<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, 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
(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: 11,787,983 shares of common stock, $.01 par value per share, at December
12, 1997.
<PAGE> 2
ALFIN, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
October 31, 1997 and July 31, 1997 2-3
Condensed Consolidated Statements of
Operations for the three months ended
October 31, 1997 and 1996 4
Condensed Consolidated Statements of
Cash Flows for the three months ended
October 31, 1997 and 1996 5
Notes to Condensed Consolidated
Financial Statements 6-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results 11-14
of Operations
Exhibit 11 Schedule of Computation
of Earnings per share 15
Signatures 16
1
<PAGE> 3
ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS October 31, July 31,
------ 1997 1997
(unaudited)
----------- -----------
CURRENT ASSETS:
<S> <C> <C>
Cash & cash equivalents $ 143,926 $ 658,378
Accounts receivable, net of allowances for
doubtful accounts and chargebacks of $1,022,458 and $891,532 at October 31, and
July 31,1997, respectively and sales allowances of $138,067 and $256,264
at October 31, and July 31, 1997, respectively 804,285 167,021
Inventories 2,248,465 2,227,549
Prepaid expenses and other current assets 341,937 880,938
----------- -----------
Total current assets 3,538,613 3,933,886
----------- -----------
PROPERTY AND EQUIPMENT 2,403,871 2,333,028
Less-accumulated depreciation and
amortization (1,837,111) (1,740,341)
----------- -----------
Property and equipment, net 566,760 592,687
----------- -----------
OTHER ASSETS:
Other 74,700 83,938
----------- -----------
Total other assets 74,700 83,938
----------- -----------
Total assets $ 4,180,073 $ 4,610,511
=========== ===========
</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,
- ------------------------------------ 1997 1997
(unaudited)
------------ ------------
CURRENT LIABILITIES:
<S> <C> <C>
Due to related parties $ 100,000 -
Accounts payable 1,693,143 1,365,767
Accrued expenses-other 1,214,049 1,313,971
------------ ------------
Total current liabilities 3,007,192 2,679,738
------------ ------------
Total liabilities 3,007,192 2,679,738
------------ ------------
REDEEMABLE PREFERRED STOCK 750,000 750,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
17,000,000 shares authorized;
11,787,983 shares issued and outstanding at
October 31, 1997 and July 31,1997 117,879 117,879
Additional paid-in capital 12,953,123 12,953,123
------------ ------------
Accumulated deficit (12,648,121) (11,890,229)
Total shareholders' equity 422,881 1,180,773
------------ ------------
Total liabilities and share-
holders' equity $ 4,180,073 $ 4,610,511
============ ============
</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,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 2,396,339 $ 9,634,712
Cost of goods sold 771,391 3,095,294
------------ ------------
Gross profit on sales 1,624,948 6,539,418
Selling, general and
administrative expenses 2,420,853 5,620,939
------------ ------------
Operating (loss) profit (795,905) 918,479
Other income (expense)
Interest income (expense) 38,013 (63,021)
------------ ------------
Total other income (expense) 38,013 (63,021)
------------ ------------
(Loss) income before provision for
Income Taxes (757,892) 855,458
Provision for income taxes - 265,000
------------ ------------
NET (LOSS) INCOME $ (757,892) $ 590,458
============ ============
Weighted average number of common
and common equivalent shares 11,787,983 12,300,980
INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $ (0.06) $ 0.05
============ ============
</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,
1997 1996
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) income $ (757,892) $ 590,458
----------- -----------
Adjustments to Reconcile Net (Loss)income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation & Amortization 96,770 157,190
(Increase) Accounts Receivable (637,264) (18,315)
(Increase) Inventory (20,916) (496,167)
Decrease Prepaid Expenses & Other Assets 548,239 106,210
Increase Accounts Payable
& Accrued Expenses 227,454 821,925
----------- -----------
Total Adjustments 214,283 570,843
----------- -----------
Net Cash (Used in) Provided by
Operating Activities (543,609) 1,161,301
----------- -----------
Cash Flows from Investing Activities
Capital Expenditures (70,843) (174,926)
----------- -----------
Cash Flows from Financing Activities
Payment of Lines of Credit, net 0 (300,000)
Principal Payments of Mortgage Note 0 (75,000)
Proceeds from (Payments to) Related Parties 100,000 (4,826)
Proceeds from Sales of Stock 0 58,333
----------- -----------
Net Cash Provided by (Used in) Financing Activities 100,000 (321,493)
Net (Decrease) increase in Cash and cash equivalents (514,452) 664,882
Cash and cash equivalents at Beginning of Period 658,378 2,210,972
----------- -----------
Cash and cash equivalents at End of Period $ 143,926 $ 2,875,854
=========== ===========
Cash Paid during the quarter ended
Interest $ 0 $ 54,123
Income Taxes 7,327 45,563
</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, 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 October 31,1997 and July 31,
1997, the results of its operations for the three months ended October 31,
1997 and 1996 and the cash flows for the three months ended October 31, 1997
and 1996. All adjustments are of a normal recurring nature. The condensed
consolidated balance sheet at July 31, 1997 was taken from audited
consolidated financial statements previously filed with the Securities and
Exchange Commission on 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, 1997, filed with the Securities
and Exchange Commission.
Going Concern
During fiscal year 1997 and during the three months ended October 31, 1997,
significant losses from operations and cash used in operations were incurred
as a result of the discontinuance of appearances on HSN stemming from the
Company's dispute with Adrienne Newman. The Company has been significantly
dependent on HSN during the fiscal years ended 1995, 1996 and for the six
months ended January 31, 1997. The Company does not currently maintain any
external financing arrangements and to date has relied upon cash generated
from operations and a loan of $100,000 provided to it by a company
controlled by the Company's majority shareholder. As a result of the above
factors the Company's independent public accountants issued a going
concern audit opinion for the year ended July 31, 1997.
The Company implemented a restructuring plan designed to move its operations
towards profitability and minimize the effect of the departure of Adrienne
Newman. This plan included operating expense reductions which the Company
implemented during January and November 1997. This plan included $2.2
million in reductions in annualized operating expenses implemented during
January 1997.The Company is seeking further expense reductions beyond this
amount. In addition to the expense reduction program the Company is
attempting to improve its current retail business by capitalizing on its
niche salon/service presence, it also has introduced a professionally
designed direct mail catalog, has introduced its products on a home
shopping network in Italy, has an agreement for the distribution of
its products through adfomercials, has plans to introduce its products
through the U.S. military and an agent to retailers in Saudi Arabia and the
United Arab Emirates.
6
<PAGE> 8
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
Although there can be no assurance that management will successfully
implement the initiatives discussed previously, management is working on the
above initiatives. The Company is also evaluating opportunities for
alternate financing and equity /or debt financing possibilities to provide
satisfactory liquidity.
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 dependence of certain customers in the
Company's customer base.
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
catalogs. Advertising costs as a percentage of consolidated retail store
sales has been 11.7% and 9.8% for the fiscal year ended July 31, 1997 and
the three months ended October 31, 1997 respectively. The Company expenses
all advertising costs in the period in which the cost is incurred.
Concentration of Revenues
The Company recognizes revenue at the time orders are shipped to customers.
For the quarter ended October 31, 1996, approximately 74.6% of department
store sales are derived from merchandise, 5.5% from services and 19.9% 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 varied from between 4.7% and 4.1% for the fiscal
year ended July 31, 1997, and three months ended October 31, 1997
respectively.
7
<PAGE> 9
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
(2) Inventory:
Inventory at October 31, 1997 and July 31, 1997 was comprised of finished
goods amounting to $797,498 and $790,079 respectively and components of
$1,450,967 and $1,437,470, respectively.
(3) Prepaid and other current assets:
During December 1996 the Company made a deposit of $1 million towards the
purchase of fragrance products from Laboratories Selecta in France
("Selecta"). 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 has refunded the Company $260,125, $266,833 and $271,281 on May 21,
August 7, and October 7, 1997, respectively with the remaining payment of
$277,990 due to be made on December 31, 1997. Interest on the repayment
was charged at 10.5%.
(4) Debt:
Lines of Credit:
On November 29, 1996 the Company paid the balance of this revolving secured
line of credit of $1.3 million which was due to Credit Lyonnais, New York.
Related Party Loans:
During October 1997 Fine Fragrance Distribution, Inc. ("FFD") a company
controlled by the Company's majority shareholder, Ms. Elisabeth Fayer
advanced $100,000 to the Company.
(5) Computation of net income (loss) per common and common equivalent share:
Net income (loss) per common and common equivalent share was computed by
dividing net income (loss) 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 $5.4 million of Federal operating loss
carry forwards with expiration dates from 2005 to 2009; however, the use of
pre-acquisition loss carry forwards is limited by the Internal Revenue Code.
As such, the Company has not reflected a tax provision in its condensed
consolidated statement of operations for the quarter ended October 31, 1997.
8
<PAGE> 10
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
(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 selling host,
under the name of Adrienne 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 scheduled to
expires 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 by Adrienne Newman with a summons and complaint
returnable in the Supreme Court, New York County whereby Ms. Newman 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 were claimed. A further claim requested a judicial
determination that the Employment Agreement was materially beached 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 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 provide services to the
Company throughout the term of her Employment Agreement which expires April
1998, particularly her willful refusal and failure to appear as the
Company's selling host on HSN, will damage the Company in the sum of at
least eleven million ($11,000,000). The Company also asserted claims against
Ms. Newman for breaches of her covenant not to compete and her covenant not
to disclose trade secrets and proprietary data.
9
<PAGE> 11
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
During May 1997, Ms. Newman started appearing on HSN as a representative of
her own company selling cosmetic products under the name "Signature Club A".
Ms. Newman has subsequently appeared on HSN on a monthly basis. The Company
and its attorneys are currently 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.
The case is currently in the discovery phase. Upon completion of discovery
the action will be ready for trial but no trial date has yet been fixed.
On December 1, 1997 the Company entered into an agreement with Spiegel, Inc.
("Spiegel"). Under the terms of the agreement, the Company will participate
in Spiegel's Speciality Catalog Reverse Syndication Marketing Program
("Spiegel Reverse Syndication Program"). The Spiegel Reverse Syndication
Program involves mailing the Company's product catalog featuring a selection
of Arpel's top performing cosmetic and skin care products priced between
$18.50 and $69.95 to 90,000 of Spiegel's customers on or about January 5,
1998. The Company is responsible for all promotional expenses, including but
not limited to printing and production costs. In consideration for this
mailing, the Company will pay Spiegel a fee equal to 10% of net sales
including shipping and handling charges. The agreement can be terminated by
either party upon ninety (90) days written notice.
10
<PAGE> 12
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 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 judgement of personnel; availability of qualified personnel;
changes in, or the failure to comply with, government regulations; and other
factors referenced in this report.
The Company recorded a net loss of $757,892 for the three months ended October
31, 1997 as compared to net income of $590,458 for the three months ended
October 1, 1996. The net loss per common and common equivalent shares for the
three months ended October 31, 1997 was $(0.06) as compared to net income of
$0.05 for the three months ended October 31, 1996.
Net sales for the three months ended October 31, 1997 decreased to $2,396,339
from $9,634,712 recorded in the prior fiscal year, a decrease of $7,238,373 or
75.1%. The sales decrease is primarily related 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 three months ended October 31,
1996 were $5,727,582. The Company's relationship with HSN ended during January
1997 due to the Company's contract 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 October 31, 1997
decreased to $2,330,376 from $3,907,130 for the three months ended October 31,
1996, a decrease of $1,576,754 or 40.4%. The Company stopped shipping to 66
Dillards department store locations during September 1997 when it learned that
Dillards intended to cease selling the Arpel product line during January 1998.
The Company recorded $65,963 in mail order sales for the three months ended
October 31, 1997. The Company started filling phone requests for products during
June 1997 by implementing a toll free number where customers could speak to
trained beauty advisors. The Company has been receiving product inquiries from
former HSN customers and customers in markets where Arpel products are no longer
available in department stores.
Cost of goods sold as a percentage of net sales was 32.2% for the three months
ended October 31, 1997 as compared to 32.1% for the three months ended October
31, 1996.
11
<PAGE> 13
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 1997
Selling, general and administrative expenses decreased to $2,420,853 for the
three months ended October 31, 1997, from $5,620,939 for the three months ended
October 31, 1996, a decrease of $3,200,086 or 56.9%. The decrease is primarily
attributable to the decreased cost of operating the Company's current downsized
department store business combined with a decrease of $1,126,256 in compensation
payments to Ms. Newman which were attributable to her appearances on HSN during
the three months ended October 31, 1996. The Company also implemented $2.2
million in annualized operating expense reductions during January 1997 and an
additional $500,000 during November 1997. The Company is seeking further expense
reductions beyond this amount.
The Company recorded interest income of $38,013 during the three months ended
October 31, 1997 as compared to interest expense of $63,021 for the three
months ended October 31, 1996. The Company is earning interest on investments
in marketable securities along with the payments from Selecta. During the three
months ended October 31, 1996 the Company was still borrowing funds under its
loan faculties with Credit Lyonnais, New York and PNC Bank.
Liquidity and Capital Resources
The Company had positive working capital of $531,421 at October 31, 1997, a
decrease of $722,727 from working capital of $1,254,148 at July 31, 1997.
During fiscal year 1997 and during the three months ended October 31, 1997,
significant losses from operations and cash used in operations were incurred as
a result of the discontinuance of appearances on HSN resulting from the
Company's dispute with Adrienne Newman. The Company has been significantly
dependent on HSN during the fiscal years ended 1995, 1996 and for the six months
ended January 31, 1997. The Company does not currently maintain any external
financing arrangements and to date has relied upon cash generated from
operations and a $100,000 loan furnished to it by FFD. As a result of the
above factors the Company's independent public accountants issued a going
concern audit opinion for the year ended July 31, 1997.
The Company has implemented a restructuring plan designed to move its operations
towards profitability and reduce the adverse effect of the sudden departure of
Adrienne Newman. During January 1997 the Company implemented $2.2 million in
annualized operating expense reductions. For the three months ended October 31,
1997 selling, general and administrative expenses were reduced by approximately
$2.0 million versus the same period of the prior fiscal year. This decrease is
net of the effect of $1.1 million in compensation payments provided to Adrienne
Newman which were attributable to her appearances on HSN. The Company
implemented additional annualized operating expenses reductions during
November of 1997 of $500,000 and seeks further expense cuts beyond this amount.
In addition to operating expense reductions the Company's restructuring plans
are focused on the following areas:
- Further realignment of the Company's established U.S. department store
operations by concentrating on profitable department store groups and
markets.
12
<PAGE> 14
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 1997
- Enhancing and developing the Company's Canadian retail operations which
have historically been profitable for the Company.
- Pursuit and development of other avenues of distribution. The Company
has contacted the U.S. military on a preliminary basis in connection
with the possible distribution of the Arpel product line through
its military bases.
- Introduction of the Company's product line and salon services with
retailers and or distributors located outside of the Company's current
United States and Canadian markets. The Company and an agent have signed
a letter of intent to possibly distribute the Company's products within
Saudi Arabia and the United Arab Emirates.
- During October 1997 the Company mailed its first professionally designed
mini catalogue offering approximately 25 of Arpel's most popular skin
care products and kits to 70,000 customers. The Company plans to have
subsequent editions featuring approximately 50 products and to mail its
catalogue four times each year during the winter, spring, summer and
fall, with an increase in volume from mailing to mailing.
- During August 1997 the Company entered into an agreement with Target
Mailing Lists, Inc. ("Target"). Under the agreement the Company and
Target will place advertisements in publications for the sale of
specialty packaged cosmetic and skin care products and kits. Target will
advance all production costs for advertisements approved by the Company
and the Company will advance all creative costs associated with such
advertising. Expenses incurred by Target shall be reimbursed pro rata
from gross revenues received from the sales of products. All revenues
remaining after payment of expenses shall be allocated 49.5% to target,
40.5% to the Company and 10% to other parties. The agreement terminates
on February 6, 1999 and renews automatically if the advertising placed
by Target and the Company generates more than $1.5 million in retail
sales within a one year period from the date the advertisement first
appears in the media. The Company conducted a test market on December 7,
1997 which featured a specially designed skin care kit. The first
advertising supplement reached 867,000 households in California as
part of a Sunday newspaper circular. The Company has not yet received
any conclusive feedback from this test.
- Participation in Spiegel's Reverse Syndication Program which involves
mailing the Company's product catalog featuring a selection of the
Company's top performing cosmetic and skin care products priced between
$18.50 and $69.95. This mailing is scheduled to take place during
January 1998 and is designed to reach approximately 90,000 of Spiegel's
customers.
13
<PAGE> 15
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OCTOBER 31, 1997
- The Company is currently the exclusive cosmetic line and launched its
Arpel products to approximately 30 million viewers in Italy through
Shopping America on November 24, 1997. The format is similar to HSN and
QVC in the United States and "Teleshopping", the most successful home
shopping show in France.
Although there can be no assurance that management will successfully implement
any of the initiatives discussed above, management is working on the above
initiatives. The Company is also evaluating opportunities for alternative
financing and equity and or debt financing possibilities to provide
satisfactory liquidity.
14
<PAGE> 16
EXHIBIT 11
ALFIN, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
October 31
1997 1996
---- ----
<S> <C> <C>
Net (Loss) Income $ (757,892) $ 590,458
------------ ------------
Weighted average number
of shares outstanding 11,787,983 11,721,259
Add:
Common Stock
Equivalents under 1983 option plan 0 2,608
Common Stock
Equivalents under 1993 option plan 0 225,438
Common Stock
Equivalents represented by Warrants 0 351,675
------------ ------------
Weighted average number of
Shares used in earnings per share 11,787,983 12,300,980
Earnings per share $ (0.06) $ 0.05
</TABLE>
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
Chief Executive Officer
Dated: December 15, 1997 /s/ Michael D. Ficke
-------------------------
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 THREE MONTHS ENDED OCTOBER AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FORM 10Q
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-START> AUG-01-1997
<PERIOD-END> OCT-31-1997
<EXCHANGE-RATE> 1
<CASH> 143,926
<SECURITIES> 0
<RECEIVABLES> 804,285
<ALLOWANCES> 1,160,525
<INVENTORY> 2,248,465
<CURRENT-ASSETS> 3,538,613
<PP&E> 2,403,871
<DEPRECIATION> 1,837,111
<TOTAL-ASSETS> 4,180,073
<CURRENT-LIABILITIES> 3,007,192
<BONDS> 0
750,000
0
<COMMON> 117,879
<OTHER-SE> 305,002
<TOTAL-LIABILITY-AND-EQUITY> 4,180,073
<SALES> 2,396,339
<TOTAL-REVENUES> 2,396,339
<CGS> 771,391
<TOTAL-COSTS> 2,420,853
<OTHER-EXPENSES> 38,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (757,892)
<INCOME-TAX> 0
<INCOME-CONTINUING> (757,892)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (757,892)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
