the quarter ended October 31, 1995 as compared to $5,062,250 for
the quarter ended October 31, 1994. These reductions are related to advertising
and payroll expenses.
Other expenses decreased 3.6% to $99,260 recorded during the quarter ended
October 31, 1995 as compared to $103,016 for the quarter ended October
31, 1994. The slight decrease is attributable to decreased interest
expenses related to the lower debt level.
9
<PAGE> 11
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 1995
Liquidity and Capital Resources
The Company had a working capital deficit of $2,151,953 at October 31,
1995, a decrease of $517,201 from a working capital deficit of $2,629,154
at July 31, 1995.
Total bank borrowings decreased $36,022 during the first quarter ended
October 31, 1995 from $3,525,000 at July 31, 1995 to $3,488,979 at
October 31, 1995. The Company utilized an additional $188,979 of its
line of credit with Midlantic National Bank, during the quarter, which
had a balance of $0 at July 31, 1995 to fund working capital needs.
Payments to Midlantic during the three months ended October 31, 1995
towards the Company's term promissory note and term loan totaled
$225,000. During the three months ended October 31, 1995, the Company
reduced trade accounts payable by $397,143 from $3,106,090 at July 31,
1995.
The Company is confident that improved profitability and the generation
of positive cash flow which it has experienced over the last year will
continue. Management feels that the Company's inventory and payable
levels are under control and have stabilized at balances which are more
in line with its current business trend. The Company has been operating
without increased financing from its banks and continues to pay its
scheduled bank payments of $75,000 per month. These payments combined
with the current trend of profitability will stabilize the Company for future
operations.
In addition, the Company is currently finalizing negotiations which could
result in Arpel's products being marketed through the Home Shopping Network of
Canada. Indications are that the Company's products could be appearing in this
market during February 1996. The Company's relationship with the Home Shopping
Network, in the United States, has been a significant factor in contributing to
the current profitable results.
10
<PAGE> 12
EXHIBIT 11
ALFIN, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
October 31
1995 1994
---- ----
<S> <C> <C>
Net Income $ 435,104 $ 50,201
---------------- ---------------
Weighted average number
of shares outstanding 11,519,311 11,402,904
Add:
Common Stock
Equivalents under 1983 option plan 1,479 3,947
Common Stock
Equivalents under 1993 option plan 147,887 -
Common Stock
Equivalents represented by Warrants 119,719 -
---------------- ---------------
Weighted average number of
Shares used in earnings per share 11,788,396 11,406,851
Earnings per share $0.04 $0.00
</TABLE>
11
<PAGE> 13
ALFIN, INC AND SUBSIDIARIES
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/ Jean Farat
---------------------
Jean Farat
Chairman of the Board
Dated: December 13,1995 /s/ Michael D. Ficke
---------------------
Michael D. Ficke
Principal Financial &
Accounting Officer
12
<PAGE> 14
EXHIBIT INDEX
-------------
Exhibit
No. Description
- - ------- -----------
11 Schedule of Computation of Earnings per share
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 11
ALFIN, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
October 31
1995 1994
---- ----
<S> <C> <C>
Net Income $ 435,104 $ 50,201
---------------- ---------------
Weighted average number
of shares outstanding 11,519,311 11,402,904
Add:
Common Stock
Equivalents under 1983 option plan 1,479 3,947
Common Stock
Equivalents under 1993 option plan 147,887 -
Common Stock
Equivalents represented by Warrants 119,719 -
---------------- ---------------
Weighted average number of
Shares used in earnings per share 11,788,396 11,406,851
Earnings per share $0.04 $0.00
</TABLE>
<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 THREE MONTHS ENDED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-31-1995
<PERIOD-END> OCT-31-1995
<EXCHANGE-RATE> 1
<CASH> 622,772
<SECURITIES> 0
<RECEIVABLES> 1,559,446
<ALLOWANCES> 1,079,894
<INVENTORY> 3,266,661
<CURRENT-ASSETS> 5,488,879
<PP&E> 7,452,759
<DEPRECIATION> 5,797,895
<TOTAL-ASSETS> 10,864,246
<CURRENT-LIABILITIES> 7,640,832
<BONDS> 0
<COMMON> 115,193
750,000
0
<OTHER-SE> 1,708,221
<TOTAL-LIABILITY-AND-EQUITY> 10,864,246
<SALES> 7,673,898
<TOTAL-REVENUES> 7,673,898
<CGS> 2,171,052
<TOTAL-COSTS> 4,928,182
<OTHER-EXPENSES> 99,260
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 83,638
<INCOME-PRETAX> 475,104
<INCOME-TAX> 40,000
<INCOME-CONTINUING> 435,104
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 435,104
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
