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 January 31,April 30, 1998
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[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: 11,787,98312,018,866 shares of common stock, $.01 par value per share, at March 13,June 10,
1998.
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ALFIN, INC. AND SUBSIDIARIES
FORM 10-Q
INDEX
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
January 31, 1998 and July 31, 1997 2-3
Condensed Consolidated Statements of
Operations for the three and six months
ended January 31, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows for the six months ended
January 31, 1998 and 1997 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
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
April 30, 1998 and July 31, 1997 2-3
Condensed Consolidated Statements of
Operations for the three and nine months
ended April 30, 1998 and 1997 4
Condensed Consolidated Statements of
Cash Flows for the nine months ended
April 30, 1998 and 1997 5
Notes to Condensed Consolidated
Financial Statements 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 12-17
Signatures 18
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ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS JanuaryApril 30, July 31,
July 31,------ 1998 1997
(unaudited)
----------- -----------
CURRENT ASSETS:
Cash & cash equivalents $ 113,648192,985 $ 658,378
Accounts receivable, net of allowances for
doubtful accounts and chargebacks of
$1,377,610$1,073,039 and $891,532 at January 31, 1998
and July 31,1997, respectively and
sales allowances of $138,067 and $256,264
at January 31,April 30, 1998
and July 31, 1997, respectively 415,947and sales
allowances of $68,957 and $256,264
at April 30, 1998 and July 31, 1997, respectively 808,162 167,021
Inventories 2,065,7761,822,719 2,227,549
Prepaid expenses and other current assets 21,411330,808 880,938
----------- -----------
Total current assets 2,616,7823,154,674 3,933,886
----------- -----------
PROPERTY AND EQUIPMENT 2,432,8752,434,283 2,333,028
Less-accumulated depreciation and
amortization (1,926,524)(2,026,771) (1,740,341)
----------- -----------
Property and equipment, net 506,351407,512 592,687
----------- -----------
OTHER ASSETS:
Other 75,0002,875,406 83,938
----------- -----------
Total other assets 75,0002,875,406 83,938
----------- -----------
Total assets $ 3,198,1336,437,592 $ 4,610,511
=========== ===========
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
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ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ January 31,April 30, July 31,
1998 1997
(unaudited)
------------ ------------
CURRENT LIABILITIES:
Due to related parties $ -- --60,417 0
Accounts payable 2,001,4831,800,591 1,365,767
Accrued expenses-other 1,430,791787,745 1,313,971
------------ ------------
Total current liabilities 3,432,2742,648,753 2,679,738
NOTES PAYABLE TO RELATED PARTIES 187,500 0
------------ ------------
Total liabilities 3,432,2742,836,253 2,679,738
------------ ------------
REDEEMABLE PREFERRED STOCK 750,000 750,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value,
17,000,000 shares authorized;
12,018,866 and 11,787,983 shares
issued and outstanding at January 31,April 30,
1998 and July 31,1997 117,87931, 1997 respectively 120,188 117,879
Additional paid-in capital 12,953,12316,134,012 12,953,123
Accumulated deficit (14,055,143)(13,402,861) (11,890,229)
------------ ------------
Total shareholders' equity (984,141)2,851,339 1,180,773
------------ ------------
Total liabilities and share-
holders' equity $ 3,198,1336,437,592 $ 4,610,511
============ ============
The accompanying notes are an integral part
of these condensed consolidated balance sheets.
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ALFIN, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended SixNine Months Ended
January 31, January 31,April 30, April 30,
1998 1997 1998 1997
---- ---- ---- ---------------- ------------ ------------ ------------
Net Sales $ 1,379,7241,471,572 $ 10,188,5673,130,544 $ 3,776,0635,247,635 $ 19,823,27922,953,823
Cost of goods sold 382,707 3,856,834 1,154,098 6,952,128282,155 790,908 1,436,254 7,743,036
------------ ------------ ------------ ------------
Gross profit on sales 997,017 6,331,733 2,621,965 12,871,1511,189,417 2,339,636 3,811,381 15,210,787
Selling, general and
administrative expenses 2,427,775 5,305,301 4,848,628 10,970,8501,092,134 3,901,138 5,940,762 14,871,988
------------ ------------ ------------ ------------
Operating(Loss)Profit (1,430,758) 1,026,432 (2,226,663) 1,900,301Operating Profit(Loss) 97,283 (1,561,502) (2,129,381) 338,799
Other income (expense)
Interest (expense) income (expense) 23,738 (21,027) 61,751 (39,438)(10,210) 1,494 51,541 (37,944)
Non cash financing charge (326,042) 0 (326,042) 0
Other income 1,000,000 0 1,000,000 0
------------ ------------ ------------ ------------
Total other income (expense) 23,738 (21,027) 61,751 (39,438)663,748 1,494 725,499 (37,944)
------------ ------------ ------------ ------------
Income (Loss) Income before
Provision for income taxes (1,407,020) 1,005,405 (2,164,912) 1,860,863761,031 (1,560,008) (1,403,882) 300,855
(Benefit) Provision for
Income Taxes 0 304,000(433,873) 0 569,000135,127
------------ ------------ ------------ ------------
NET INCOME (LOSS) INCOME $ (1,407,020)761,031 $ 701,405(1,126,135) $ (2,164,912)(1,403,882) $ 1,291,863165,728
============ ============ ============ ============
Weighted average number
of common and common
equivalent shares 11,787,983 11,958,194 11,787,983 12,099,49112,057,758 11,868,628 12,018,866 12,061,755
------------ ------------ ------------ ------------
INCOME (LOSS)PER COMMON
AND COMMON
EQUIVALENT SHARES $ 0.06 $ (0.10) $ (0.12) $ 0.02
============ ============ ============ ============
INCOME (LOSS)PER SHARE
AVAILABLE TO
COMMON SHAREHOLDERS $ 0.06 $ (0.18)(0.11) $ 0.11(0.13) $ 0.01
============ ============ ============ ============
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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ALFIN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SixNine Months Ended
January 31,April 30,
1998 1997
----------- -----------
Cash Flows from Operating Activities:
Net (Loss) income $(2,164,912)$(1,403,882) $ 1,291,863165,728
----------- -----------
Adjustments to Reconcile Net (Loss)income to Net Cash
Provided by (Used in) Operating Activities:
Depreciation & Amortization 186,182 298,028286,430 426,898
Non cash financing cost 326,042 0
(Increase) decrease in Accounts Receivable (248,926) 37,464(641,141) 350,988
Decrease in Inventory 161,773 82,294404,830 417,928
Decrease (Increase) in Prepaid Expenses & Other Assets 868,465 (468,600)
Increase4,985 (562,616)
Decrease Accounts Payable & Accrued Expenses 752,535 208,321(91,402) (707,395)
----------- -----------
Total Adjustments 1,720,029 157,507289,744 (74,197)
Net Cash (Used in) Provided by
Operating Activities (444,883) 1,449,370(1,114,138) 91,531
----------- -----------
Cash Flows from Investing Activities
Capital Expenditures (99,847) (219,201)(101,255) (201,015)
----------- -----------
Net Cash Used in Investing Activities (101,255) (201,015)
Cash Flows from Financing Activities
Payment of Lines of Credit net 0 (1,600,000)
Principal PaymentsPayment of Mortgage NoteDebt Obligations 0 (150,000)
Payments to(225,000)
Proceeds from Debt Obligations 500,000 0
Proceeds from (Payments to) Related Parties 0250,000 (4,826)
Proceeds from Sales of Stock 0 58,333
----------- -----------
Net Cash Used inProvided by (Used in) Financing Activities 0 (1,696,493)750,000 (1,771,493)
Net Decrease in Cash and cash equivalents (544,730) (466,324)(465,393) (1,880,977)
Cash and cash equivalents at Beginning of Period 658,378 2,210,972
----------- -----------
Cash and cash equivalents at End of Period $ 113,648 1,744,648192,985 $ 329,995
=========== ===========
Cash Paid during the quarter ended
Interest $ 0 $ 90,066
Income Taxes 0732 95,969
The accompanying notes are an integral part of
these condensed consolidated statements
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31,APRIL 30, 1998
(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 January 31,April 30, 1998 (unaudited) and July 31, 1997,
the results of its operations for the three and sixnine months ended January 31,April 30, 1998
(unaudited) and 1997 and the cash flows for the three and sixnine months ended
January 31,April 30, 1998 and 1997.1997 (unaudited). 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 sixnine months ended January 31,April 30, 1998,
significant losses
from operations and cash used in operations were incurred as a result of the
discontinuance of appearances on HSNThe Home Shopping Network ("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.
On February 9, 1998, the Company's board of directors approved an agreement with
an investment group headed by Barry W. Blank.Blank (the "Blank Group"), which includes
Janet M. Portelly, the wife of Barry Feiner, a current director. Under the
agreement the groupBlank Group advanced the Company working capital of $500,000 and has committed to raise no
less than an additional $2 million in equity on or before April 30, 1998.$500,000. The
initial $500,000 investment was in the form of a 12% five year note convertible
into the Company's common stock, commencing on August 1, 1998 at the rate of
$0.25 per share. The board of directors also elected Mr. Blank as President of
the Company and accepted the resignation of Elisabeth Fayer, the Company's
former Chairman and Chief Executive Officer, who owns a majority of the
Company's common stock through an affiliated company, Fine Fragrances
Distribution, Inc., ("FFD"). Mr. Blank is an investment banker who is employed
as the manager of the Phoenix office of J. Robbins Securities LLC and personally
owns seats on the New York and American Stock Exchanges. Under the agreement,
FFD also issued an option to the investment group to acquire all of its shares
of the Company's common stock and has granted Mr. Blank a proxy to vote these
shares. FFD owns approximately 7.1 million shares of the Company's common stock
which represents approximately 61%60% of the currently outstanding shares of such
stock. The option is exercisable for 12 months commencing on August 1, 1998 at
$0.25 per share.
On March 13, 1998, Barry Blank acting as sole director appointed BarryMr. Feiner,
Joseph GiamencoGiamanco and John McConnaughy, Jr. as additional directors of the
Company. On May 5, 1998, Charles Hoover Esq., an attorney practicing law in
Phoenix, Arizona, was also appointed as a director.
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(Unaudited)
On March 27, 1998, the Company's board of directors approved an additional
$250,000 advance to the Company by a group, (the "Interim Loan Group") which
includes Mr. Blank, Mr. McConnaughy and Ms. Portelly, in order to provide
assistance with respect to settling certain trade payables, which were due to
key inventory suppliers. These funds were received by the Company on April 20,
1998. In connection therewith, after July 31, 1998, the members of this group
will also receive one share of the Company's Common Stock for each dollar
loaned. This loan will be repaid from the proceeds of the Company's currently
ongoing equity offering.
During May 1998, the Company commenced a private placement offering (the
"Offering") designed to raise equity financing. The Offering consists of the
issuance of up to 60 units (the "Units"), each in the amount of $50,000. Each
unit offered consists of 50,000 shares of the Company's Common Stock, 50,000
Class A Warrants and 50,000 Class B Warrants. Each Class A Warrant entitles the
holder to purchase one share of the Company's Common Stock at $2.00 per share
and one Class B Warrant. Two Class B Warrants entitle the holder to purchase one
share of Common Stock at $4.00 per share. The Class A Warrants are exercisable
at any time upon issuance until May 31, 2001 and the Class B Warrants are
exercisable at any time commencing upon issuance until May 31, 2003. If all of
the units are sold, the Company will receive gross proceeds of approximately $3
million less the expenses of the Offering which management estimates will be
approximately $430,000.
On June 11, 1998 the Company received an initial $1,044,000 of proceeds from the
Offering. The Company continues to seek subscribers under the Offering and
anticipates that additional funds will be forthcoming. There can be no assurance
that all or any additional units under the Offering will be sold.
The Company has implemented a restructuring plan designed to move its operations
towards profitability and minimize the effect of the departure of Adrienne
Newman and the related discontinuance of the Company's appearances on HSN. This
plan includes significant operating expense reductions. 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.
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
(Unaudited)
The Company has committed to significantly reducing its operating expenses. In
addition to operating expenses reductions the Company'sincrease revenues. For a
detailed discussion of management's plans are focused in
the following areas:
o Continued realignment of the Company's U.S. department store operations by
concentrating on profitable department store groupssee Liquidity and markets.
o Further development of the Company's Canadian retail operations which have
historically been profitable for the Company.
o Development of other revenues at distribution. The Company has made several
presentations to the U.S. military and believes that an agreement will be
reached which will lead to the distribution of the Arpel product line through
its military bases. There can be no assurance that the Company will reach an
agreement to distribute its products through U.S. military bases.
o 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.
o Expansion of the Company's relationship with Spiegel. The Company and Spiegel
are discussing plans to increase product offerings with distribution to a
larger customer base. There can be no assurance that the Company and Spiegel
will expand its relationship.
o The Company is currently finalizing its second professionally designed
catalogue. This new addition will be mailed during the Spring season and will
include new product offerings and reach a wider customer base. The Company has
expanded the hours and upgraded its toll-free hotline designed to fill mail
order requests for Adrien Arpel products. Trained beauty advisors are
available to discuss the Company's products and offer professional skin care
advice.
Management believes that these initiatives combined with the financing under the
agreement with the Barry Blank group should improve the Company's operating and
financial condition. There can be no assurance that the Company will be
successful in implementing these initiatives.Capital Resources.
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 inon the Company's customer
base.
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
(Unaudited)
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
TheDuring fiscal 1997, the Company maintainsmaintained money market accounts with maturities
of three months or less which are reflected as cash equivalents.
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(Unaudited)
Advertising Expenses
The Company advertises through cooperative advertising programs and catalogs.
Advertising costs as a percentage of consolidated retail store sales has beenwas 11.7%
and 14.2%12.0% for the fiscal year ended July 31, 1997 and the sixnine months ended
January 31,April 30. 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 sixnine months ended January 31,April 30, 1998 approximately 74.3%77.4% of department store
sales were derived from merchandise, 6.4%7.3% from services and 19.3%15.3 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 3.1%2.3% for the fiscal year ended July 31, 1997, and sixnine
months ended January 31,April 30, 1998 respectively.
(2)Inventory:
Inventory at January 31,April 30, 1998 and July 31, 1997 was comprised of finished goods
amounting to $948,129$904,247 and $790,079 respectively and components of $1,117,647$918,472 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 currentlythen 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, $271,281 and $277,990 on May 21, August 7, October 7, 1997,
and December 31, 1997 respectively. Interest on the repayment was charged at
10.5%.
On April 23, 1998, the Company and Ms. 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 is paying the Company $1
million dollars, as follows: $150,000 was received upon execution of the
settlement and $25,000 per month until the Company obtains additional financing.
Upon obtaining additional financing of no less than $2 million, Ms. Newman has
agreed to pay an additional $150,000 and installments will be increased to
$50,000 per month until the balance is paid in full. Upon obtaining additional
financing, monthly payments will bear interest at the prime rate. The Company
recorded the gross settlement of $1 million during the three and nine months
ended April 30, 1998. This settlement is reflected as "Other Income" on the
Company's statement of operations. The remaining amount due is reflected as part
of Prepaid and other current assets. Both parties exchanged general releases.
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31,APRIL 30, 1998
(Unaudited)
(4)Debt:
Lines of Credit:
On February 10, 1998 the Company received $500,000 in financing, pursuant to an
agreement with an investment group headed by Barry W. Blank.the Blank Group. The financing is in the form of a 12% five year
note which is convertible into the Company's Common Stock, commencing on August
1, 1998 at the rate of $0.25 per share.
Non Cash Financing Charges:
The Company is accounting for the issuance of convertible debt securities that
have a beneficial conversion feature in accordance with "Emerging Issues Task
Force Topic No. D-60. This topic addresses the issuance of convertible debt
securities that have a beneficial conversion feature. The beneficial conversion
feature is recognized and measured by allocating a portion of the proceeds equal
to the intrinsic value of that feature to paid-in capital. The amount is
calculated as the difference between the conversion price and the fair market
value of the Company's Common Stock at the date of the loan. Any discount
resulting from the allocation of proceeds to the beneficial conversion feature
increases the effective inters rate of the security and is reflected as a charge
to interest expense.
As it relates to the $500,000 in financing, received from the Blank Group, the
Company has allocated $625,000 to the beneficial conversion feature, which will
be amortized for the period from February 9, 1998, through August 1, 1998, the
date debt first becomes exercisable. For the three and nine months ended April
30, 1998, the Company recorded $312,500 of non cash financing charges. The
Related Party Note is stated net of $312,500 of deferred interest expense.
The Company has recorded $2,246,323 of deferred financing charges related to
the Blank Groups option to purchase 7,188,235 shares of common stock from FED at
$0.25 per share commencing August 1, 1998. This amount is to be amortized as
"Non Cash Financing Charges" over a period of five years, for the portion which
is allocated to the $500,000 Related Party Note and will be an offset to
Additional Paid in Capital, for the portion based on equity (based on a
proposed equity raise up) and is calculated as the difference between the
conversion price and the fair market value of the Company's Common Stock at the
date the Blank Group received the option to purchase the FED shares. This
amount is reflected as part of Other Assets and Additional Paid in Capital on
the Company's Balance Sheet.
Related Party Loans:
During October and November 1997 Fine Fragrance Distribution, Inc. ("FFD") a
company controlled byApril 1998 the Interim Loan Group advanced the Company an additional
$250,000. In Connection therewith, after July 31, 1998, the group will also
receive one share of Common Stock for each dollar loaned constituting an
aggregate of 250,000 shares. This loan will be repaid from the proceeds of the
Company's majority former shareholder, Ms. Elisabeth
Fayer, advanced $150,000Offering. The issuance of the 250,000 shares is deemed to be an
additional cost of financing which is valued at the Company.fair market value of the
Company's Common Stock at the date of the loan. This advance was repaid during Januaryamount will be amortized
over the life of the loan, approximately one year. The Related Party Loan
Payable is stated net of $189,583 of deferred interest expense at April 30,
1998.
(5)Computation of net income (loss) per common
and common equivalent share:
Net income (loss)During fiscal year 1997, the Company adopted SFAS No. 128 "Earnings Per Share".
This statement establishes standards for computing and presenting earnings per
commonshare ("EPS"). The statement requires the dual presentation of both Basic EPS
and common equivalent share wasDiluted EPS on the face of the statement of operations. Basic EPS is
computed by
dividing net income (loss) by thebased on weighted average number of shares of common
stockoutstanding 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 proceedsexcludes any potential
dilution. Diluted EPS reflects potential dilution from the exercise or
conversion of the options and warrants based on the
average price ofsecurities into common stock during the period.or from other contracts to issue
common stock.
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(Unaudited)
(6)Income Taxes:
TheAs of July 31, 1997, the Company maintainshad approximately $5.4 million of Federal
operating loss carry forwards with expiration dates from 2005 to 2009; however,2009. However,
the use of pre-acquisition 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 condensed consolidated statement of operations for the
quarter ended January 31,April 30, 1998.
(7) Other:
The Company does not currently satisfy the guidelines for the continued listing
of its securities on the American Stock Exchange ("ASE"). There can be no
assurance that the ASE will retain the Company's listing.
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.
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ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998
(Unaudited)
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 AdrienneMs. 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 breached by the Company resulting in its termination.
On March 19, 1997, the Company served an Answer and Counterclaim in response to
the action commenced by Ms. Newman. The Company's Counterclaim assertsasserted 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
January 28, 1996. As a consequence, it iswas the Company's belief that Ms.
Newman's refusal to provide services to the Company throughout the term of her
Employment Agreement which expireswas due to expire
10
12
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1998
(Unaudited)
in April 1998, particularly her willful refusal and failure to appear as the
Company's selling host on HSN, willwould 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.
During MayOn April 23, 1998, the Company and Ms. Adrienne Newman reached the settlement
agreement related to this litigation described in Footnote 3.
On April 30, 1998, Arthur Andersen LLP (the "Former Accountants") resigned as
the Company's certifying accountants. In connection with the audits of the
Company's financial statements for the fiscal years ended July 31, 1996 and
1997, Ms. Newman started appearingthere were no disagreements with the Former Accountants on HSNany matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
the Former Accountants, would have caused them to make reference to the subject
matter of the disagreement in their report. The Former Accountants reports on
the Company's financial statements for the fiscal years ended July 31, 1996 and
1997 did not contain an adverse opinion or disclaimer of opinion and included an
explanatory paragraph concerning the Company's ability to continue as a representativegoing
concern.
On May 7, 1998, the Company retained Goldstein Golub Kessler & Company, P.C., as
its certifying accountants commencing for the fiscal year ending July 31, 1998.
During June 1998 the Company began selling its Arpel product line through the
internet (www.adrienarpel.com). Through the Company's web site, prospective
customers can view a large selection of her
own companythe Company's top selling cosmetic products underproducts.
Customers also have the name "Signature Club A." Ms.
Newman has subsequently appeared on HSN onoption of speaking with a monthly basis.trained beauty advisor by
calling the Company's toll free number (888-206-2222) which is operated by the
Company's direct mail department. The Company plans to offer promotional
specials through its web site in conjunction with the holiday selling season.
On June 18, 1998, the Company announced that its Arpel product line will be
distributed through Sears Roebuck & Company ("Sears") nationwide beginning in
August 1998. The Company and its
attorneys have reviewed these appearances and may seek further legal remedies
and actions against Ms. Newman. During these appearances Ms. Newman was not
acting on behalf ofSears will initially launch in 150 locations with
plans to expand distribution to more than 400 locations during the next two
years. The Company or its trademark protected Adrienne Arpel
product line.
The case is currently in the discovery phase. Upon completion of discovery the
action will be readyplans to offer special promotions customized for trial but no trial date has yet been fixed.
10Sears that
emphasize easy to use natural based skin care.
11
1213
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JANUARY 31,APRIL 30, 1998
Results of Operations: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.
SIXResults of Operations:
NINE MONTHS ENDED JANUARY 31,APRIL 30, 1998
The Company recorded a net loss of $2,164,912$1,403,882 for the sixnine months ended January
31,April
30, 1998 as compared to net income of $1,291,863$165,728 for the sixnine months ended January 31,April
30, 1997. Included in the net loss for the nine months ended April 30, 1998 is
$1,250,000 of income related to the settlement of the Company's litigation with
Adrienne Newman. The Company recorded the gross settlement of $1 million as part
"Other Income" and, additionally, reversed a liability which it was carrying on
its balance sheet related to commissions which were previously recorded as due
to Ms. Newman in the amount of $250,000. Also included in the net loss for the
nine months ended April 30, 1998 is $326,042 on non cash finance charges related
to the financing agreements with the Blank Group and the Interim Loan Group. The
issuance of 250,000 shares of stock to the Interim Loan Group and the beneficial
conversion feature pertaining to the $500,000 note payable to the Blank Group is
deemed to be an additional cost of financing. Excluding the effect of the Newman
settlement and the non cash finance charges, the Company would have recorded a
net loss of $2,327,840. The net loss per common and common equivalent shares for
the sixnine months ended January 31, 1998April 30,1998 was $(0.18)$0.12 as compared to net income of $0.11$0.01
for the sixnine months ended January 31,April 30, 1997. Excluding the effect of the Newman
settlement and the non cash financing charges, the net loss per common and
common equivalent shares for the nine months ended April 30, 1998 would have
been $0.19.
Net sales for the sixnine months ended January 31,April 30, 1998 decreased to $3,776,063$5,247,635 from
$19,823,279$22,953,823 for the sixnine months ended January 31,April 30, 1997, a decrease of $16,047,216$17,706,188
or 81.0%77.1%. The decrease in sales is primarily attributable to an end of the
Company's relationship with the Home Shopping Network ("HSN") combined with a
decrease in sales to department stores. The Company's relationship with HSN
ended during January 1997 due to the Company's contract dispute with Ms. Adrienne Newman.
Sales to HSN for the sixnine months ended January 31,April 30, 1997 were $12,169,253.$12,182,949. For a
detailed discussion of the Company's dispute with Ms. Newman see footnoteFootnote 7,
"Other."Other in the Notes to the Consolidated Financial Statements."
12
14
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APRIL 30, 1998
Net sales to department stores for the sixnine months ended January 31,April 30, 1998
decreased to $3,631,976$4,995,857 from $7,654,026$10,770,874 for the sixnine months ended January 31,April 30,
1997, a decrease of $4,022,052$5,775,017 or 52.5%53.6%. The Company was distributing its
products to 166124 department store locations as of January 31,April 30, 1998 as compared to
285271 locations as of January 31,April 30, 1997. The Company recorded $144,087$251,778 from mail
order sales for the sixnine months ended January 31,April 30, 1998. The Company started
filling phonemail order requests for products during June 1997 by implementing a toll
free number where customers could speak to trained beauty advisors.
During December 1997 the Company entered into an agreement with Spiegel, Inc.
("Spiegel"). Under the terms of the agreement, the Company participatedis participating in
Spiegel's Specialty Catalogue Reverse Syndication Program ("Spiegel Program").
The Spiegel Program involvedinvolves mailing the Company's product catalogue featuring a
selection of Adrien Arpel's top performing cosmetics and skin care products
priced between $18.50 and $69.95$69.95. The initial mailing took place during January
1998, to approximately 100,000 of Spiegel's customers
during January 1998.customers. The Company is
responsible for all promotional expenses, including but no limited to printing
and production costs related to mailing and Spiegel is responsible for mailing
costs. The Company and Spiegel are currently
discussing plansplan a second mailing to expand this relationship with increased product offerings
and distribution to a larger customer base.approximately 700,000
customers on June 22, 1998. The Company and Spiegel plan to concentrate in
markets where Arpel products are currently not available 11
13
through department
stores. No assurance can be given that this expansion will
take place.
Cost of goods sold as a percentage of net sales was 30.6%27.4% for the sixnine months
ended January 31,April 30, 1998 as compared to 35.1%33.7% for the sixnine months ended January 31,April 30,
1997. The decrease is primarily related to product mix since products sold to
HSN have had higher cost of goods rate and consisted of 61.4%53.1% of total sales for
the sixnine months ended January 31,April 30, 1997.
Selling, general and administrative expenses decreased to $4,848,628$5,940,762 for the
sixnine months ended January 31,April 30, 1998 from $10,970,850$14,871,988 for the sixnine months ended
January
31,April 30, 1997, a decrease of $6,122,222$8,931,226 or 55.8%60.1%. This decrease is primarily
attributable to the decreased cost of operating the Company's current downsized
department store business combined with a decrease of $2,300,339 in compensation
payments to Ms. Newman which were attributable to her appearances on HSN during
the six months ended January 31, 1997. Additionally the Company reversed a
liability during the quarter, in the amount of $250,000, which was reflected as
commissions which were previously recorded as due to Ms. Newman.
The Company has also implemented $2.2
million in annualizedcommitted to significantly reducing its operating expenses and
continues to seek further expense reductions during January 1997 and an
additional $500,000 during November 1997.beyond those reflected in its
financial results for the nine months ended April 30, 1998. For a discussion of
the Company's current restructuring plans, see "Liquidity and Capital
Resources".Resources."
The Company recorded other income in the amount of $1 million during the nine
months ended April 30, 1998 as a result of the settlement of its litigation with
Ms. Newman. During the nine months ended April 30, 1998 the Company recorded net
interest income of $61,751 during the six months ended
January 31, 1998$51,542 as compared to net interest expense of $39,438$37,944 for
the sixnine months ended January 31,April 30, 1997. The Company earned interest income on the
payments it received from Selecta. During the sixnine months ended January 31,April 30, 1997
the Company was still paying interest under its loan facility with PNC Bank. The
Company recorded non cash finance charges of $326,042 during the nine months
ended April 30, 1997 related to its financing agreements with The Blank Group
and the Interim Loan Group.
13
15
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APRIL 30, 1998
THREE MONTHS ENDED JANUARY 31,APRIL 30, 1998
The Company recorded a net lossincome of $1,407,020$761,031 for the three months ended January
31,April 30,
1998 as compared to a net incomeloss of $701,405$1,126,135 for the three months ended January 31,April
30, 1997. The net lossincome per common and common equivalent shares for the three
months ended January 31,April 30, 1998 was $(0.12)$0.06 as compared to a net incomeloss of $0.06$0.10 for the
three months ended January 31,April 30, 1997. The Company recorded $1 million of income
related to the settlement of its litigation with Ms. Newman. In addition, the
Company reversed a liability of $250,000 which it was carrying on its balance
sheet related to commissions which were previously recorded as due to Ms.
Newman. Also included in the results for the three months ended April 30, 1998
is $326,042 of non cash finance charges related to the financing agreements with
the Blank Group and the Interim Loan Group. Excluding the effect the Newman
settlement and the non cash finance charges the Company recorded a loss from
operations of $162,927 for the three months ended April 30, 1998 as compared to
a loss from operations of $1,560,008 for the three months ended April 30, 1997,
a decrease of $1,397,081 or 89.6%.
Net sales for the three months ended January 31,April 30, 1998 decreased to $1,379,724$1,471,572 from
$10,188,567$3,130,544 recorded in the three months ended January 31,April 30, 1997, a decrease of
$8,808,843$1,658,972 or 86.5%53.0%. The decrease in sales is due primarily to the end of the
Company's relationship with HSN combined with a decrease in
sales to department
stores. During the three months ended January 31, 1997 the Company recorded
sales to HSN in the amount of $6,441,671. Sales tocertain department stores for the
three months ended January 31, 1998 decreased to $1,301,600 from $3,746,896, a
decrease of $2,445,295 or 65.3%. As indicated previouslythrough which the Company was distributing
its products. The Company, as part of its reorganization plan, is seeking to
166reposition its product line within department storestores which have proven to be a
better market for the Company's products. The Company has undertaken a program
to close non performing and unprofitable locations at January 31, 1998 as compared
to 285 locations at January 31, 1997.and concentrate in markets
and department stores where its products are profitable. The Company recorded
$78,124$107,691 from mail order sales for the three months ended January 31,April 30, 1998.
Cost of goods sold as a percentage of net sales was 27.7%19.2% for the three months
ended January 31,April 30, 1998 as compared to 37.9%25.3% for the three months ended January
31,April 30,
1997.
Selling, general and administrative expenses for the three months ended January
31,April
30, 1998 decreased to $2,427,775$1,092,134 from $5,305,301$3,901,138 for the three months ended
January 31,April 30, 1997, a decrease of $2,877,526,$2,809,004, or 54.2%72.0%. This decrease is primarily
attributable to the Company's program designed to reduce operating expenses in
an effort to reduce losses combined with the inherent expense reduction related
to operating the Company's reduced department store business. Contributing to
the decease 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. This liability was related to commissions which the Company
had recorded as due to Ms. Newman but will not pay.
The Company recorded interestother income in the amount of $23,738$1 million during the three
months ended January 31,April 30, 1998 as a result of the settlement of its litigation with
Ms. Newman. During the three months ended April 30, 1998 the Company recorded
net interest expense of $10,210 as compared to net interest expenseincome of $21,027$1,494 for
the three months ended January 31,April 30, 1997. The interest expense is related to the
advances made by the Blank Group and the Interim Loan Group during the quarter
ended April 30, 1998. The Company also recorded non cash finance charges of
$326,042 during the nine months ended April 30, 1997 related to its financing
agreements with The Blank Group and the Interim Loan Group.
14
16
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APRIL 30, 1998
LIQUIDITY AND CAPITAL RESOURCES
The Company had apositive working capital deficit of $815,492$505,921 at January 31,April 30, 1998, a
decrease of $2,069,640$748,227 from positive working capital of $1,254,148 at July 31,
1997.
12
14
During fiscal year 1997 and during the six months ended January 31, 1998,
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 AdrienneMs. Newman. The Company had been significantly dependent
on HSN during the fiscal years ended 1995, 1996 and for the six months ended
January 31, 1997. The Company has been dependent upon cash generated from
operations and 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.
On February 9, 1998, the Company's Board of Directors approved an agreement with
an investment group headed by Barry W. Blank.Blank which includes Janet M. Portelly,
the wife of Barry Feiner, a current director. Under the agreement the group
advanced the Company working capital of $500,000 and has committedintends to raise no
less than an
additional $2 million in equity on or before April 30, 1998. There
can be no assurance that the Blank group will be successful in raising such
equity. If the Blank group is not successful and the Company cannot obtain
alternative financing, the Company will be adversely effected. The initial $500,000 investment was in the form
of a 12% five year note convertible into the Company's Common Stock, commencing
August 1, 1998, at the rate of $0.25 per share. On February 9, 1998, the
Company's Board of Directors elected Mr. Blank as President of the Company and
accepted the resignation of Elisabeth Fayer, the Company's former Chairman and
Chief Executive Officer, who owned a majority of the Company's common stock
through an affiliated company, Fine Fragrances Distribution, Inc., ("FFD"). Mr.
Blank is an investment banker who is employed as the manager of the Phoenix
office of J. Robbins Securities LLC and personally owns seats on the New York
and American Stock Exchanges. Under the agreement, FFD also issued an option to
the investment group to acquire all of its shares of the Company's Common Stock
and has granted Mr. Blank a proxy to vote these shares. FFD owned approximately
7.1 million shares of the Company's Common Stock that represented approximately
61%60% of the currently outstanding shares of such stock. The option is exercisable
for 12 months commencing on August 1, 1998 at $0.25 per share.
The Company's former directors, Jacques Desjardins, Steven Korda and Suzanne
Langlois resigned their respective positions in conjunction with the above
agreement. Mr. Barry Feiner, an attorney who practices law in New York City,
Joseph Giamenco, who is the principal owner of GHM, Inc., an American Stock
Exchange specialist firm, and Mr. John McConnaughy, Jr., a private investor have
been installed in their places. In July 1997, the CompanyOn May 5, 1998, Charles Hoover Esq., an attorney
practicing law in Phoenix, Arizona, was advised by the American Stock Exchange (the "ASE")
that it wished to review with the Company its continued listing eligibility on
the ASE based upon the Company falling below certain ASE continued listing
guidelines. The Company met with representatives of the ASE and made both oral
and written presentations to the ASE. The Company was advised by the ASE, by
letter dated September 15, 1997, that the Company's listing on the ASE would be
continued subject to future review by the ASE of the Company's favorable
progress in satisfying the ASE's guidelines for continued listing and to the
ASE's routine periodic reviews of the Company's SEC and other filings. The ASE
requested an updated report from the Company to be submitted on or before
December 17, 1997 which addressed, among other things, the Company's ability to
satisfy its cash needs and to achieve its projections of profitability. During
January 1998 and based upon the updated report submitted by the Company to the
ASE on December 17, 1997, the ASE notified the Company of its intention to
commence delisting procedures.
On January 21, 23, 28, and 29, 1998, the Company and representatives of the
Blank group made oral and written submissions to the ASE. The Company was
advised by letter dated February 3, 1998, that the ASE would continue the
Company's listing until May 1, 1998. This determination was subject to the
Company's receipt of the $500,000 in immediate cash, which occurred on February
9, 1998, and at least $2 million by April 30, 1998, as outlined under the
Company's agreement with the Barry Blank group. Additionally, the Company must
achieve its commitments to generate new revenue sources and reduce expenses as
set forth in its letters to the ASE. The ASE has requestedalso appointed a report on or before
13
15
May 1, 1998 which addresses the Company's ability to raise cash and explains
any material deviation from the commitments and projections provided by the
Company. The ASE has also requested updated quarterly income statement and cash
flow projections for fiscal 1998 and a revised projected balance sheet as of
July 31, 1998.director.
The Company does not currently satisfy the guidelines for the continued listing
of its securities on the ASE andAmerican Stock Exchange ("ASE"). There can be no
assurance that the ASE will continue the Company's listing.
During May 1998, the Company commenced a private placement offering (the
"Offering") designed to raise equity financing. The Offering consists of the
issuance of up to 60 units (the "Units"), each in the amount of $50,000. Each
unit offered consists of 50,000 shares of the Company's Common Stock, 50,000
Class A Warrants and 50,000 Class B Warrants Each Class A Warrant entitles the
holder to purchase one share of the Company's Common Stock at $2.00 per share
and two Class B Warrants entitle the holder to purchase one share of Common
Stock at $4.00 per share. If all of the units are
15
17
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APRIL 30, 1998
sold, the Company will receive gross proceeds of approximately $3 million less
the expenses of the Offering which management estimates will be approximately
$430,000.
On June 11, 1998 the Company received an initial $1,044,000 of proceeds from the
Offering.
The Company continues to seek subscribers under the Offering and anticipates
that additional funds will be forthcoming. There can be givenno assurance that all or
any additional units under the listingOffering will be retained.sold.
The Company plans to use these proceeds to significantly reduce past due
accounts payable and invest in inventory production in order to fill customer
orders as received. The Company has committed to significantly reducing its
operating expenses.expenses which is reflected, in part, in the Company's results for the
three months ended April 30, 1998. For the three months ended April 30, 1998 the
Company was able to reduce its operating losses, excluding the effect of the
Newman settlement, to $162,927 as compared to an operating loss of $1,430,758
for the three months ended January 30, 1998. The Company plans additional
expense reductions beyond this point. In addition to operating expenses
reductions the Company's plans are focused in the following areas:
-
- Continued realignment of the Company's U.S. department store
operations by concentrating on profitable department store
groups and markets. - - Further development ofThe Company has undertaken a program to
close non performing and unprofitable locations and
concentrate in markets and department stores where its
products are more profitable. The Company will commence
shipment to Sears beginning in August 1998. The initial launch
will include 150 Sears locations with plans to expand
distribution to more than 400 locations during the Company's Canadian retail operations which
have historically been profitable for the Company.
-next two
years.
- Development of other avenues of distribution. The Company has made
several presentationswill
commence distribution to the U.S. military through the
military's catalogue mailings. Separate mailings are currently
scheduled to take place during September, October and believes that an
agreement will be reached which will lead to the distribution of the
Arpel product line through its military bases. There can be no
assurance that the CompanyNovember
and will reach an agreement to distribute its
products through U.S. Military bases.
-a worldwide audience of 1.5 million military
personnel.
- 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 is currently in negotiations with a sales agent for
the distribution of its products in Korea. There can be no
assurance that an agreement will be reached or if these sales
will provide significant income to the Company.
- Expansion of the Company's relationship with Spiegel. The
Company and Spiegel are discussing plansfinalizing a second insert mailing to
increase product offerings with
distribution to a larger customer base. There can be no assurance that
the Company andapproximately 700,000 Spiegel will expand its relationship.
-customers. This mailing is
planned for June 22, 1998.
- The Company is currently finalizing its second professionally
designed catalogue. This new additionedition will be mailed during the
spring season and will include new product offerings and reach a wider customer base.to approximately 100,000 Arpel customers. The
Company has also expanded the hours and upgraded its toll free
hotline designed to fill mail order requests for Adrien Arpel
products. Trained beauty advisors are available to discuss the
Company's products and offer professional skin care advice.
16
18
ALFIN, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
APRIL 30, 1998
- The Company is currently offering its products through it
Internet site an the World Wide Web (www.adrienarpel.com). The
Company is utilizing NETVENTURES, INC'S., SHOPBUILDER(TM)
technology to maintain its online store.
Management believes that these initiatives combined with the financing under the
agreement with the Barry Blank group and the Offering should improve the Company's
operating and financial condition. There can be no assurance that the Company
will be successful in implementing these initiatives.
1417
16
EXHIBIT 11
ALFIN, INC. AND SUBSIDIARIES
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
Three Months Ended Six Months Ended
January 31 January 31
1998 1997 1998 1997
---- ---- ---- ----
Net (Loss) Income (1,407,020) 701,405 $ (2,164,912) $ 1,291,863
----------- ---------- ------------ -----------
Weighted average number
of shares outstanding 11,787,983 11,721,259 11,787,983 11,721,259
Add:
Common Stock
Equivalents under 1983
option plan 0 1,503 0 1,970
Common Stock
Equivalents under 1993
option plan 0 125,292 0 164,142
Common Stock
Equivalents represented
by Warrants 0 110,140 0 212,120
----------- ---------- ------------ -----------
Weighted average number
of Shares used in
earnings per share 11,787,983 11,958,194 11,787,983 12,099,490
Earnings per share $ (0.12) $ 0.06 $ (0.18) $ 0.11
15
1719
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/ Barry W. Blank
------------------------------
Barry---------------------------
Barry. W. Blank
President
Dated: March 13,June 22, 1998 /s/ Michael D. Ficke
---------------------------------------------------------
Michael D. Ficke
Chief Financial Officer
16
18