FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1999
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
ADRIEN ARPEL, INC., (Formerly 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)
5353 North 16th Street, Suite 190, Phoenix, AZ 85016
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (800) 944-2534
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: 14,525,025 shares of common stock, $.01 par value per share, at March 12,
1999.
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
FORM 10-QSB
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INDEX
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Page
----
PART I - FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial Statements:
Consolidated Balance Sheets January 31, 1999
(unaudited) and July 31, 1998 2-3
Consolidated Statements of Operations for the six
month periods ended January 31, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows for the six
month periods ended January 31, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10-13
PART II - EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
Item 6. Exhibits and Reports on Form 8-K
None
Signatures 14
1
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
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CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS January 31, July 31,
- ------ 1999 1998
(unaudited) audited)
------------ ----------
CURRENT ASSETS:
Cash & cash equivalents ............................ $ 160,494 $ 433,943
Accounts receivable, net of allowances for
doubtful accounts and chargebacks of
$978,481 and $868,116, respectively and sales
allowances of $82,764 and $83,957 ,respectively
138,941 171,529
Inventories ........................................ 1,670,701 1,743,684
Prepaid expenses and other current assets .......... 43,193 876,248
---------- ----------
Total current assets ............................... 2,013,329 3,225,404
PROPERTY AND EQUIPMENT, NET ........................ 170,169 256,864
OTHER ASSETS ....................................... 85,305 183,597
---------- ----------
Total assets ....................................... $2,268,803 $3,665,865
========== ==========
See notes to consolidated financial statements
2
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
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CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY, (DEFICIENCEY) January 31, 1999 July 31, 1998
- --------------------------------------------------- (unaudited) (audited)
---------------- -------------
CURRENT LIABILITIES
<S> <C> <C>
Due to related parties ................................. $ 122,637 $ 62,517
Accounts payable ....................................... 1,201,822 818,699
Accrued expenses-other ................................. 876,422 1,009,099
------------ ------------
Total current liabilities .............................. 2,200,881 1,890,315
CONVERTIBLE NOTE - RELATED PARTIES ..................... 500,000 500,000
------------ ------------
Total liabilities ...................................... 2,700,881 2,390,315
------------ ------------
REDEEMABLE PREFERRED STOCK ............................. 750,000 750,000
SHAREHOLDERS' EQUITY:(DEFICIENCY)
Common stock, $.01 par value,
50,000,000 shares authorized;
14,525,025 and 14,146,366 shares
issued and outstanding at January 31,1999
and July 31, 1998
Respectively ......................................... 145,250 141,463
Additional paid-in capital ............................. 16,200,744 16,131,512
Accumulated deficit .................................... (17,528,072) (15,747,425)
------------ ------------
Total shareholders' equity,
(deficiency) ........................................... (1,182,078) 525,550
------------ ------------
Total liabilities and shareholders' equity, (deficiency)
$ 2,268,803 $ 3,665,865
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
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CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales ....................... $ 1,317,404 $ 1,379,724 $ 3,800,034 $ 3,776,063
Cost of goods sold .............. 378,969 382,707 1,091,955 1,154,098
------------ ------------ ------------ ------------
Gross profit on sales ........... 938,435 997,017 2,708,079 2,621,965
Selling, general and
administrative expenses ......... 2,174,083 2,427,775 4,371,760 4,848,628
------------ ------------ ------------ ------------
Operating Loss .................. (1,235,648) (1,430,758) (1,663,681) (2,226,663)
Other (expense) income
Non Cash Finance Charges ...... (30,060) 0 (60,120) 0
Interest (expense) ............ (37,338) 23,738 (56,846) 61,751
income
------------ ------------ ------------ ------------
Total other (expense)
income ........................ (67,398) 23,738 (116,966) 61,751
------------ ------------ ------------ ------------
NET LOSS ........................ $ (1,303,046) $ (1,407,020) $ (1,780,647) $ (2,164,912)
============ ============ ============ ============
Weighted average number of common
and common equivalent shares
14,408,907 11,787,983 14,350,844 11,787,983
------------ ------------ ------------ ------------
BASIC LOSS PER
SHARE AVAILABLE TO
COMMON SHAREHOLDERS ........... $ (0.09) $ (0.12) $ (0.12) $ (0.18)
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(UNAUDITED)
-----------
Six Months Ended
----------------
January 31,
-----------
1999 1998
---- ----
Cash Flows from Operating Activities:
Net Loss ....................................... $(1,780,647) $(2,164,912)
----------- -----------
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation & Amortization .................. 122,263 186,182
Non Cash Finance Charges ..................... 60,120 --
Decrease(increase) in Accounts Receivable .... 32,588 (248,926)
Decrease in Inventory ........................ 72,983 161,773
Decrease in Prepaid Expenses & Other
Assets ....................................... 861,251 868,465
Increase Accounts Payable
& Accrued Expenses ........................... 250,446 752,535
----------- -----------
Total Adjustments .............................. 1,399,651 1,720,029
Net Cash Used in Operating Activities ........ (380,996) (444,883)
----------- -----------
Cash Flows from Investing Activities
Capital Expenditures ........................... (35,568) (99,847)
----------- -----------
Cash Flows from Financing Activities
Proceeds from Issuance of Common Stocks ........ 143,115 0
Net Decrease in Cash and cash equivalents ...... (273,449) (544,730)
Cash and cash equivalents at Beginning of Period 433,943 658,378
-----------
=========== ===========
Cash and cash equivalents at End of Period ..... $ 160,494 $ 113,648
=========== ===========
Cash Paid during the quarter ended
Interest ....................................... $ 0 0
Income Taxes ................................... $ 0 0
See notes to consolidated financial statements
5
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
January 31, 1999
----------------
(Unaudited)
-----------
(1) Summary of significant accounting policies:
In the opinion of management, the accompanying consolidated financial statements
contain all of the adjustments necessary to present fairly the Company's
financial position at January 31, 1999 (unaudited) and July 31, 1998, the
results of its operations for the three and six months ended January 31, 1999
and 1998 (unaudited) and the cash flows for the six months ended January 31,
1999 and 1998 (unaudited). All adjustments are of a normal recurring nature. The
consolidated balance sheet at July 31, 1998 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, 1998, filed with the Securities and
Exchange Commission.
Going Concern
During fiscal year 1998 and during the three and six months ended January 31,
1999, losses from operations and cash used in operations were incurred by the
Company. The Company has suffered losses since the discontinuance of its
appearances on the Home Shopping Network ("HSN"). The Company's relationship
with HSN ended during January 1997, due to a contract dispute with Ms. Adrienne
Newman. A description of the Company's relationship with Ms. Newman and its
previous relationship with HSN are described in detail in the Company's Form
10-K filed with the Securities and Exchange Commission for the period ended July
31, 1998.
In February 1998, the Company's then board of directors approved an agreement
with an investment group headed by Barry W. Blank (the "Blank Group"). A
detailed description of the Company's relationship with the Blank Group is
contained in the Company's Form 10-K filed with the Securities and Exchange
Commission for the period ended July 31, 1998.
The Company has been dependent upon cash provided by the Blank Group, an interim
loan group and a private equity finance offering. The Company has implemented
certain initiatives and management's plans include a number of new initiatives
to improve upon its fiscal 1998 results. If the Company is not successful, it is
anticipated that losses from operations will continue to occur. This uncertainty
raises doubt about the company's ability to continue as a going concern and its
ability to generate sufficient cash to support its operations.
The Company has made dramatic expense cuts during the latter part of fiscal 1998
and seeks a further reduction of non-operating costs during fiscal 1999. The
Company's fiscal 1998 operating results suffered from a shortage of readily
available and regularly produced finished goods inventory.
6
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
January 31, 1999
----------------
(Unaudited)
-----------
The Company was successful in improving the level and flow of inventory during
the first quarter of fiscal 1999, at which time it introduced its products
through 157 Sears locations, however, the Company suffered from a shortage of
regularly produced inventory during the second quarter ended January 31, 1999.
The Company is substantially in default on a number of its obligations and it
will be necessary for the Company to obtain additional sources of working
capital in order to continue to operate. Management is in the process of seeking
sources of working capital beyond those which can be generated from current
operations. There can be no assurance that management will be successful in
obtaining additional capital or that such capital will be sufficient as to the
amount that will be acceptable to the Company or that the terms will be
acceptable to the Company.
If management is unable to obtain such capital, the Company will be required to
dramatically reduce its business or cease doing business.
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 in the United States and Canada.
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.
Advertising Expenses
The Company advertises through cooperative advertising programs, catalogs and
the Internet. Department store advertising costs as a percentage of consolidated
net sales was 17.5% and 14.2% for the six months ended January 31, 1999 and 1998
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 six months ended January 31, 1999 approximately 89.5% of the Company's sales
were made to or through department stores of which approximately 83.0% were
derived from merchandise, 4.6% from salon services and 12.4% from seasonal,
promotional items. One department store customer accounted for approximately
44.9% of the Company's net sales for the six months ended January 31, 1999, and
one department store arrangement accounted for approximately 20.1% of the
Company's net sales for the six months ended January 31, 1999.
As is common in the cosmetic industry, the Company provides its customers with
the right to return merchandise in order to balance inventory and stock levels.
The rate of return experienced by the Company was 1.9% and 2.9% for the six
months ended January 31, 1999 and fiscal year ended July 31, 1998 respectively.
7
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ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
January 31, 1999
----------------
(Unaudited)
-----------
(2) Inventory:
Inventory at January 31, 1999, and July 31, 1998 was comprised of finished goods
amounting to $873,602 and $1,049,002 respectively and components of $797,099 and
$694,682, respectively.
(3) Other Assets:
On April 23, 1998, the Company and Adrienne Newman reached a settlement
agreement related to their litigation which was initiated by Ms. Newman on
October 28, 1996. Under the settlement agreement, Ms. Newman was paying the
Company $1 million dollars in monthly installments of $50,000. During December
1998, the Company and Ms. Newman agreed that the remaining liability of $400,000
would be prepaid at a 10% discount. The Company received $360,000 in full
satisfaction of Ms. Newman's remaining liability.
(4) Debt:
Related Party Loans:
During February 1998, the Company received $500,000 in financing, pursuant to an
agreement with the Blank Group. This financing is in the form of a 12% five year
note convertible into the Company's Common Stock, commencing on August 1, 1998,
and ending on the day before the note is paid but no later than January 30,
2003, at the rate of $0.25 per share. This note is secured by a security
agreement as reflected in the Company's UCC filings.
During April 1998 an Interim Loan Group advanced the Company $250,000. In
connection therewith, the group also received one share of Common Stock for each
dollar loaned constituting an aggregate of 250,000 shares. This loan bears
interest at 12% and matures on May 31, 1999. The issuance of the 250,000 shares
is deemed to be an additional financing cost which is valued at the fair market
value of the Company's Common Stock at the date of the loan. The Related Party
Loan Payable is stated net of $27,363 of deferred financing charges at January
31, 1999. During June, the Company repaid $100,000 toward this loan from the
proceeds of its Private Placement Offering. This loan is secured by a security
agreement as reflected in the Company's UCC filings.
Non Cash Financing Charges:
The Company has recorded $60,120 of non cash financing charges for the six
months ended January 31, 1999, related to the Interim Loan groups advance to the
Company. The issuance of the 250,000 shares of common stock is deemed to be an
additional cost of financing which is valued at the fair market value of the
Company's common stock at the date of the loan. This amount will be amortized at
the rate of approximately $10,000 per month over the life of the loan which
matures on May 31, 1999.
8
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
January 31, 1999
----------------
(Unaudited)
-----------
(5) Computation of basic loss per common share:
During fiscal year 1997, the Company adopted SFAS No. 128 "Earnings Per Share".
This statement establishes standards for computing and presenting earnings per
share ("EPS"). The statement requires the dual presentation of both Basic EPS
and Diluted EPS on the face of the statement of operations. 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. Diluted EPS is not presented since the effect would be
anti-dilutive.
(6 Income Taxes:
As of July 31, 1998, the Company had approximately $4.3 million of Federal
operating loss carry forwards with expirations at various dates through 2013,
however, the use of pre-acquisition operating loss carry forwards is limited by
the Internal Revenue Code. The transaction with the Blank Group will further
limit the Company's operating loss carry forwards. As such, the Company has not
reflected a tax provision in its consolidated statement of operations for the
six months ended January 31, 1999.
(7) Other:
During December 1998, the Company received notice from the American Stock
Exchanges Adjudicatory Council affirming the decision of the American Stock
Exchange staff to strike the Company's stock from listing and registration on
the Exchange. The Company's stock was delisted on December 31, 1998.
The Company's Common Stock currently trades on the Over the Counter ("OTC")
bulletin board under the symbol ADPL.
During November 1998, the Company amended the certificate of incorporation of
its wholly owned subsidiary, ARPEL COSMETICS, INC., (a Delaware Corporation) to
change its name to ADRIEN ARPEL SPA & SALON, INC.
9
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
January 31, 1999
----------------
Forward Looking Statements:
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.
Results of Operations:
SIX MONTHS ENDED JANUARY 31, 1999
The Company incurred a net loss of $1,780,647 for the six months ended January
31, 1999 as compared to a net loss of $2,164,912 for the six months ended
January 31, 1998. The net loss per common and common equivalent shares for the
six months ended January 31, 1999 was $(0.12) as compared to a net loss of
$(0.18) for the six months ended January 31, 1998.
Net sales for the six months ended January 31, 1999 increased to $3,800,034 from
$3,766,063 for the six months ended January 31, 1998, an increase of $23,971 or
0.6%.
The increase in sales is primarily attributable to an increase in sales through
the Company's catalog mailings and Internet site. For the six months ended
January 31, 1999, sales through the Company's catalog mailings and Internet site
were $399,834 versus $144,087 for the six months ended January 31, 1998, and
increase of $255,747 or 177%. The Company commenced selling products through its
Internet site (www.adrienarpel.com) during June 1998. During January 1999, the
Company launched phase two of its website and continues to see sales increases
through this venue. This increase was offset by a decrease in sales through the
Company's department store business. Department store sales decreased to
$3,400,200 for the six months ended January 31, 1999 from $3,631,976 for the six
months ended January 31, 1998, a decrease of $231,776 or 6.4%.
Cost of goods sold as a percentage of net sales was 28.7% for the six months
ended January 31, 1999, as a compared to 30.6% for the six months ended January
31, 1998. The decrease is primarily related to changes which the Company
implemented related to its salon operations.
10
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
January 31, 1999
----------------
During the six months ended January 31, 1998, the majority of the Company's
department store locations offered full salon services in addition to product
sales. The Company ceased full salon services in many of its department store
locations during fiscal 1998. Full salon services remain available through 56 of
the Company's store locations which includes 38 Bay department stores in Canada
and 18 leased locations throughout the United States. The leased locations in
the United States include 16 of the Company's Bloomingdale department store
installations and 2 of the Company's Kaufmann department store locations. Also
contributing to the decrease in the cost of goods sold percentage is a change in
the Company's sales mix since a larger percentage of the Company's current sales
are at retail versus wholesale.
Selling, general and administrative expenses decreased to $4,371,760 for six
months ended January 31, 1999 from $4,848,628 for the six months ended January
31, 1998, a decrease of $476,868 or 9.8%. This decrease is primarily
attributable to a reduction in administrative costs. The Company had undertaken
a program to reduce administrative costs since changing management during the
last two quarters of fiscal 1998.
The Company recorded net interest expense of $56,846 during the six months ended
January 31, 1999 as compared to net interest income of $61,751 for the six
months ended January 31, 1998. The interest expense is related to the Company's
related party loans with the Blank Group and the Interim Loan Group. The Company
recorded $60,120 of non cash financing charges for the six months ended January
31, 1999 related to The financing arrangement with the Interim Loan Group.
THREE MONTHS ENDED JAUARY 31, 1999
The Company incurred a net loss of $1,303,046 for the three months ended January
31, 1999 as compared to a net loss of $1,407,020 for the three months ended
January 31, 1998. The net loss per common and common equivalent shares for the
three months ended January 31, 1999 was $(0.09) as compared to a net loss of
$(0.12) for the three months ended January 31, 1998.
Net sales for the three months ended January 31, 1999 decreased to $1,317,404
from $1,379,724 recorded in the three months ended January 31, 1998, a decrease
of $62,320 or 4.5%. The decrease in sales is due primarily to a decrease in
sales through the Company's leased main floor locations. The Company has
experienced some staffing problems at several of its leased locations during the
three months ended January 31, 1999. This decrease was partially offset by an
increase in sales through the Company's catalog mailings and Internet site. For
the three months ended January 31, 1999, sales through the Company's catalog
mailings and Internet site were $164,562 versus $78,124 for the three months
ended January 31, 1998, and increase of $86,438 or 110.6%
Cost of goods sold as a percentage of net sales was 28.8% for the three months
ended January 31, 1999 as compared to 27.7% for the three months ended January
31, 1998.
Selling, general and administrative expenses for the three months ended January
31, 1999 decreased to $2,174,083 from $2,427,775 for the three months ended
January 31, 1998, a decrease of $253,692 or 10.4%.
11
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
January 31, 1999
----------------
The Company recorded net interest expense of $37,338 during the six months ended
January 31, 1999 as compared to net interest income of $23,738 for the three
months ended January 31, 1998. The interest expense is related to the Company's
related party loans with the Blank Group and the Interim Loan Group. The Company
recorded $30,060 of non cash financing charges for the three months ended
January 31, 1999 related to the financing arrangement with the Interim loan
Group.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $187,552 at January 31, 1999, a
decrease of $1,522,641 from working capital of $1,335,089 at July 31, 1998.
Beginning in the third quarter of fiscal 1997 the Company began suffering
significant losses from operations as a result of the discontinuance of
appearances on the Home Shopping Network ("HSN"). The Company appeared on HSN
from April 1995 through January 1997 and ended its relationship with HSN due to
a contract dispute with Ms. Adrienne Newman. Ms. Newman had been the Company's
spokesperson on HSN under the name Adrien Arpel. During the period that the
Company appeared on HSN the Company recorded profits and generated positive cash
flows from operations.
During February 1998, the Company received $500,000 of working capital under an
agreement with an investment group. The $500,000 investment was in the form of a
12% five year note convertible into the Company's Common Stock, commencing
August 1, 1998 and ending on the day before the note is paid but no later than
January 30, 2003, at a rate of $0.25 per share.
During April 1998, the Company received an additional $250,000 advance from an
interim loan group. The advance was needed by the Company in order to provide
assistance with respect to settling certain trade payables, which were due to
key inventory suppliers. This advance bears interest at 12% and matures on May
31, 1999. In connection therewith, the members of this group also received one
share of the Company's Common Stock for each dollar loaned. In June 1998, the
Company repaid $100,000 plus interest to one of the members of this group.
During May 1998, the Company commenced a private placement offering (the
"Offering") designed to raise up to $3 million in equity financing. The Offering
consisted of the issuance of up to 60 units (the "Units"), each in the amount of
$50,000. Each Unit offered consisted of 50,000 shares of the Company's Common
Stock and 50,000 Class A Warrants. Each Class A Warrant entitles the holder to
purchase one share of the Company's Common Stock and 50,000 Class A warrants.
Each Class A Warrant entitles the holder to purchase one share of Common Stock
at $4.00 per share. The Class A Warrants are exercisable at any time commencing
upon issuance until May 31, 2001 and the Class B Warrants are exercisable at any
time commencing upon issuance until May 31, 2003. This Offering was terminated
on August 31, 1998 at which time 40.84 Units had been sold and gross proceeds of
$2,042,000 had been raised. The net proceeds received by the Company amounted to
$1,756,120 after paying $285,880 of placement fees and other Offering expenses.
12
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
January 31, 1999
----------------
The Company has been dependent upon the receipt of the above mentioned proceeds
in order to reduce past due accounts payable and invest in the production of
finished goods inventory. The Company's results have suffered from the shortage
of readily available and regularly produced finished goods inventory. During the
six months ended January 31, 1999, the Company recorded losses of $1,780,647.
The Company has been successful in reducing operating expenses by $476,868
during the six months ended January 31, 1999 but has not achieved the sales
levels necessary to return the Company to profitability or a positive cash flow.
Although the Company continues to implement operating cost controls and its
plans include additional sources of revenue, it will be necessary for the
Company to obtain additional sources of working capital in order to meet current
operating requirements.
The Company is substantially in default on a number of its current obligations.
Management is in the process of seeking sources of working capital beyond those
which can be generated from current operations. There can be no assurance that
management will be successful in obtaining additional capital or that such
capital will be sufficient as to the amount that will be acceptable to the
Company or that the terms which will be acceptable to the Company.
If management is unable to obtain such capital, the Company will be required to
dramatically reduce its business or cease doing business.
13
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
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/ Charles R. Hoover
-------------------------------------
Charles R. Hoover
President & Chief Operating Officer
Dated: March 12, 1999 /s/ Michael D. Ficke
---------------------------------------
Michael D. Ficke
Chief Financial Officer
14
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<LEGEND>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
10QSB For the six months ended
January 31, 1999 & 1998
</LEGEND>
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<NAME> ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
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<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
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750,000
0
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