<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 April 30, 1997
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 1-9135
ALFIN, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-3032734
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(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
720 Fifth Avenue, New York, N. Y. 10019
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(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: 11,787,983 shares of common stock, $.01 par value per share, at June
12, 1997.
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ALFIN, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
- ------ --------------------- ----
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 30, 1997 and July 31, 1996 2-3
Condensed Consolidated Statements of
Operations for the three months and nine
months ended April 30, 1997 and 1996 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended 5
April 30, 1997 and 1996
Notes to Condensed Consolidated
Financial Statements 6-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results 11-14
of Operations
PART II - OTHER INFORMATION
- ------- -----------------
Item 4. Submission of matters to a vote of 15
Security Holders
Item 5. Other Information 15
Signatures 16
</TABLE>
1
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ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
ASSETS April 30, July 31,
------ 1997 1996
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash & Cash Equivalents $ 329,995 $ 2,210,972
Accounts receivable, net of allowances for
doubtful accounts and chargebacks of
$820,969 and $998,769 at April 30, 1997
and July 31, 1996, respectively and sales
allowances of $180,198 at April 30, 1997
and July 31, 1996 329,382 680,370
Inventories 2,853,198 3,271,126
Prepaid expenses and other current assets 1,394,147 746,513
----------- ------------
Total current assets 4,906,722 6,908,981
----------- ------------
PROPERTY AND EQUIPMENT 5,199,969 4,998,954
Less-accumulated depreciation and
amortization (3,904,804) (3,537,025)
----------- ------------
Property and equipment, net 1,295,165 1,461,929
----------- ------------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $532,075 and $472,957 at April 30, 1997
and July 31, 1996, respectively 2,620,962 2,680,081
Other 92,177 177,195
----------- ------------
Total other assets 2,713,139 2,857,276
----------- ------------
Total assets $ 8,915,026 $ 11,228,186
=========== ============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
2
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ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY April 30, July 31,
- ------------------------------------ 1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of mortgage, note
and other loans payable $ 333,499 $ 1,933,499
Due to related parties -- 4,826
Accounts payable 1,301,134 2,177,078
Accrued expenses-other 1,975,329 1,806,781
------------ ------------
Total current liabilities 3,609,962 5,922,184
NOTES PAYABLE 200,000 425,000
------------ ------------
Total liabilities 3,809,962 6,347,184
------------ ------------
REDEEMABLE PREFERRED STOCK 750,000 750,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
17,000,000 shares authorized;
11,721,259 and 11,662,926
shares issued and outstanding
at April 30, 1997 and July 31, 1996,
respectively: 117,212 116,629
Additional paid-in capital 12,845,040 12,787,290
Accumulated deficit (8,607,188) (8,772,917)
------------ ------------
Total shareholders' equity 4,355,064 4,131,002
------------ ------------
Total liabilities and share-
holders' equity $ 8,915,026 $ 11,228,186
============ ============
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
3
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ALFIN, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales $ 3,130,544 $ 8,582,452 $ 22,953,823 $ 25,366,795
Cost of goods sold 790,908 2,869,558 7,743,036 8,175,867
------------ ------------ ------------ ------------
Gross profit on sales 2,339,636 5,712,894 15,210,787 17,190,928
Selling, general and
administrative expenses 3,901,138 5,185,050 14,871,988 15,238,916
------------ ------------ ------------ ------------
Operating (Loss) Profit (1,561,502) 527,844 338,799 1,952,012
Other income (expense)
Interest income (expense) 1,494 (67,756) (37,944) (229,248)
Other income 0 385,748 0 369,627
------------ ------------ ------------ ------------
Total other income (expense) 1,494 317,992 (37,944) 140,379
------------ ------------ ------------ ------------
Income before (Benefit)
Provision for income taxes (1,560,008) 845,836 300,855 2,092,391
(Benefit) Provision for
Income Taxes (433,873) 60,000 135,127 130,000
------------ ------------ ------------ ------------
Net (Loss) Income $ (1,126,135) $ 785,836 $ 165,728 $ 1,962,391
============ ============ ============ ============
Weighted average number
of common and common
equivalent shares 11,868,628 11,918,482 12,061,755 11,796,723
------------ ------------ ------------ ------------
Net (Loss) Income per
common and common
equivalent shares $ (0.09) $ 0.07 $ 0.01 $ 0.17
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
4
<PAGE> 6
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
April 30,
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 165,728 $ 1,962,391
----------- -----------
Adjustments to Reconcile Net Income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation & Amortization 426,898 548,061
Gain on Sale of Trademark -- (394,392)
Decrease (Increase) Accounts Receivable 350,988 (208,176)
Decrease Inventory 417,928 613,886
(Increase) Prepaid Expenses & Other Assets (562,616) 9,286
(Decrease) Increase Accounts Payable & Accrued Expenses (707,395) 50,693
----------- -----------
Total Adjustments (74,197) 619,358
----------- -----------
Net Cash Provided by
Operating Activities 91,531 2,581,749
----------- -----------
Cash Flows from Investing Activities
Capital Expenditures (201,015) (310,820)
Proceeds from Sale of Trademark -- 500,000
Net Cash (Used in) Provided by
----------- -----------
Investing Activities (201,015) 189,180
Cash Flows from Financing Activities
Payment of Lines of Credit (1,600,000) (194,520)
Payment of Debt Obligations (225,000) (625,000)
Payments to Related Parties (4,826) --
Proceeds From Sale of Stock 58,333 --
----------- -----------
Net Cash Used in Financing Activities (1,771,493) (819,520)
Net(Decrease)Increase in Cash (1,880,977) 1,951,409
Cash at Beginning of Period 2,210,972 515,636
----------- -----------
Cash at End of Period $ 329,995 $ 2,467,045
=========== ===========
Cash Paid during the quarter ended
Interest $ 103,510 $ 90,066
Income Taxes 140,280 95,969
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements
5
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
(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 April 30,1997 and July 31, 1996, the results of
its operations for the three and nine months ended April 30, 1997 and 1996 and
the cash flows for the nine month period ended April 30, 1997 and 1996. All
adjustments are of a normal recurring nature. The condensed consolidated balance
sheet at July 31, 1996 was taken from audited consolidated financial statements
previously filed with the Securities and Exchange Commission on the Company's
Form 10K and 10K/A.
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 and 10K/A for the fiscal year ended July 31, 1996, 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, through January 1997, a television
shopping network. Concentration of credit risk with respect to trade
receivables is significant due to the Company's dependence on certain customers
in the Company's customer base. At April 30 , 1997, a television shopping
network accounted for 53% of sales and 0% of accounts receivable.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of". This
statement establishes financial accounting and reporting standards for the
impairment of long lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. The Company has not
finalized the assessment of any SFAS No. 121 impact in the Company's financial
position of results of operation.
In November 1995, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 123 "Accounting for Stock-Based Compensation." This statement
establishes a fair value based method of accounting for an employee stock option
or similar equity instrument but allows companies to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by ABP Opinion No. 25, "Accounting for Stock Issued to
Employees". The Company has elected to remain with the accounting under APB
Opinion No. 25 and make pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting defined in SFAS No. 123
had been applied.
6
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1997
(Unaudited)
In December 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. This
statement establishes standards for computing and presenting earnings per share
(EPS), replacing the presentation of currently required primary EPS with a
presentation of Basic EPS. For entities with complex capital structures, the
statement requires the dual presentation of both Basic EPS and Diluted EPS on
the face of the statement of operations. Under this new standards, Basic EPS is
computed based on weighted average shares outstanding and excludes any potential
dilution. Diluted EPS reflects potential dilution from the exercise or
conversion of securities into common stock or from other contracts to issue
common stock and is similar to the currently required fully diluted EPS. SFAS
128 is effective for financial statements issued for earlier periods ending
after December 15, 1997, including interim periods, and earlier application is
not permitted. When adopted, the Company will be required to restate its EPS
data for all prior periods presented. The Company does not expect the impact of
the adoption of this statement to be material to previously reported EPS
amounts.
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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash & Cash Equivalents
The Company maintains money market accounts with maturities of three months or
less which are reflected as cash equivalents
Advertising Expenses
The Company advertises through cooperative advertising programs and catalogues.
Advertising costs as a percentage of consolidated retail store sales has been
9.7% and 11.4% for the fiscal year ended July 31, 1996 and the nine months ended
April 30, 1997 respectively.
Concentration of Revenues
The Company recognizes revenue at the time orders are shipped to customers. For
the quarter ended April 30, 1997, approximately 84% of department store sales
are derived from merchandise, 4% from services and 12% from seasonal,
promotional items. As is common in the cosmetic industry, the Company provides
its customers with the limited right to return merchandise in order to balance
inventory and stock levels. The rate of return experienced by the Company varies
from between 6.1% and 4.8% for the fiscal year ended July 31, 1996, and nine
months ended April 30, 1997 respectively.
7
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(2) Inventory:
Inventory at April 30, 1997 and July 31, 1996 was comprised of finished
goods amounting to $1,573,865 and $1,303,538, respectively, and components
of $1,279,333 and $1,967,588, respectively.
(3) Other Assets:
Goodwill related to the acquisition of Arpel is being amortized using the
straight line method over 40 years. The Company evaluates the recoverability
of goodwill based upon an analysis of operating results and consideration of
other significant events or changes in the business. If operating losses are
experienced and expected to continue the Company evaluates whether
impairment exists on the basis of undiscounted expected future cash flows
from operations before interest. At the present time the Company does not
believe that the recoverability of goodwill is impaired.
During March 1996, the Company sold its exclusive worldwide manufacturing,
distribution and licensing rights for FRACAS and BANDIT and other fragrances
by Robert Piquet to Fashion Fragrances and Cosmetics Ltd.("FF&C") for $1.2
million. During the first quarter of the current fiscal year the Company and
FF&C agreed to reduce the purchase price payable by FF&C to the Company by
$100,000. This adjustment was necessary because certain molds included in
the purchase price were damaged and unusable. The Company has thus far
received $750,000 with the remaining payment of $350,000 due to be paid in
July 1997.
On November 11, 1996, pursuant to an outstanding agreement, dated November
1, 1983, between Adrienne Newman and Seligman & Latz, Inc., Ms. Newman
elected to purchase a diamond ring from the Company for the amount of
$96,195. Such amount was equal to the amount reflected as an asset on the
Company's balance sheet.
During December 1996 the Company made a deposit of $1 million towards the
purchase of fragrance products from Laboratories ("Selecta") in France. This
transaction was designed to provide additional product sales for the Company
in markets, other than those currently handled by the Company's retail
cosmetic operations. During May 1997 the Company and Selecta agreed to
cancel this purchase. Under the agreement to cancel Selecta will refund the
Company the sum of $1 million plus interest at a rate of 10.5% per annum.
The first payment was made on May 21, 1997 in the amount of $260,125.
Additional payments in the amounts of $266,833, $271,281 and $277,990 are
due to be made on July 31, September 30 and December 31, 1997 respectively.
The Company plans to use these funds for working capital purposes.
(4) Debt:
Term Promissory Note:
During June 1997 the Company paid the remaining balance of $450,000 which
was due to PNC Bank on its term promissory note. The term promissory note
was collateralized by a distribution and administration facility which was
sold by the Company. The balance under this term promissory note was
$725,000 at July 31, 1996. Principal payments under this note were $25,000
per month.
8
<PAGE> 10
Lines of Credit:
On November 29, 1996 the Company paid the balance of its revolving secured
line of credit of $1.3 million which was due to Credit Lyonnais, New York.
(5) Computation of net income 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 $135,127
in its condensed consolidated statement of operations for the nine months
ended April 30, 1997 which primarily relates to Federal and State income
taxes.
(7) Other
On October 28, 1996 the Company received notice from Adrienne Newman
purporting to terminate her April 4, 1990 Employment Agreement with the
Company (such agreement as subsequently amended is the "Employment
Agreement"), based on an alleged breach of the Employment Agreement by the
Company. Ms. Newman served as the President of the Company's wholly owned
subsidiary (Adrien Arpel, Inc ("ARPEL") and had been the Company's selling
host, under the name of Adrien Arpel in its sales program on the Home
Shopping Network, Inc. ("HSN"). The Employment Agreement provided for
salary, fringe benefits and commission payments based upon 33% of the
revenues, net of direct expenses attributable to television shopping sales.
Ms. Newman also had vested rights in 625,000 warrants, 500,000 of which
were scheduled to expire in November 1998 and the remaining 125,000 of
which were schedule to expire on July 31, 2001.
On November 8, 1996 the Company and Adrienne Newman reached an agreement
(the "Interim Agreement") whereby Ms. Newman agreed to appear as the
selling host for ARPEL on HSN shows scheduled for November and December
1996 and January 1997 ("the HSN Selling Period"). During the HSN Selling
Period, Ms. Newman acted as an independent contractor and not as an
employee of the Company. The Company and Ms. Newman also agreed to refrain
from initiating legal action against the other in connection with their
dispute over Ms. Newman's termination of the Employment Agreement until
after the expiration of the HSN Selling Period.
On January 28, 1997, after the expiration of the HSN Selling Period, the
Company was served with a summons and complaint returnable in the Supreme
Court, New York County, by Adrienne Newman. Ms. Newman has asserted claims
for damages against the Company based upon alleged breaches by the Company
of Ms. Newman's Employment Agreement and the Interim Agreement. Unspecified
damages are claimed. A further claim requested a judicial determination that
the Employment Agreement was materially breached by the Company resulting in
its termination.
On March 19, 1997 the Company served an Answer and Counterclaim in response
to the action commenced by Ms. Newman. The Company's Counterclaim asserts
various claims against Ms. Newman, seeking damages and injunctive relief.
Among other
9
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things, it is the position of the Company that Ms. Newman was in material
breach of her Employment Agreement when she terminated the Employment
Agreement on October 28, 1996. As a consequence, it is the Company's belief
that Ms. Newman's refusal to perform throughout the term of her Employment
Agreement until April 1998, particularly her willful refusal and failure to
appear as the Company's selling host on HSN, will damage the Company at
least in the sum of eleven million ($11,000,000). The Company will also
assert claims against Ms. Newman for breaches of her covenant not to
compete and her covenant not to disclose trade secrets and proprietary
data, and for attempting to disparage the Company. In the view of
management, Ms. Newman's Complaint lacks substantial merit and the Company
should prevail on its Counterclaims.
On May 14, 1997 Ms. Newman appeared on HSN as a representative of her own
Company selling cosmetic products under the name Signature Club A. Ms.
Newman appeared for approximately 25 hours on HSN concluding her live
appearances on May 18, 1997. The Company and its attorneys are reviewing
these appearances and may seek further legal remedies and actions against
Ms. Newman. During these appearances Ms. Newman was not acting on behalf of
the Company or its trademark protected Adrien Arpel product line.
(8) Subsequent Events
Office Consolidation
During June 1997 the Company consolidated its administrative staff offices
and customer service center into a single location. This move is designed to
reduce the overhead costs associated with operating two administrative
locations. Management believes that the consolidation will result in the
Company reducing operating costs while increasing efficiency and customer
service. Moving expenses related to this move were immaterial.
Sale of the Company's Distribution Center
During June 1997 the Company sold its Norwood, New Jersey distribution,
warehousing and administration facility for $1,414,000. The Company recorded
a gain of $904,160 on this transaction which will be reflected during the
fourth quarter ending July 31, 1997. After satisfying the remaining balance
of its term promissory note in the amount of $450,000 which was due to PNC
Bank and selling expenses in the amount of $84,840, the net proceeds
realized were $879,160. The Company plans to use the net proceeds for
working capital purposes.
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ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APRIL 30, 1997
RESULTS OF OPERATIONS:
Certain statements in this report under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, including, without limitation, statements
regarding future cash requirements. Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause the
actual results, performance and achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, general economic and business conditions;
industry capacity; industry trends, competition, litigation, material costs and
availability; the loss of any significant management personnel; the loss of any
significant customers; changes in business strategy or development plans;
quality of management; availability, terms and deployment of capital; business
abilities and judgment of personnel; availability of qualified personnel;
changes in, or the failure to comply with, government regulations; and other
factors referenced in this report.
NINE MONTHS ENDED APRIL 30, 1997
The Company recorded net income of $165,728 for the nine months ended April 30,
1997 as compared to $1,962,391 for the nine months ended April 30, 1996. Net
income per common and common equivalent share was $0.01 for the nine months
ended April 30, 1997 as compared to $0.17 for the nine months ended April 30,
1996.
Net sales for the nine months ended April 30, 1997 decreased to $22,953,823 from
$25,366,795 for the nine months ended April 30, 1996, a decrease of $2,412,972
or 9.5%. The decrease is due to an end to the Company's relationship with the
Home Shopping Network ("HSN") combined with a decrease in sales to department
stores. Sales to HSN for the nine months ended April 30, 1997 were $12,182,949
as compared to $12,706,901 for the nine months ended April 30, 1996, a decrease
of $523,952 or 4.1%. The Company's relationship with HSN ended during January
1997 due to the Company's dispute with Adrienne Newman. For a further discussion
of the Company's relationship with Adrienne Newman and HSN see footnote 7 -
"Other".
Net sales to department stores for the nine months ended April 30, 1997
decreased to $10,770,874 from $12,659,894 for the nine months ended April 30,
1996, a decrease of $1,889,020, or 14.9%. The Company is selling its Adrien
Arpel product line in 271 locations throughout the United States and Canada at
April 30, 1997 as compared to 315 locations at April 30, 1996. The majority of
the locations which have been closed were not profitable for the Company or the
department store groups with which the Company does business. The related
expense savings from the closing of these locations coupled with additional
administrative expense cuts made by the Company is estimated to be $2.2 million
on an annualized basis. The Company is currently negotiating with several
department and specialty store groups to open additional locations during the
current fiscal year.
11
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Cost of goods sold as a percentage of net sales was 33.7% for the nine months
ended April 30, 1997, as compared to 32.2% for the nine months ended April 30,
1996. The increase is primarily related to product mix since products sold to
HSN have had a higher cost of goods rate and consisted of 53% of total sales for
the nine months ended April 30, 1997, as compared to 50% of total sales for the
nine months ended April 30, 1996.
Selling, general and administrative expenses decreased to $14,871,988 for the
nine months ended April 30, 1997 from $15,238,916 for the nine months ended
April 30, 1996, a decrease of $366,928, or 2.4%. The decrease is primarily
related to the Company's expense reduction program which has been implemented
during the quarter.
Interest expenses decreased to $37,944 for the nine months ended April 30, 1997
from $229,248 recorded during the prior fiscal year, a 83% decrease. This
decrease is primarily attributable to significantly lower debt levels. Included
in other income for the nine months ended April 30, 1996 is a gain in the
amount of $394,392 which was recorded when the Company sold its worldwide
manufacturing and licensing rights to Robert Piguet. Fragrances to Fashion
Fragrances and Cosmetics Ltd.
THREE MONTHS ENDED APRIL 30, 1997
The Company recorded a net loss of $1,126,135 for the three months ended April
30, 1997 as compared to net income of $785,836 for the three months ended April
30, 1996. The net loss per common and common equivalent share was ($0.09) for
the three months ended April 30, 1997 as compared to net income of $0.07 for the
three months ended April 30, 1996.
Net sales for the three months ended April 30, 1997 decreased to $3,130,544 from
$8,582,452 for the three months ended April 30, 1996, a decrease of $5,451,908
or 63.5%. The decrease is primarily due to an end to the Company's relationship
with HSN combined with a decrease in sales to department stores. Sales to HSN
for the three months ended April 30, 1997 were $13,696 as compared to $4,301,238
for the three months ended April 30, 1996, a decrease of $4,287,542 or 99.7%.
The Company's relationship with HSN ended during January 1997 due to the
Company's dispute with Adrienne Newman. For a further discussion of the
Company's relationship with Adrienne Newman and HSN see footnote 7 - "Other".
Net sales to department stores for the three months ended April 30, 1997
decreased to $3,116,848 from $4,281,214 for the three months ended April 30,
1996, a decrease of $1,164,366 or 26.3%. The Company is in the process of
restructuring its retail department store business.
Although sales have decreased the Company's management is confident that its
restructuring plans, designed towards making its retail operations profitable,
will succeed. The Company has instituted expense cuts, improved its product line
and has instituted programs designed to increase department stores sales.
Cost of goods sold as a percentage of net sales was 25.3% for the three months
ended April 30, 1997 as compared to 33.4% for the three months ended April 30,
1996. The decrease is primarily related to product mix since products sold to
HSN have had a higher cost of goods rate.
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<PAGE> 14
Selling, general and administrative expenses decreased to $3,901,138 for the
three months ended April 30, 1997 from $5,185,050 for the three months ended
April 30, 1996, a decrease of $1,283,912 or 24.9%. The decrease is primarily
related to a decrease of approximately $805,000 in compensation payments to
Adrienne Newman during the three months ended April 30, 1996. Ms. Newman's
employment agreement with the Company required that the Company compensate Ms.
Newman for 33.1/3% of the profits attributable to sales of products on HSN.
Contributing to the expense decrease was the expense reduction program which has
been implemented by the Company during the quarter.
The Company recorded interest income during the three months ended April 30,
1997 in the amount of $1,494 as compared to interest expense of $67,756 for the
three months ended April 30, 1996. The Company has been earning interest on
short term marketable securities and has reduced debt levels. During June 1997
the Company satisfied the remaining balance due on its Term Promissory note with
PNC Bank in the amount of $475,000. After this payment the Company has decreased
its bank debt to $0. Included in other income for the three months ended April
30, 1996 is a gain in the amount of $394,392 which was recorded when the Company
sold its worldwide manufacturing and licensing rights to Robert Piguet
Fragrances.
Liquidity and Capital Resources
The Company had positive working capital of $1,296,760 at April 30, 1997, an
increase of $334,963 from working capital of $986,797 at July 31, 1996.
Total bank borrowings were reduced by $1,825,000 from $2,325,000 at July 31,
1996 to $500,000 at April 30, 1997. During June 1997 the Company paid the
remaining balance of $450,000 which was due to PNC Bank on its term promissory
note. The term promissory note was collateralized by the Company's distribution
and administration facility which was sold during June for $1,414,000. After
satisfying the amount due to PNC Bank and selling expenses of $84,840 the
Company received net proceeds of $879,160 from the sale of this facility which
the Company plans to use for working capital purposes. During November 1996 the
Company paid the remaining amount of $1.3 million due under its revolving line
of credit with Credit Lyonnais, New York. The payment of these two loan
facilities during the current fiscal year has reduced the Company's bank debt
to $0 as of June 1997.
During December 1996 the Company made a deposit of $1 million towards the
purchase of fragrance products from Laboratories ("Selecta") in France. This
transaction was designed to provide additional product sales for the Company in
markets, other than those currently handled by the Company's retail cosmetic
operations. During May 1997 the Company and Selecta agreed to cancel this
purchase. Under the agreement to cancel Selecta will refund the Company the sum
of $1 million plus interest at a rate of 10.5% per annum. The first payment was
made on May 21, 1997 in the amount of $260,125. Additional payments in the
amounts of $266,833, $271,281 and $277,990 are due to be made on July 31,
September 30 and December 31, 1997 respectively. The Company plans to use these
funds for working capital purposes.
The Company has implemented a restructuring plan designed to move its retail
operations towards profitability and minimize the effect of the departure of
Adrienne Newman. This plan includes an anticipated $2.2 million in annualized
operating expense reductions. In addition to the expense reduction program the
Company is meeting with various retailers who are interested in carrying the
Adrien Arpel product line in markets which are currently not covered by the
Company. These markets include expanding beyond the United States and Canadian
borders which are now handled by the Company's employee sales force.
13
<PAGE> 15
Although the Company's emphasis is on improving its current retail business the
Company is also investigating the possibility of developing a relationship
similar to its successful relationship with HSN. Customers who have purchased
Adrien Arpel products through HSN have been contacting the Company regarding the
availability of these products. The demand has been great enough that the
Company has started filling telephone orders in markets not covered by its
current retail business. In addition the Company has been introducing at its
department stores several products which were exclusive to its business with
HSN.
The Company has discontinued its plan designed to cease the operation of its
back room salon services and has decided to continue its product promotions
which include a complimentary European facial. The back room salons operated by
the Company are one of the things which has made Adrien Arpel unique in the
Cosmetics industry.
Management is confident that its cost reduction programs combined with its
programs designed to build a profitable retail department store business and its
plans to expand into markets not currently selling the Adrien Arpel product line
will minimize the impact of the Company's dispute with Adrienne Newman and the
related discontinuance of the Company's relationship with HSN.
14
<PAGE> 16
Item 4. Submission of Matters to a vote of Security holders:
On May 20, 1997 the Company held its 1997 Annual Meeting of Shareholders ("the
Meeting"). At the Meeting shareholders elected Jacques Desjardins, Elisabeth
Fayer, Steven Korda and Suzanne Langlois to serve as the directors of the
Company until the next annual meeting of shareholders. In addition, at the
Meeting shareholders approved the appointment of Arthur Andersen LLP as
independent auditors of the Company for fiscal year 1997.
Item 5. Other Information
NONE
15
<PAGE> 17
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/ Elisabeth Fayer
-----------------------------
Elisabeth Fayer
Chairman of the Board
Dated: June 13,1997 /s/ Michael D. Ficke
-----------------------------
Chief Financial Officer
16
<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 NINE MONTHS ENDED APRIL 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10Q.
</LEGEND>
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<CASH> 329,995
<SECURITIES> 0
<RECEIVABLES> 329,382
<ALLOWANCES> 1,001,167
<INVENTORY> 2,853,198
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<PP&E> 5,199,969
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<TOTAL-ASSETS> 8,915,026
<CURRENT-LIABILITIES> 3,609,962
<BONDS> 0
750,000
0
<COMMON> 117,212
<OTHER-SE> 4,237,852
<TOTAL-LIABILITY-AND-EQUITY> 8,915,026
<SALES> 22,953,823
<TOTAL-REVENUES> 22,953,823
<CGS> 7,743,036
<TOTAL-COSTS> 14,871,988
<OTHER-EXPENSES> 37,944
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<INTEREST-EXPENSE> 37,944
<INCOME-PRETAX> 300,855
<INCOME-TAX> 135,127
<INCOME-CONTINUING> 165,728
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