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 April 30, 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 June 12,
1999.
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
FORM 10-QSB
INDEX
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets April 30, 1999 (unaudited)
and July 31, 1998 2-3
Consolidated Statements of Operations for the nine
month periods ended April 30, 1999 and 1998 (unaudited)
4
Consolidated Statements of Cash Flows for the nine
month periods ended April 30, 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
<PAGE>
<TABLE>
<CAPTION>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
CONSOLIDATED BALANCE SHEETS
ASSETS April 30, July 31,
1999 1998
(unaudited) (audited)
------------------ -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash & cash equivalents $ 45,588 $433,943
Accounts receivable, net of allowances for
doubtful accounts and chargebacks of
$1,192,056 and $868,116, respectively and
sales allowances of $82,764 and $83,957, respectively
92,457 171,529
Inventories, net of reserves 1,340,630 1,743,684
Prepaid expenses and other current assets 76,711 876,248
----------------- -----------------
Total current assets 1,555,386 3,225,404
PROPERTY AND EQUIPMENT, NET 108,934 256,864
OTHER ASSETS 85,305 183,597
----------------- -----------------
Total assets $1,749,625 $3,665,865
================= ==================
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
CONSOLIDATED BALANCE SHEETS
April 30, July 31,
1999 1998
LIABILITIES AND SHAREHOLDERS' EQUITY, (DEFICIENCEY) (unaudited) (audited)
- --------------------------------------------------- ------------------ -------------------
<S> <C> <C>
CURRENT LIABILITIES
Due to related parties $ 143,157 $ 62,517
Accounts payable 1,589,125 818,699
Accrued expenses-other 1,189,793 1,009,099
------------------ --------------------
Total current liabilities 2,922,075 1,890,315
CONVERTIBLE NOTE - RELATED PARTIES 500,000 500,000
------------------ --------------------
Total liabilities 3,422,075 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 April 30,1999
and July 31, 1998. Respectively 143,111 141,463
Additional paid-in capital 16,202,887 16,131,512
Accumulated deficit (18,768,448) (15,747,425)
--------------------- --------------------
Total shareholders' equity,
(deficiency) (2,422,450) 525,550
===================== --------------------
Total liabilities and shareholders' equity, (deficiency) $ 1,749,625 $ 3,665,865
===================== ====================
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------------------------ ------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 921,246 $ 1,471,572 $ 4,721,280 $ 5,247,635
Cost of goods sold 616,167 282,155 1,708,122 1,436,254
------------------ -------------------- ------------------ --------------------
Gross profit on sales 305,079 1,189,417 3,013,158 3,811,381
Selling, general and
administrative expenses 1,498,540 1,092,134 5,870,300 5,940,762
------------------ -------------------- ------------------ --------------------
Operating (loss)income (1,193,461) 97,283 (2,857,142) (2,129,381)
Other (expense) income
Non Cash Finance Charges (20,520) (326,042) (80,640) (326,042)
Interest (expense)
income (26,395) (10,210) (83,241) 51,541
Other Income 0 1,000,000 0 1,000,000
------------------ -------------------- ------------------ --------------------
Total other (expense) income (46,915) 663,748 (163,881) 725,499
------------------ -------------------- ------------------ --------------------
NET (LOSS)INCOME $ (1,240,376) $ 761,031 $ (3,021,023) $ (1,403,882)
================== ==================== ================== ====================
Weighted average number of common
and common equivalent shares
14,407,421 12,057,758 14,525,025 12,018,866
------------------ -------------------- ------------------ --------------------
BASIC (LOSS) INCOME PER
SHARE AVAILABLE TO
COMMON SHAREHOLDERS $ (0.09) $ 0.06 $ (0.21) $ (0.12)
================== ==================== ================== ====================
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
April 30,
--------------------------------------------
1999 1998
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Loss $ (3,021,023) $ (1,403,882)
-------------------- --------------------
Adjustments to Reconcile Net Loss to Net Cash
Provided by (Used in) Operating Activities:
Depreciation & Amortization 156,978 286,430
Non cash financing cost 80,640 326,042
Decrease(increase) in Accounts Receivable 79,072 (641,141)
Decrease in Inventory 403,054 404,830
Decrease in Prepaid Expenses & Other Assets 827,737 4,985
Increase (Decrease) Accounts Payable
& Accrued Expenses 951,120 (91,402)
-------------------- --------------------
Total Adjustments 2,498,601 289,744
-------------------- --------------------
Net Cash Used in Operating Activities (522,422) (1,114,138)
-------------------- --------------------
Cash Flows from Investing Activities
Capital Expenditures (9,048) (101,255)
-------------------- --------------------
Cash Flows from Financing Activities
Proceeds from Issuance of Common Stocks 143,115 0
Proceeds from debt obligations 0 500,000
Proceeds from related parties 0 250,000
-------------------- --------------------
Cash Provided by Financing Activities 143,115 750,000
Net Decrease in Cash and cash equivalents (388,355) (465,393)
Cash and cash equivalents at Beginning of Period 433,943 658,378
-------------------- --------------------
Cash and cash equivalents at End of Period $ 45,588 $ 192,985
==================== ====================
Cash Paid during the quarter ended
Interest $ 0 0
Income Taxes $ 0 732
</TABLE>
See notes to consolidated financial statements
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 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 April 30, 1999 (unaudited) and July 31, 1998, the results
of its operations for the three and nine months ended April 30, 1999 and 1998
(unaudited) and the cash flows for the nine months ended April 30, 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 nine months ended April 30,
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.
Since the discontinuance of the Company's business with HSN, the Company has
primarily been dependent upon cash provided by the Blank Group, an interim loan
group and a private equity finance offering. The Company is substantially in
default on its obligations and has been unable satisfy current obligations
related to vendor commitments and employee compensation. During the quarter
ended April 30, 1999, the Company dramatically reduced its operations and
reduced its workforce from approximately eighty two direct employee's to nine.
The Company is currently severely out of stock in finished goods inventory and
is therefore unable to satisfy the majority of customer orders received. The
Company is currently pursuing various alternatives in an effort to remain in
business. There can be no assurance that the Company will be successful in
obtaining a relationship under which it will be able to continue or that such a
relationship, if obtained, will generate enough cash to satisfy the Company's
liabilities. If the Company is not successful the Company will be required to
cease doing business. This uncertainty raises doubt about the company's ability
to continue as a going concern.
6
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
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 have been 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 18.4% and 12.0% for the nine months ended April 30, 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 nine months ended April 30, 1999 approximately 86.8% of the Company's sales
were made to or through department stores of which approximately 79.5% were
derived from merchandise, 4.8% from salon services and 15.7% from seasonal,
promotional items. One department store customer accounted for more than 10.0%
of the Company's net sales for the nine months ended April 30, 1999, and one
department store arrangement accounted for more than 10.0% of the Company's net
sales for the nine months ended April 30, 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 8.9% and 2.9% for the nine
months ended April 30, 1999 and the fiscal year ended July 31, 1998
respectively.
(2)Inventory:
Inventory, net of reserves, at April 30, 1999, and July 31, 1998 was comprised
of finished goods amounting to $692,408 and $1,049,002 respectively and
components of $648,222 and $694,682, respectively.
(3) 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 12% five year
notes 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. The Company is currently in
default with respect to the interest payments related to these loans.
7
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited)
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 was due to mature on May 31, 1999. The Company is currently
in default on both the principal and interest related to these loans. The
issuance of the 250,000 shares is deemed to be an additional financing cost
which was valued at the fair market value of the Company's Common Stock at the
date of the loan. During June 1998, 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 $80,640 of non cash financing charges for the nine
months ended April 30, 1999, related to the Interim Loan groups advance to the
Company. The issuance of the 250,000 shares of common stock was deemed to be an
additional cost of financing which was valued at the fair market value of the
Company's common stock at the date of the loan. This amount was being amortized
at the rate of approximately $10,000 per month over the life of the loan which
matured on May 31, 1999.
(4)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.
(5)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 may 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
nine months ended April 30, 1999.
(6) 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 sporadically on the Over the Counter
("OTC") bulletin board under the symbol ADPL.
8
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
April 30, 1999
(Unaudited
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.
During April 1999, the Company dramatically reduced its operations. This
reduction included the termination of approximately 73 of the Company's
approximate eighty two direct employee's and the closure of its "leased main
floor" operations at 16 Bloomingdale and two Kaufmann department store
locations. The Company has been notified by Bloomingdale's that it is in breach
of its lease agreement dated as of January 17, 1991. The Company and Kaufmann's
have reached an agreement related to the closure of its business at its two
Kaufmann leased main floor locations.
The Company is substantially in default on its payment obligations and is
severely out of stock with regards to finished goods inventory. Due to the out
of stock situation, the Company is currently unable to satisfy the majority of
customer orders received. The inability to ship orders as received has further
limited the Company's ability to generate revenues. The Company is currently
pursuing various alternatives in an effort to remain in business. There can be
no assurance that the Company will be successful in obtaining a relationship
under which it will be able to continue or that such a relationship, if
obtained, will generate enough cash to satisfy the Company's liabilities. If the
Company is not successful, the Company will be required to cease doing business.
9
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 30, 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:
NINE MONTHS ENDED APRIL 30, 1999
The Company incurred a net loss of $3,012,023 for the nine months ended April
30, 1999 as compared to a net loss of $1,403,882 for the nine months ended April
30, 1998. Included in the net loss for the nine months ended April 30, 1998, was
$1 million of income related to the settlement of the Company's litigation with
Adrienne Newman. In addition, the Company reversed a previously recorded
liability in the amount of $250,000 related to commission payments which were
previously recorded as due to Ms. Newman, but which the Company was not required
to pay. Excluding the effect of the settlement with Ms. Newman, the loss for the
nine months ended April 30, 1998 was $2,653,882.
The net loss per common and common equivalent shares for the nine months ended
April 30, 1999 was $(0.21) as compared to a net loss of $(0.12) for the nine
months ended April 30, 1999. Excluding the effect of the Newman settlement, the
net loss per share for the nine months ended April 30, 1998 was $(0.22).
Net sales for the nine months ended April 30, 1999 decreased to $4,721,280 from
$5,247,635 for the nine months ended April 30, 1998, a decrease of $526,355 or
10.0%.
The decrease in sales is primarily attributable to the Company's inability to
ship the majority of orders received. During April 1999, the Company
dramatically reduced its operations due to cash flow constraints. This reduction
included the closure of 16 Bloomingdale and two Kaufmann leased main floor
locations and a reduction of the Company's employee workforce from approximately
eighty two direct employee's to nine. For the nine months ended April 30, 1999,
sales through the Company's catalog mailings and Internet site were $621,089
versus $251,778 for the nine months ended April 30, 1998, and increase of
$369,311 or 147%. 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.
10
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 30, 1999
Cost of goods sold as a percentage of net sales was 36.2% for the nine months
ended April 30, 1999, as a compared to 27.4% for the nine months ended April 30,
1998. The increase is primarily attributable to a bulk sale of discontinued
inventory which the Company made during the quarter.
Selling, general and administrative expenses decreased to $5,870,300 for nine
months ended April 30, 1999 from $5,940,762 for the nine months ended April 30,
1998, a decrease of $70,462 or 1.2%. Included in selling, general and
administrative expenses for the three months ended April 30, 1998 was the
reversal of a previously recorded liability in the amount of $250,000 related to
commissions which the Company had recorded as due to Adrienne Newman but which
the Company was not required to pay
The Company recorded net interest expense of $83,241 during the nine months
ended April 30, 1999 as compared to net interest income of $51,541 for the nine
months ended April 30, 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 $80,640 of non cash financing charges for the nine months ended April
30, 1999 related to The financing arrangement with the Interim Loan Group.
During the nine months ended April 30, 1998, the Company recorded other income
in the amount of $1 million as a result of the settlement of its litigation with
Adrienne Newman.
THREE MONTHS ENDED APRIL 30, 1999
The Company incurred a net loss of $1,240,376 for the three months ended April
30, 1999 as compared to a net income of $761,031 for the three months ended
April 30, 1998. Included in the net loss for the three months ended April 30,
1998, was $1 million of income related to the settlement of the Company's
litigation with Adrienne Newman. In addition, the Company reversed a previously
recorded liability in the amount of $250,000 related to commission payments
which were previously recorded as due to Ms. Newman, but which the Company was
not required to pay. Excluding the effect of the settlement with Ms. Newman, the
loss for the three months ended April 30, 1998 was $2,490,376.
The net loss per common and common equivalent shares for the three months ended
April 30, 1999 was $(0.09) as compared to net income of $0.06 for the three
months ended April 30, 1998. Excluding the effect of the Newman settlement, the
net loss per share was $(0.20).
Net sales for the three months ended April 30, 1999 decreased to $921,246 from
$1,471,572 recorded in the three months ended April 30, 1998, a decrease of
$550,326 or 37.4%. The decrease in sales is primarily attributable to the
Company's inability to ship the majority of orders received. During April 1999,
the Company dramatically reduced its operations due to cash flow constraints.
This reduction included the closure of 16 Bloomingdale and two Kaufmann leased
main floor locations and a reduction of the Company's employee workforce from
approximately eighty two direct employee's to nine. For the three months ended
April 30, 1999, sales through the Company's catalog mailings and Internet site
were $221,255 versus $107,691 for the three months ended April 30, 1998, and
increase of $113,564 or 105.5%. 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.
11
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 30, 1999
Cost of goods sold as a percentage of net sales was 66.9% for the three months
ended April 30, 1999, as a compared to 19.2% for the three months ended April
30, 1998. The increase is primarily attributable to a bulk sale of discontinued
inventory which the Company made during the quarter.
Selling, general and administrative expenses for the three months ended April
30, 1999 increased to $1,498,540 from $1,092,134 for the three months ended
April 30, 1998, an increase of $406,406 or 37.2%. Included in selling, general
and administrative expenses for the three months ended April 30, 1998 was the
reversal of a previously recorded liability in the amount of $250,000 related to
commissions which the Company had recorded as due to Adrienne Newman but which
the Company was not required to pay.
The Company recorded net interest expense of $26,395 during the three months
ended April 30, 1999 as compared to net interest expense of $10,210 for the
three months ended April 30, 1998. The interest expense is related to the
Company's related party loans with the Blank Group and the Interim Loan Group.
During the three months ended April 30, 1998, the Company recorded other income
in the amount of $1 million as a result of the settlement of its litigation with
Adrienne Newman.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of $1,366,689 at April 30, 1999, a
decrease of $2,701,778 from positive 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 Company's registered trademark and registered
trade name of 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
12% five year notes 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. UCC filings have been made to
secure these notes.
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. This advance is also evidenced by notes. UCC filings have also been
made to secure these notes. 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.
12
<PAGE>
ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 30, 1999
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.
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 fiscal 1999 results have suffered from
the shortage of readily available and regularly produced finished goods
inventory. During the nine months ended April 30, 1999, the Company recorded
losses of $3,021,023. The Company did not obtain the necessary capital and did
not achieve the sales levels necessary to return the Company to profitability or
a positive cash flow. During the quarter ended April 30, 1999, the Company's
cash flow was severely impacted by its inability to ship all orders as received
combined with larger than anticipated returns of holiday promotional products.
The Company is substantially in default on its obligations and has been unable
satisfy current obligations related to vendor commitments and employee
compensation. During the quarter ended April 30, 1999, the Company dramatically
reduced its operations and reduced its workforce from approximately eighty two
direct employee's to nine. The Company is currently severely out of stock in
finished goods inventory and is therefore unable to satisfy the majority of
customer orders received. The Company is currently pursuing various alternatives
in an effort to remain in business. There can be no assurance that the Company
will be successful in obtaining a relationship under which it will be able to
continue or that such a relationship, if obtained, will generate enough cash to
satisfy the Company's liabilities. If the Company is not successful the Company
will be required to 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: June 17, 1999 /s/ Michael D. Ficke
--------------------------------------
Michael D. Ficke
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ADRIEN ARPEL, INC. (Formerly Alfin, Inc.)
10QSB for the nine months ended
April 30, 1999 & 1998
</LEGEND>
<CIK> 0000724989
<NAME> ADRIEN ARPEL, INC., (Formerly Alfin, Inc.)
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<EXCHANGE-RATE> 1
<CASH> 45,588
<SECURITIES> 0
<RECEIVABLES> 92,457
<ALLOWANCES> 1,274,820
<INVENTORY> 1,340,630
<CURRENT-ASSETS> 1,555,386
<PP&E> 1,592,726
<DEPRECIATION> 1,483,792
<TOTAL-ASSETS> 1,749,625
<CURRENT-LIABILITIES> 2,922,075
<BONDS> 643,157
750,000
0
<COMMON> 143,111
<OTHER-SE> (2,565,561)
<TOTAL-LIABILITY-AND-EQUITY> 1,749,625
<SALES> 4,721,280
<TOTAL-REVENUES> 4,721,280
<CGS> 1,708,122
<TOTAL-COSTS> 5,870,300
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<INCOME-PRETAX> (3,021,023)
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