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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
/X/ SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JULY 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
/ / THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
--------- -----------
Commission File Number:0-11434
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, New York 10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,including area code: (212) 333-7700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
Common Stock, $.01 par on which registered
value per share American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitvie proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K / /.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price on November 9, 1995, was $6,656,166.
As of November 9, 1995, the Registrant had 11,519,311 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for its 1995 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
GENERAL
Alfin, Inc., a New York corporation (the "Company"), is engaged through its
wholly owned subsidiary, ADRIEN ARPEL, INC. ("ARPEL"), in manufacturing and
distributing cosmetics and other beauty products and providing facial and other
beauty services. Products and services are sold in better department stores,
specialty stores and main floor cosmetic departments, throughout the United
States and Canada. In addition, during the third quarter of fiscal 1994,
ARPEL began selling specialty packaged cosmetic products through television
marketing.
The Company traditionally has been involved in the manufacturing, importation,
distribution, marketing and merchandising of fine imported fragrance products.
During the last three years, the Company has significantly reduced its
distribution of fragrance products necessitated by limited working
capital. During the latter part of fiscal 1995, the Company has decided to
temporarily suspend distribution of fragrance products.
MAJOR DISTRIBUTION AGREEMENTS AND PRODUCTS
ARPEL PRODUCTS
ARPEL develops, distributes and sells skin care and cosmetics products under the
trademark "ADRIEN ARPEL". Additionally, the Company acts as an operator of
service-oriented skin care salons in better department and specially stores and
main floor cosmetic departments of major retail department stores. Since April
1994, ARPEL has also been distributing its products through television marketing
with the Home Shopping Network. Television distribution has grown significantly
and has helped ARPEL strengthen its existing customer base.
ARPEL, founded in 1962 by Ms. Adrien Arpel, was the first company to develop the
concept of mini salons in national cosmetic departments of better retail
department stores.
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ARPEL'S product line consists of a line of high quality natural based skin care
products and a line of cosmetics products. Arpel products are positioned in the
upscale segment of the market and are competitively priced with other premium
brands available in better department and specialty stores main floor cosmetics
areas. Approximately 43% of department store sales are derived from merchandise,
4% from salon services and 53% from seasonal promotional items. Net sales of
ARPEL products represented 96% and 84% of the Company's consolidated net sales
for the fiscal years ended July 31, 1995 and 1994, respectively.
ALFIN PRODUCTS
During the last three fiscal years, the Company has significantly reduced its
distribution of fragrance products and has sold off certain of its exclusive
brands. This course of action was necessitated by limited working capital and
the generally difficult market for the sale of luxury fragrance products in
department stores. During the latter part of fiscal 1995, the Company decided to
temporarily suspend distribution of fragrance products based on the
unprofitability of this business at current sales levels. In the future, if
opportunities to resume the distribution of fragrance products are economically
feasible, the Company may decide to commit the necessary resources .
The fragrance brands which the company distributed during fiscal 1995 in the
United States were PIERRE BALMAIN, JACOMO, FRANKA M. BERGER, ROBERT
PIGUET and BURBERRY'S.
The Company owns the exclusive worldwide manufacturing, distribution and
licensing rights for FRACAS, BANDIT, CRAVACHE, MUSK BLANC and other fragrances
by Robert Piguet. The Fracas fragrance product line consists of perfume, eau de
toilette, and bath products. The BANDIT line consists of perfume and eau de
toilette.
The Company is currently considering the sale of its rights to Robert Piguet.
The book value of the Robert Piguet license agreement and inventory as
reflected on the Company's balance sheet at July 31, 1995 are $866,408 and
$271,511, respectively. The Company believes that the ultimate sale of the
license agreement and related inventory will not result in a loss and
accordingly has not reserved against the carrying value of these assets.
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TERMINATED PRODUCT LICENSING AND DISTRIBUTION ARRANGEMENTS
During the latter part of fiscal 1995, the Company decided to temporarily
suspend distribution of its fragrance products. In the judgement of management,
the Company's cash flow constraints which existed during the prior three fiscal
years limited the Company's ability to supply both fragrance and cosmetic
inventory to its customers, in adequate supply, on a consistent basis. This
factor led management to concentrate its efforts and available cash flow on skin
care, beauty services and cosmetic products distributed by ARPEL.
During fiscal 1994, the Company and J.G. Hook mutually agreed to terminate a
licensing agreement signed during October 1993. The licensing agreement was to
develop a fragrance product line.
During June 1994, the owners of Parfums Jean Deprez sold its interest to a third
party. This sale terminated the Company's distribution of the fragrances of Jean
Deprez in the United States.
During June 1994, the Company received notice from Premier Salons International
("Premier") that they will be assuming management of all cosmetic esthetics
operations in Premier salons. ARPEL operated 53 salon departments within Premier
and distributed the ARPEL line of products to 73 Premier salon locations
throughout the United States and Canada. ARPEL discontinued managing the
operations in all Premier International Salons as of June 30, 1994.
During fiscal 1993, the Company terminated the licensing and distribution of
Ombre Rose and Ombre Bleue (for which it had worldwide license rights through
2016), Laura Ashley fragrance products (for which it had distribution rights in
the United States through June 1, 1995) and Erte fragrance products (a product
line which was never developed). All rights and inventory to Ombre Rose and
Ombre Bleue were sold in July 1993 for $3.5 million, representing a contractual
net financial gain of approximately $838,000. Of the $3.5 million in sales
price, $2.9 million was received and used to pay $1.9 million to creditors and
$1.0 million toward the Company's note with Midlantic National Bank
("Midlantic"). Of the $1.0 million paid to Midlantic, $250,000 was applied to
the principal payment which was due on July 1, 1993 and $750,000 was applied to
the last two principal payments originally due to be paid in fiscal 1995. The
balance of approximately $600,000 from the sale was paid in segments, 90 days
after each remaining partial shipment of Ombre Rose and Ombre Bleue to the
purchaser. The proceeds from this sale were used to fund current working capital
needs.
Total Ombre Rose sales were approximately $4 million for the fiscal year ended
July 31, 1993, as compared to $8.2 million for the fiscal year ended July 31,
1992.
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In the judgment of management, the Ombre Rose and Ombre Bleue brands could no
longer be marketed at sufficient profit margins by the Company. The Company
caused its rights to distribute Laura Ashley fragrance products to terminate.
Management determined that Laura Ashley product lines did not generate
acceptable profit margins for the Company.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," for the years ended July 31, 1995, 1994 and 1993, for a detailed
description of these transactions.
The following table sets forth the approximate net sales and profit contribution
for products discontinued by the Company during the year of discontinuation and
the year prior to discontinuation. Profit contribution is defined as the income
(loss) based on net sales less direct costs, (i.e., cost of goods sold,
advertising and promotion), but before deducting allocated costs, (i.e.,
selling, warehousing, general and administration).
Discontinued during fiscal 1995: 7/31/95 7/31/94
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Net Sales..................... $ 1,077,700 $ 4,587,000
Profit contribution........... 358,000 1,453,000
Discontinued during fiscal 1994: 7/31/94 7/31/93
Net Sales..................... $ 605,600 $ 274,300
Profit contribution........... 227,900 154,300
Discontinued during fiscal 1993: 7/31/93 7/31/92
Net Sales..................... $ 8,400,900 $14,682,500
Profit (loss)contribution..... (474,200) $ 3,743,500
MARKETING AND SALES
Net sales of ARPEL products represented 96% and 84% of consolidated net sales
for the fiscal years ended July 31, 1995 and 1994, respectively.
The Company's major domestic accounts include Dayton/Hudson, Dillards, Hechts,
the Home Shopping Network ("HSN"), Kaufmans, and Mercantile. ARPEL also sells
directly to Canadian department stores. The arrangement with HSN represented
approximately 48% of sales for the year and 63% of net outstanding accounts
receivable at year-end. No single domestic account, foreign distributor or
independent sales agent accounted for sales in an aggregate amount equal to 10%
or more of the Company's consolidated net sales. This account receivable has
been settled subsequent to year end.
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As is common in the fragrance and cosmetic industry, the Company provides its
domestic customers with the limited right to return merchandise in order to
balance inventory and stock levels. The rate of return experienced by the
Company was approximately 3.0%, 4.0% and 7.0% for the fiscal years ended July
31, 1995, 1994 and 1993, respectively.
Sales to foreign accounts, expressed as a percentage of net sales, were 3.0%,
5.0% and 8.4% for the fiscal years ended July 31, 1995, 1994 and 1993,
respectively.
RESEARCH AND DEVELOPMENT
The Company did not spend a material amount on research and development during
the fiscal years ended July 31, 1995, 1994 and 1993.
ADVERTISING
The Company advertises both directly and through cooperative advertising
programs, store statement enclosures and catalogs. Advertising costs as a
percentage of consolidated sales for the fiscal years ended July 31, 1995, 1994
and 1993 were 4.8%, 8.7%, and 9.6%, respectively. The Company also promotes its
products through the use of promotional materials and in-store displays. Arpel's
television marketing through the Home Shopping Network has increased consumer
awareness of the Company's products and services.
MANUFACTURING
The Company does not maintain any manufacturing facilities. Rather, it arranges
for subcontractors to manufacture its products, in accordance with the Company's
specifications and owned formulas, the products distributed by the Company for
which it owns the relevant trademark. The Company believes that other
manufacturing facilities are available if alternative production sources need to
be obtained. The Company believes that it is in compliance with all applicable
laws and regulations pertaining to its business and to any Federal, state or
local laws and regulations designated to protect the environment.
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TRADEMARKS AND REGULATIONS
The ADRIEN ARPEL name is registered as a trademark in the United States and a
number of foreign countries.
The FRACAS and BANDIT names are registered in the United States and a number of
foreign countries.
The Food and Drug Administration ("FDA") monitors certain aspects of the
fragrance and cosmetic industry, particularly those that relate to advertising
claims and purported benefits with respect to fragrance and cosmetic products
and the physical composition of fragrances and cosmetics. The Company has not
been notified by the FDA, nor, to its knowledge, have any of its manufacturers
been notified by the FDA, that any of the products that the Company distributes
are presently the subject of any FDA investigation or that any claims or
complaints have been made or are threatened against the products the Company
distributes. Notwithstanding the foregoing, the Company does not believe that
any FDA approvals or consents are required with respect to any of the products
the company distributes.
The Federal Trade Commission ("FTC") monitors certain other aspects of the
Company's business, particularly as they relate to product packaging and
advertising. The Company designs the packaging of all products it distributes,
and for which it owns the relevant trademark. The Company has not been notified
by the FTC that any of the Company's products or practices are presently the
subject of any FTC investigation, claims or complaints which have been made or
are threatened against the Company.
The Company believes that it is in compliance with all applicable laws and
regulations pertaining to its business and any Federal, state or local laws and
regulations designed to protect the environment.
PRODUCT LIABILITY
The Company believes that the manufacturers of its products carry product
liability insurance in an amount sufficient to cover any foreseeable product
liability claim and that the Company is protected thereunder. In addition, the
Company maintains product liability coverage in an amount which it believes is
adequate to cover any exposure it may have with respect to its products. The
Company has never been the subject of any significant product liability
litigation.
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COMPETITION
The market for fragrances and cosmetics is volatile, competitive and sensitive
to changing consumer preferences and demands. There are products which are
better known than the products distributed by the Company and there are many
companies which are substantially larger, more diversified and which have
substantially greater resources than the Company and which have the ability to
develop and market products which are similar to and competitive with those
distributed by the Company.
GENERAL ECONOMIC CONDITIONS
Retail fragrance and cosmetic purchases are discretionary and are frequently
made by customers using consumer credit. The Company believes that a decline in
consumer credit purchases could adversely affect the business and financial
condition of the department stores, television marketing, and therefore the
Company.
EMPLOYEES
As of July 31, 1995, the Company had 118 direct employees. Of these, 78 were
engaged in sales and marketing activities, 27 in administrative functions and 13
in distribution activities.
ACQUISITIONS/DISPOSITIONS
During November 1992, the Company entered into the Share Purchase Agreement with
Fine Fragrance Distribution ("FFD"). The Share Purchase Agreement provided for
the sale of an aggregate of 3,300,000 shares of Common Stock to FFD at a price
of $1 per share. In addition to acquiring 3,300,000 shares of Common Stock, FFD
also acquired 2,758,500 shares from the then two principal shareholders of the
Company, at a price of $.725 per share. FFD received the approval by a majority
of the holders of the outstanding shares of Common Stock to purchase up to
2,000,000 additional shares of Common Stock. During December 1993, FFD purchased
1,130,435 shares of Common Stock at a price of $1.15 per share.
The Share Purchase Agreement was structured in order to meet the immediate
liquidity needs of the Company at the time. The proceeds from the sale were used
principally to pay amounts due creditors essential to maintaining its operations
and to reduce outstanding bank debt.
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ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in New York City and occupies
approximately 7,400 rentable square feet under a lease expiring November 30,
2001. The lease provides for annual payments of approximately $226,000.
The Company owns and occupies a 33,000 square foot distribution and
administration center in Norwood, New Jersey which is subject to a mortgage with
a principal amount of $1,025,000 at July 31, 1995. This mortgage is payable at
the rate of $25,000 per month.
ITEM 3. LEGAL PROCEEDINGS
The Company, in the normal course of business, is a defendant in numerous
actions/lawsuits. The Company believes the outcome of these action/lawsuits will
not have a material impact on the Company's financial position or results from
operations.
During fiscal 1995 a judgment which was entered against an inactive
wholly-owned subsidiary of the Company, Suisse Laboratories Ltd., for
approximately $720,000 in state income taxes was closed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Since May 5, 1986, shares of the Company's $.01 par value Common Stock, have
traded on the American Stock Exchange (symbol "AFN"). The following table sets
forth, for the periods indicated and as reported by the American Stock Exchange,
the high and low sales prices for shares of the Company's Common Stock.
Quarter Ended High Low
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October 31, 1994 1-7/16 3/4
January 31, 1995 1-1/4 11/16
April 30, 1995 1-1/4 5/8
July 31, 1995 2-1/8 11/16
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Quarter Ended High Low
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October 31, 1993 1-1/2 1
January 31, 1994 1-1/2 15/16
April 30, 1994 2-3/8 1-1/8
July 31, 1994 2-1/6 1-1/8
The number of shareholders of record of the Common Stock on November 9, 1995 was
2,519. The Company believes that there is a significant number of beneficial
owners of its Common Stock whose shares are held in "Street Name".
The Company has paid no cash dividends with respect to its Common Stock since
its inception.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with the
Consolidated Financial Statements and related Notes thereto included elsewhere
in this report.
(000's omitted, except Fiscal Years Ended July 31
per share amounts) 1995 1994 1993 1992 1991
- - ---------------------------------------------------------------------------------------
0perating Data:
Net Sales $ 32,151 $ 29,358 $ 34,764 $ 40,576 $ 44,919
Gross Profit 22,859 21,707 21,729 27,759 31,145
Operating income (loss) 1,960 (924) (7,555) (1,806) (2,543)
Other (expense) income (461) (503) 832 (1,010) (2,130)
Income (loss) before
provision (benefit) for
income taxes 1,500 (1,427) (6,723) (2,816) (4,673)
Net income (loss) $ 1,365 $ (1,427) $ (6,723) $ (2,816) $ (4,518)
======== ======== ======== ======== ========
Net income (loss) per
Common equivalent share: $ 0.12 $ (0.14) $ (0.85) $ (0.42) $ (0.67)
======== ======== ======== ======== ========
Balance Sheet Data:
Working Capital $ (2,629) $ (5,905) $ (6,835) $ (4,531) $ 6,637
Total assets 10,756 12,362 14,615 20,363 25,501
Short-term debt 2,863 5,421 7,641 10,367 1,066
Long-term debt 725 149 149 149 9,311
Shareholders' equity $ 1,388 $ 24 $ 151 $ 3,374 $ 6,190
======== ======== ======== ======== ========
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of operations -
The following table sets forth items in the Statements of Operations as a
percent of net sales:
Relationship to Net Sales
for the Fiscal Years Ended July 31,
1995 1994 1993
-----------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 28.9 26.1 37.5
Selling, general and
administrative expenses 65.0 77.1 84.2
Operating Income (loss) 6.1 (3.2) (21.7)
Other (expense) income, net (1.4) (1.7) 2.4
Net Income (loss) before
provision for income tax 4.7 (4.9) 19.3
----- ----- -----
Net income (loss) 4.2% (4.9%) (19.3%)
===== ===== =====
Years ended July 31, 1995 and 1994
The Company recorded net income of $1,364,646 for the fiscal year ended July 31,
1995 as compared to a net loss of ($1,427,148) for the fiscal year ended July
31, 1994. This marks the first year since fiscal 1989 that the Company has
recorded profits.
Net sales for the fiscal year ended July 31, 1995 increased $2,793,282 or 9.5%
to $32,151,204 from $29,357,922 recorded in the prior fiscal year. Sales of
cosmetic products increased 25.4% from $24,771,150 to $31,073,515 while sales of
fragrance products decreased 76.5% from $4,586,772 to $1,077,689, as compared to
the prior fiscal year.
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The cosmetic sales increase of $6,302,365 is primarily attributable to the
success of selling specially packaged cosmetic products through the Home
Shopping Network ("HSN"). Sales to HSN amounted to $15,667,416 for the fiscal
year ended July 31, 1995. The Company commenced marketing products through HSN
during April 1994 with sales of $4,574,262 for the final four months of the
fiscal year ended July 31, 1994. Ms. Adrien Arpel has been actively involved in
the cosmetics industry for over the past thirty years and is widely recognized
as an industry expert. Ms. Arpel personally presents her line of high quality,
natural based skin care and cosmetics products through live appearances on HSN.
Ms. Arpel's role has been vital in the development of the Company's products and
has contributed significantly to the increase in sales through HSN. The increase
in sales to HSN was partially offset by decreased sales in the amount of
$4,107,700 due to the discontinuance of the Company's relationship with Premier
during the prior fiscal year. In addition to the discontinuance of the
relationship with Premier, net sales of cosmetic products through department
stores decreased by $773,089 primarily due to a net decrease of 38 locations
through which Arpel products were sold.
The fragrance sales decrease of $3,509,083 is primarily attributable to the
Company's decision to temporarily suspend its current fragrance business,
during the latter part of fiscal 1995, due to limited working capital.
The Company's fragrance sales have decreased during the last three fiscal years
as follows:
Fiscal Year Ended
July 31 Net Sales $ Decrease % Decrease
- - -------------------------------------------------------------------------------
1995 $ 1,077,689 $3,509,083 76%
1994 4,586,772 6,184,468 57%
1993 10,771,240 6,242,760 36%
Cost of goods sold as a percentage of net sales was 28.9% for the fiscal year
ended July 31 1995, as compared to 26.1% for the fiscal year ended July 31,
1994. Cost of goods sold for cosmetic products was 28.5% for the fiscal year
ended July 31, 1995, as compared to 22.4% for the fiscal year ended July 31,
1994. The increase in the cosmetic cost of goods sold percentage is primarily
attributable to sales of cosmetic products to HSN. Although the cost of goods
sold percentage on specialty packaged products sold to HSN is higher, the
increase is more than offset by decreased selling, general and administrative
expenses associated with these sales. Cost of goods sold for fragrance products
was 40.4% for the fiscal year ended July 31, 1995 as compared to 46.1% for the
fiscal year ended July 31, 1994. The improvement in the fragrance cost of goods
sold percentage is primarily attributable to lower margins earned during fiscal
1994 related to the sale of discontinued product lines and inventory overstocks.
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Selling, general and administrative expenses decreased 7.7% to $20,898,893 for
the fiscal year ended July 31, 1995 from $22,630,785 for the fiscal year ended
July 31, 1994. The decrease is primarily attributable to decreases in
advertising and promotional expenses related to the Company's reduction in its
fragrance business and the expenses related to ARPEL'S former relationship with
Premier. The current fiscal year selling, general and administrative expenses
include a charge of $500,000 related to salon assets, which were determined to
be outdated. The Company has determined that it needs to refixture and update
its facial salon equipment, which has deteriorated over the last few fiscal
years due to the losses and liquidity problems experienced by the Company. As
cash flow from profitable operations permits, the Company plans to invest in new
facial salon equipment and fixturing in order to improve its department store
business which continues to be the Company's emphasis.
Net expenses from non-operating items was $460,632 for the fiscal year ended
July 31, 1995, as compared to $503,296 for the fiscal year ended July 31, 1994.
The decrease is primarily attributable to decreased interest expenses related to
lower debt levels.
Net income per common and common equivalent share for the fiscal year ended July
31, 1995 was $0.12 as compared to a net loss of ($0.14) for the fiscal year
ended July 31, 1994.
The remaining NOL available to the Company for federal income tax reporting
purposes at July 31, 1995 is approximately $4,500,000.
Years ended July 31, 1994 and 1993
Net sales for the fiscal year ended July 31, 1994 decreased $5,406,324 or 15.6%
to $29,357,922 from $34,764,246 in the prior fiscal year. Fragrance net sales
decreased 57.4% from $10,771,240 to $4,586,772 while cosmetic net sales
increased 3.2% from $23,993,006 to $24,771,150, as compared to the prior fiscal
year.
The fragrance sales decrease of $6,184,468 is primarily attributable to
decreased sales in the amount of approximately $7,930,600 related to product
lines which were discontinued during the latter part of fiscal 1993. This
decrease was partially offset by increased sales of new product lines in the
amount of approximately $1,598,300. During the last quarter of fiscal 1993, the
Company sold its licensing and distribution rights for Ombre Rose and caused its
rights to distribute Laura Ashley fragrance products to terminate. Sales of
Laura Ashley and Ombre Rose products were approximately $8.4 million for the
fiscal year ended July 31, 1993. New fragrance lines introduced during the third
quarter of fiscal 1993 include the fragrances of PARFUM BALMAIN, PARFUM JACOMO,
PARFUM JEAN DEPREZ and PARFUM FRANKA BERGER. The distribution of PARFUM JEAN
DEPREZ was discontinued during June 1994. The distribution of BURBERRYS for men
and SOCIETY for women, by Burberrys, commenced during the second quarter of
fiscal 1994. The Company also continues to sell FRACAS and BANDIT by Robert
Piguet, for which it owns the exclusive worldwide manufacturing, distribution
and licensing rights and has initiated mass marketing of other popular Robert
Piguet fragrances.
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Sales of specialty packaged cosmetic products through television marketing with
the Home Shopping Network, commenced during the third quarter and totaled
approximately $4,574,300 for fiscal 1994. The success of this program has
exceeded the Company's original expectations and has led to the scheduling of
more television appearances during the calendar year 1994. Plans are now being
finalized for calendar 1995. The Company believes that marketing through the
Home Shopping Network will increase sales in its department and specialty store
locations which remains the main part of the ARPEL business. During the year
ended July 31, 1994, demand for the Company's products exceeded the Company's
ability to supply these products on a timely basis. This problem is primarily
attributable to tight cash flow constraints which limited the size and frequency
of orders placed.
During June 1994, the Company received notice from Premier Salons International
("Premier") that they will be assuming management of all cosmetic esthetics
operations in Premier salons. ARPEL operated 53 salon departments within Premier
and distributed the ARPEL line of products to 73 Premier salon locations
throughout the United States and Canada. The Company believes that the effect on
the net results of operations of ARPEL due to the discontinuance of the
relationship with Premier will not be significant and will be more than offset
by increased business through television selling. In the short term,
discontinuance of this relationship will help minimize the effect of its
out-of-stock inventory conditions which have slowed its ability to fill all
department and specialty store first floor orders. ARPEL discontinued managing
the operations in all Premier International Salons as of June 30, 1994.
As is common in the fragrance and cosmetic industry, the Company provides its
domestic customers with the limited right to return merchandise in order to
balance inventory and stock levels. The rate of return experienced by the
Company was approximately 4.0%, 7.0% and 10.0% for the fiscal years ended July
31, 1994, 1993 and 1992 respectively.
During the fiscal year ended July 31, 1994, the Company recorded a loss of
$1,427,148 versus losses of $6,722,737 and $2,815,992 at July 31, 1993 and 1992,
respectively. The current year loss is $5,295,589 lower than the prior year and
is primarily attributable to the effects of the Company's cost reduction
programs and the net effect on operations of the sales of specialty packaged
cosmetic products through the Home Shopping Network. The Company has been
successful in reducing operating expenses and cost of goods sold on its current
fragrance brands. Further benefit of these cost reductions will be achieved in
fiscal 1995. The Company believes it is now in the position to move towards
profitability in fiscal 1995 provided inventory purchases can meet demand.
Cost of goods sold as a percentage of net sales was 26.1% for the fiscal year
ended July 31, 1994, as compared to 37.5% for the fiscal year ended July 31,
1993. Cost of goods sold for fragrance products was 46.1% for the fiscal year
ended July 31, 1994, as compared to 76.5% for the fiscal year ended July 31,
1993. The improvement in the fragrance cost of goods sold rate is primarily
attributable to lower margins earned during fiscal 1993 related to the sale of
the Ombre Rose and Ombre Bleue inventories as part of the sale of the licensing
rights. The cost of goods percentage on cosmetic products was approximately
22.4% for the fiscal year ended July 31, 1994, as compared to 20.0% for the
fiscal year ended July 31, 1993. The increase in the cosmetic cost of goods sold
percentage is primarily attributable to increased cost of sales on the specialty
packaged cosmetic products.
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Selling, general and administrative expenses decreased 22.7% to $22,630,785 for
the fiscal year ended July 31, 1994 from $29,283,863 for the fiscal year ended
July 31, 1993. The decrease is primarily attributable to decreases in
advertising and promotional expenses related to products which were discontinued
during the prior fiscal year coupled with the effect of the Company's cost
reduction programs. Staff reductions were implemented in the fragrance and
cosmetic divisions primarily in the areas of administration and warehouse.
Net expenses from non-operating items was $503,296 for the fiscal year ended
July 31, 1994, as compared to other net income of $831,760 for the fiscal year
ended July 31, 1993. The gain from the sale of the Ombre Rose licensing
agreement during the prior fiscal year was $1,755,243. Without the effect of
this prior year gain, expenses from non-operating items decreased by $420,187
during the current fiscal year. Interest expense decreased $215,535 during the
current fiscal year due to reduced debt levels and steady interest rates. The
Company recorded foreign exchange gains of $21,224 during the current fiscal
year versus foreign exchange losses of $104,051 recorded during the prior fiscal
year. Prior year foreign exchange losses were primarily related to currency
differences recognized as part of the Ombre Rose and Ombre Bleue licensing
agreement sale. Other expenses decreased $79,377 to $63,389 as compared to
$142,766.
The net operating loss carry forward ("NOL") available to the Company for
federal income tax reporting purposes at July 31, 1994 is approximately
$11,400,000. However, use of the NOL is limited annually due to the acquisition
of the Company by FFD during November 1992, and is limited to approximately
$6,600,000, the year ending July 31, 1995.
Years ended July 31, 1993 and 1992
Net sales for the fiscal year ended July 31, 1993 decreased $5,811,698 or 14.3%
to $34,764,246 from $40,575,944 in the prior fiscal year. Fragrance net sales
decreased 36.7% from $17,014,000 to $10,771,240 while cosmetics net sales
increased 1.8% from $23,561,944 to $23,993,006, as compared to the prior fiscal
year.
The fragrance sales decrease of $6,242,760 is primarily attributable to: Laura
Ashley No. 1 and Dilys sales decreasing by $2,010,869 from $6,457,074 to
$4,446,205; Ombre Rose sales decreasing by $4,269,879 from $8,224,614 to
$3,954,735; and sales of new brands increasing by $1,259,631, offset by net
sales decreases in the remaining brands of $1,221,643.
Sales of Laura Ashley products decreased by approximately $2.0 million because
of the Company's inability to fill orders for the Laura Ashley No. 1 and Dilys
brands during the traditionally heavier holiday selling season. At November 24,
1992, the Company was in arrears on payments due to Laura Ashley S.A. in the
amount of approximately $1.2 million. Although this balance was paid, customer
orders could not be filled because the Company did not have adequate inventories
on hand. Furthermore, sales of Dilys products did not meet the Company's
expectations. Besides these factors, generally poor margins due to high cost of
goods and the licensor's refusal to allow appropriate margins, as well as the
licensor's refusal to discontinue the unsuccessful Dilys fragrance led to a
termination of the distribution agreement between the Company and Laura Ashley
S.A. during June 1993. Additionally, the poor consumer acceptance of Laura
Ashley's Dilys brand created a
15
17
significant financial exposure represented by potential department store returns
of this merchandise. Discontinuation of the distribution agreement eliminated
this exposure. The Company had the right to dispose of all related inventory for
a period of six months after the termination of the agreement.
Total Ombre Rose sales were $3,954,735 for the fiscal year ended July 31, 1993,
compared to $8,224,614 for the fiscal year ended July 31, 1992. International
sales of Ombre Rose through the Company's international distributor Parfico, did
not meet Company expectations. Under the Company's agreement with Parfico the
Company was to receive full reimbursement of its costs plus a percentage added
on for annual sales above $2,500,000. Sales through Parfico did not achieve the
level during the fiscal year which would have allowed the Company to earn a
margin. Based on the total Ombre Rose sales decrease and the Company's
evaluation of this brand's viability, the Company decided to sell its licensing
rights under the license agreement between the Company and Jean Charles Brosseau
and Jean Charles Brosseau S.A. along with its Ombre Rose and Ombre Bleue
inventories. The license agreement covered the Ombre Rose and Ombre Bleue
fragrances. The license agreement and related finished goods, advertising
materials and component inventories were sold during July of the current fiscal
year for a sales price of $3.5 million with a contractual net financial gain of
approximately $838,000.
Of the $3.5 million in sales price, $2.9 million was received and used to pay
$1.9 million to creditors and $1.0 million towards the Company's note with
Midlantic. Of the $1.0 million paid to Midlantic, $250,000 was applied to the
principal payment which was due on July 1, 1993 and $750,000 being applied to
the last two principal payments originally due to be paid in fiscal 1995. The
remaining balance of approximately $600,000 from the sale was paid in segments,
90 days after each remaining partial shipment of Ombre Rose and Ombre Bleue to
the purchaser. The proceeds from this sale were used to fund current working
capital needs.
Total sales of Laura Ashley and Ombre Rose products were approximately $8.4
million for the fiscal year ended July 31, 1993, representing approximately 24%
of the Company's total net sales. Although material to the total Company net
sales for the year, the operating loss contribution, before allocations for
indirect selling, warehousing and administration costs, was approximately
$(474,200). Current year and anticipated sales levels for the Laura Ashley and
Ombre Rose fragrance brands coupled with poor margins did not justify
continuance of these product lines.
Sales of new fragrance lines, introduced during the third quarter of the fiscal
year when FFD purchased a controlling interest in the Company, were
approximately $1,300,000. These product lines include the fragrances of PARFUM
BALMAIN, PARFUM JACOMO, PARFUM JEAN DEPREZ, and PARFUM FRANKA BERGER. The
Company expects to complete shortly arrangements granting it the exclusive
distribution rights for the BURBERRYS fragrances in the United States and Puerto
Rico. The Company believes that it is now in a position to focus attention on
these recently acquired, potentially more viable and higher margin brands.
During October 1993, the Company and J.G. Hook signed a licensing agreement to
develop a
16
18
fragrance product line targeted to be launched during the early part of fiscal
1995 (this agreement was canceled during fiscal 1994). The Company continues to
seek new brands to distribute which will maintain its image as a distributor of
quality brand fragrances and cosmetics.
ARPEL'S cosmetic sales increased by $431,062 or 1.8% to $23,993,006. This
increase was primarily attributable to the net impact of the opening of more
viable salons, offset by the closing of unprofitable salons.
As is common in the fragrance and cosmetic industry, the Company provides its
domestic customers with the limited right to return merchandise in order to
balance inventory stock levels. The historical rate of return experienced by the
Company generally ranges, on an annual basis, between 7% to 10% of total sales.
During the fiscal year ended July 31, 1993, the Company recorded a loss of
$6,722,737 versus losses of $2,815,992 and $4,517,592 at July 31, 1992 and 1991,
respectively. The current year loss is $3,906,745 greater than the prior year
and is primarily attributable to the gross margin impact of lower sales and the
sell off of Ombre Rose and Ombre Bleue inventory at below cost, offset by the
capital gain of $1,755,243 resulting from the sale of the Ombre Rose and Ombre
Bleue License Agreement. The Company has implemented cost reduction programs
which will lower fiscal 1994 operating costs and fragrance cost of goods. The
Company believes it is now in the position to move towards profitability in
fiscal 1994 at lower sales levels because of the impact of its continued cost
reduction programs, coupled with better margins from lower cost of goods.
Cost of goods sold as a percentage of net sales was 37.5% for the fiscal year
ended July 31, 1993, as compared to 31.6% for the year ended July 31, 1992. Cost
of goods sold for fragrance products was 76.5% for the fiscal year ended July
31, 1993, as compared to 50.3% for the fiscal year ended July 31, 1992. The
increased cost of goods rate, (as a percentage of net sales), is primarily
attributable to the sale of the Ombre Rose and Ombre Bleue inventories below
cost as part of the sale of the licensing rights and the lower margins earned on
the lower than expected international Ombre Rose sales distributed through
Parfico, Inc. The Company notes that this increase in the fragrance cost of
goods percentage rate is non-recurring and that it should improve to a rate of
approximately 31.0% on fragrance sales in fiscal 1994. The cost of goods
percentage on cosmetic products was approximately 20.0% for the fiscal year
ended July 31, 1993, as compared to 18.0% for the fiscal year ended July 31,
1992. The increase is primarily attributable to a higher volume of higher cost
cosmetics sales promotions compared to the prior fiscal year.
Selling, general and administrative expenses decreased 0.9% to $29,283,863 for
the fiscal year ended July 31, 1993, from $29,565,221 for the fiscal year ended
July 31, 1992. During October 1993, the fixed cost of the fragrance division's
employee based sales force was switched to the variable cost of independent
sales representatives. It is estimated that this change will
17
19
result in a savings of approximately $500,000 during the fiscal year ending July
31, 1994. Other staff reductions were implemented in the cosmetic sales division
and the areas of administration and the warehouse.
Income from non-operating items was $831,760 for the fiscal year ended July 31,
1993, an expense reduction of $1,841,762, as compared to expenses of $1,010,002
for the period ended July 31, 1992. The principal reason for this expense
reduction was the capital gain of $1,755,243 from the sale of the Ombre Rose and
Ombre Bleue Licensing Agreement. Net interest expense decreased $284,334 during
the current fiscal year primarily due to reduced debt levels. These items were
partially offset by increased foreign exchange losses of $112,642 and other
miscellaneous expense increases of $85,173.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit at July 31, 1995 of $2,629,154 a
decrease of $3,275,776 from a working capital deficit of $5,904,930 at July 31,
1994.
Total bank borrowings were reduced by $1,541,233 from $5,066,233 at July 31,
1994 to $3,525,000 at July 31, 1995. At July 31, 1995 total borrowings with
Midlantic amounted to $1,425,000 versus $2,966,233 at July 31, 1994 and
consisted of a term promissory note, term loan and secured line of credit in the
amount of $1,025,000, $400,000 and $0, respectively. The term promissory note,
with Midlantic, bears interest at a rate of 2% above Midlantic's prime
lending rate and is collateralized by the Company's distribution facility.
Principal installments under the term promissory note are due on the first day
of each month at $25,000 per month. The term loan with Midlantic bears interest
at a rate of .5% above the bank's prime lending rate. Principal installments
under the term loan are due on the tenth day of each month at $50,000 per month.
Under the Company's secured line of credit agreement with Midlantic, all
payments from the trade accounts receivable of Alfin are applied against the
balance of the Company's line of credit. At July 31, 1995, the Company had
received trade receivable payments which caused the line of credit to be fully
paid.
In addition to borrowings from Midlantic, the Company maintains a revolving
secured line of credit of up to $2,100,000 with Credit Lyonnais. This loan is
secured by the domestic accounts receivable of ARPEL and bears interest based on
the Eurorate plus 1/2% or plus 1-1/2% depending on maturities. At July 31, 1995
and 1994 borrowings under this line of credit were $2,100,000. The loan
agreement with Credit Lyonnais expired on October 15, 1995. The Company and
Credit Lyonnais have met to discuss the renewal terms of this line of credit but
no definitive agreement has been made to this date.
18
20
During the last three fiscal years the Company has obtained financing, in the
form of Shareholder advances, from Fine Fragrances Distribution ("FFD"). During
the fiscal year ended July 31, 1995 the Company did not receive, nor did the
Company request, additional financing from FFD. At July 31, 1995 advances to the
Company by FFD were $34,826 versus $300,000 at July 31, 1994.
The Company recorded net income of $1,364,646 for the fiscal year ended July 31,
1995 as compared to a loss of (1,427,148) for the fiscal year ended July 31,
1994. Fiscal 1995 marks the first profitable year for the Company since the year
ended July 31, 1989.
During most of the last three fiscal years, the Company has dealt with severe
out-of-stock inventory conditions which have led to lost sales and revenues.
Cash flow provided by operations was $2,874,189 during the current fiscal year.
This positive cash flow, coupled with the Company's current profitability has
enabled the Company to invest in much needed cosmetic inventory. The Company has
minimized its severe out-of-stock situation during the second half of the
current fiscal year. Management continues to concentrate its efforts toward
attaining inventory levels which are more closely matched with manufacturing
lead times and customer demands. In the past, the Company has been dependent on
shareholder advances to fund working capital needs, most of which was used to
satisfy bank debt and old outstanding payables. The Company feels that bank debt
and outstanding accounts payable have been reduced to more suitable levels. In
addition to balancing inventory and payable demands, the Company also plans to
invest in the refixturing and updating of its facial salon and department store
operations. In the longer term, the Company has opportunities to grow its
cosmetic business beyond the United States and Canada. There has been increased
interest in Arpel's product line in other countries and markets.
Effects of Inflation
Generally any cost increase passed on to the Company by its suppliers is
subsequently passed on by the Company to its customers where market conditions
permit. Consequently, the Company believes that the effects of inflation are not
material, except as they relate to the competitive arena in the marketplace. The
Company did not have any significant price increases for its products during the
fiscal year ended July 31, 1995.
Since the Company's credit facilities bear interest at floating rates, the
impact of inflation or deflation will directly impact the amount of interest
which the Company pays. The Company believes that the effects of inflation do
not currently materially impact its general and administrative and distribution
expenses.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required financial statements and supplementary financial information are
attached at the end of this report. For page of reference, see the Index to
Financial Statements appearing on page F-1 of this Annual Report on Form 10-K.
19
21
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to the directors and executive officers of the Company
will be included in the Company's Proxy Statement for its annual meeting of
shareholders which is expected to be filed within 120 days from the end of the
fiscal year and such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to the executive compensation is incorporated herein by
reference to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners and
management is incorporated herein by reference to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions is
incorporated herein by reference to the Proxy Statement.
20
22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The audited consolidated financial statements of the Company and its
subsidiaries and the Report of Independent Public Accountants thereon, as
required, are set forth in the Index to Consolidated Financial Statements on
page F-1 of this report.
(a) (2) Financial Statement Schedules
Except for Schedule VIII, which is included herein, all other schedules have
been omitted as not applicable or not required, or because information
required is shown in the consolidated financial statements or notes thereto.
(a) (3) Exhibits
The following items are filed herewith or incorporated by reference:
3.1 Certificate of Incorporation of the Company, as amended (5)Exhibit
3.1)
3.2 Certificate of Amendment to the Certificate of Incorporation of the
Company, as amended, as filed with the New York State Department of
State on September 11, 1991. (6)(Exhibit 3.2)
3.3 By-laws of the Company, as amended. (6) (Exhibit 3.3)
4.1 Form of specimen of the Company's Common Stock certificate. (4)
(Exhibit 4.1)
10.1 Stock Option Plan. (3) (Exhibit 10.1)
10.2 New Jersey EA. Bond Financing Agreement, dated July 20,1983 and Note
of Company thereunder. (1) (Exhibit 10.2)
10.3 Lease Agreement, dated November 30, 1983, for 720 Fifth Avenue, New
York, New York. (2) (Exhibit 10.3)
10.4 Form of Stock Option Agreement under the Stock Option Plan. (3)
(Exhibit 10.4)
10.5 Alfin, Inc. (f/k/a/ Alfin Fragrances, Inc.) Stock Option Plan, as
amended. (4) (Exhibit 10.5)
10.6 Stock Purchase Agreement, dated April 5, 1990, among the Company,
Adrien Arpel, Inc. and the Security holders of Adrien Arpel, Inc. (5)
(Exhibit 10.6)
21
23
10.7 Employment Agreement, dated as of April 4, 1990, between the Company
and Adrienne Newman. (6) (Exhibit 10.7)
10.8 Warrant Agreement, dated as of April 4, 1990, between the Company and
Adrienne Newman. (6) (Exhibit 10.8)
10.9 Revolving Credit and Term Loan Agreement, dated as of July 31, 1990,
among the Company, Adrien Arpel, Inc. and Midlantic National Bank. (6)
(Exhibit 10.9)
10.10 Departmental License Agreement, dated as of July 10, 1991, between
Bullock's, Inc. and Adrien Arpel, Inc. (7) (Exhibit 10.10)
10.11 First Amendment, dated January 31, 1991, to Credit and Term Loan
Agreement dated as of July 31, 1990, among the Company, Adrien Arpel,
Inc. and Midlantic Bank. (7) (Exhibit 10.11)
10.12 Second Amendment, dated June 10, 1991, to Credit and Term Loan
Agreement dated July 31, 1990, as amended, among the Company, Adrien
Arpel, Inc. and Midlantic National Bank. (7) (Exhibit 10.12)
10.13 Form of Executive Incentive Compensation Plan Agreement, dated as of
September 1991, between the Company and Adrienne Newman. (7) (Exhibit
10.13)
10.14 Amended and Restated Revolving Credit and Term Loan Agreement, dated
June 30, 1992, between Midlantic National Bank and the Company and
Adrien Arpel, Inc. (8) (Exhibit 10.14)
10.15 Continuing Letter of Credit Agreement, dated May 13, 1993, between the
Company, Adrien Arpel, Inc. and Credit Lyonnais Bank. (8) (Exhibit
10.15)
10.16 Amended and Restated Loan Agreement, dated June 24, 1993, between the
Company and Midlantic National Bank.(8) (Exhibit 10.16)
10.17 Third Amendment to Amended and Restated Revolving Credit and Term Loan
Agreement, dated August 1994, between Midlantic National bank and the
Company and Adrien Arpel, Inc. (9) (Exhibit 10.17)
10.18 Amendment No. 2, dated November 19, 1993, to Employment Agreement
dated April 4, 1990, between the Company and Adrienne Newman. (9)
(Exhibit 10.18)
10.19 Amendment No. 1 to the Continuing Letter of Credit Agreement, dated
February 28, 1994, between the Company, Adrien Arpel, Inc. and Credit
Lyonnais Bank. (9) (Exhibits 10.19)
22
24
10.20 Term Promissory Note dated February 1994, between Midlantic National
Bank and the Company. (9) (Exhibit 10.20)
10.21 Second Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated February 1994, between Midlantic National Bank
and the Company and Adrien Arpel, Inc. (9) Exhibit 10.21)
10.22 Incentive Stock Option Agreement, dated November 22, 1993, between the
Company and Mayer D. Moyal. (9) (Exhibit 10.22)
10.23 Warrant Agreement, dated November 19, 1993, between the Company and
Adrienne Newman. (9) (Exhibit 10.23)
10.24 The 1993 Stock Option Plan of Alfin, Inc. (9) (Exhibit 10.24)
10.25 Termination agreement, dated July 11, 1995 between the Company and
Mayer D. Moyal (filed herewith)
10.26 Agreement dated August 1, 1995 between the Company and CECE SA (filed
herewith)
10.27 Fourth Amendment to Amended and Restated Revolving Credit on Term Loan
Agreement dated July 31, 1995, between the Company an Midlantic
National Bank (filed herewith)
22 Subsidiaries of the Company -- Adrien Arpel, Inc., a Delaware
corporation; Suisse Laboratories Ltd., a Delaware corporation.
(1) Incorporated by reference from the designated Exhibit to the Company's
Registration Statement on Form S-1. (File No. 2-85600).
(2) Incorporated by reference from the designated Exhibit to the Company's
Annual Report on Form 10-K for the year ended July 31, 1984. (File No.
0-11434).
(3) Incorporated by reference from the designated Exhibit to the Company's
Annual Report on Form 10-K for the year ended July 31, 1985. (File No.
0-11434).
(4) Incorporated by reference from the designated Exhibit Exhibit to the
Company's Annual Report on Form 10-K for the year ended July 31, 1989.
(File No.0-11434).
(5) Incorporated by reference from the designated Exhibit to the Company's
Current Report on Form 8-K, reporting an event on April 5, 1990 File
No. 0-11434).
23
25
(6) Incorporated by reference from the designated Exhibit to the Company's
Annual Report on Form 10-K for the year ended July 31, 1990. (File No.
0-11434).
(7) Incorporated by reference from the designated Exhibit to the Company's
Annual Report on Form 10-K for the year ended July 31, 1992. (File No.
0-11434)
(8) Incorporated by reference from the designated Exhibit to the Company's
Annual Report on Form 10-K for the year ended July 31, 1993. (File No.
O-11434)
(9) Incorporated by reference from the designated Exhibits to the
Company's Annual Report on Form 10-K for the year ended July 31, 1994.
(File No. 0-11434
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last quarter of the
period covered by this report.
24
26
ALFIN, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of July 31,
1995 and 1994 F-3
Consolidated Statements of Operations for
the Three Fiscal Years Ended July 31, 1995. F-4
Consolidated Statements of Shareholders' Equity
for the Three Fiscal Years Ended July 31, 1995. F-5
Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended July 31, 1995. F-6
Notes to Consolidated Financial Statements F-7
Schedule VIII - Valuation and Qualifying Accounts
for the Three Fiscal Years Ended July 31, 1995 F-19
F-1
27
Report of Independent Public Accountants
To Alfin, Inc.:
We have audited the accompanying consolidated balance sheets of Alfin, Inc. (a
New York corporation) and subsidiaries as of July 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended July 31, 1995. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alfin, Inc. and subsidiaries as
of July 31, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended July 31, 1995, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the fiscal year ended July 31, 1995 is the first
profitable year of operations in five years; however, the Company maintains a
working capital deficit at July 31, 1995 and is significantly dependent upon one
customer. These factors discussed in Note 2 raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
New York, New York
October 30, 1995 ARTHUR ANDERSEN LLP
F-2
28
ALFIN, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1995 AND 1994
ASSETS 1995 1994
- - ----------------------------------------------------------------------------
CURRENT ASSETS:
Cash $ 515,636 $ 10,444
Accounts receivable, net of allowances
for doubtful accounts and chargebacks
of $634,593 and $1,475,650 at July 31,
1995 and 1994, respectively and sales
allowances of $406,264 and $357,473 at
July 31, 1995 and 1994, respectively 1,392,315 2,688,848
Inventories 3,326,567 2,553,333
Prepaid expenses & other current assets 29,288 282,381
------------ ------------
Total current assets 5,263,806 5,535,006
------------ ------------
PROPERTY & EQUIPMENT 7,350,970 7,948,931
Less-accumulated depreciation &
amortization (5,621,515) (5,093,042)
------------ ------------
Property & equipment, net 1,729,455 2,855,889
------------ ------------
OTHER ASSETS:
License agreements & trademarks, net of
accumulated amortization of $867,961
and $776,760 at July 31, 1995 and
1994, respectively 866,408 957,609
Goodwill, net of accumulated amortization
of $394,131 and $315,305 at July 31,1995
and 1994, respectively 2,758,907 2,837,733
Other 137,694 175,945
------------ ------------
Total other assets 3,763,009 3,971,287
------------ ------------
Total assets $ 10,756,270 $ 12,362,182
============ ============
LIABILITIES &
SHAREHOLDERS' EQUITY 1995 1994
- - ----------------------------------------------------------------------------
CURRENT LIABILITIES:
Current portion of mortgage
note & other loans payable $ 2,828,019 $ 5,120,644
Due to related parties 34,826 300,000
Accounts Payable 3,106,090 3,789,276
Accrued expenses-other 1,924,025 2,230,016
------------ ------------
Total current liabilities 7,892,960 11,439,936
NOTE PAYABLE 725,000 148,582
------------ ------------
Total liabilities 8,617,960 11,588,518
------------ ------------
REDEEMABLE PREFERRED STOCK 750,000 750,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value
17,000,000 shares authort-
zed; 11,519,311 & 11,402,904
shares issued & outstanding at
7/31/95 & 1994, respectively 115,193 114,029
Additional paid-in capital 12,629,976 12,522,390
Accumulated deficit (11,356,859) (12,612,755)
------------ ------------
Total shareholders' equity 1,388,310 23,664
------------ ------------
Total liabilities and
Shareholders' equity $ 10,756,270 $ 12,362,182
============ ============
The accompanying notes are an integral part of these
consolidated balance sheets.
F-3
29
ALFIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE FISCAL YEARS ENDED JULY 31
1995 1994 1993
- - --------------------------------------------------------------------------------
NET SALES $ 32,151,204 $ 29,357,922 $ 34,764,246
COST OF GOODS SOLD 9,292,033 7,650,989 13,034,880
------------ ------------ ------------
Gross profit on sales 22,859,171 21,706,933 21,729,366
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 20,898,893 22,630,785 29,283,863
------------ ------------ ------------
Operating Income (loss) 1,960,278 (923,852) (7,554,497)
------------ ------------ ------------
OTHER (EXPENSE) INCOME
Interest expense (439,743) $ (461,131) $ (676,666)
Gain on sale of
license agreement -- -- 1,755,243
Other Expense (20,889) (42,165) (246,817)
------------ ------------ ------------
Total other (expense)
income (460,632) (503,296) 831,760
------------ ------------ ------------
Income (loss) before
provision for Income taxes 1,499,646 (1,427,148) (6,722,737)
Provision for income taxes 135,000 -- --
------------ ------------ ------------
NET INCOME (LOSS) $ 1,364,646 $ (1,427,148) (6,722,737)
============ ============ ============
NET INCOME (LOSS) PER
COMMON & COMMON
EQUIVALENT SHARE $ 0.12 $ (0.14) ($ 0.85)
============ ============ ============
The accompanying notes are an integral part of these consolidated statements.
F-4
30
ALFIN, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE THREE FISCAL YEARS ENDED JULY 31, 1995
================================================================================================================
Number of Additional
Common Common Paid-In Accumulated
Shares Stock Capital Deficit
================================================================================================================
BALANCE, July 31, 1992 6,688,488 $ 66,885 $ 7,552,034 $ (4,245,370)
Sale of Common Stock
to FFD 3,300,000 33,000 3,267,000
Forgiveness of
shareholder loan 200,000
Stock dividends on
Redeemable Preferred Stock 283,981 2,840 214,660 (217,500)
Net loss (6,722,737)
----------- -------- ----------- ------------
BALANCE, July 31, 1993 10,272,469 102,725 11,233,694 (11,185,607)
Sale of Common Stock
to FFD 1,130,435 11,304 1,288,696 --
Net Loss (1,427,148)
----------- -------- ----------- ------------
Balance, July 31, 1994 11,402,904 114,029 12,522,390 (12,612,755)
Stock Dividends on
Redeemable Preferred Stock 116,407 1,164 107,586 (108,750)
Net Income 1,364,646
----------- -------- ----------- ------------
BALANCE, July 31, 1995 11,519,311 $115,193 $12,629,976 $(11,356,859)
=========== ======== =========== ============
The accompanying notes are an integral part of
these consolidated statements.
F-5
31
ALFIN, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE FISCAL YEARS ENDED JULY 31, 1995
CASH FLOWS FROM OPERATING ACTIVITIES 1995 1994 1993
- - ------------------------------------ ---- ---- ----
NET INCOME (LOSS) $ 1,364,646 $(1,427,148) $(6,722,737)
Adjustments to Reconcile Net
Income (Loss) to Net Cash
Provided by (Used in)
Operating Activities:
Depreciation and Amortization 1,491,472 1,136,909 1,001,925
Loss on Disposal of Fixed Assets 192,605 210,816 --
Gain on Sale of License Agreement -- -- (1,755,243)
Change in Assets and Liabilities:
Decrease (Increase) Accounts Receivable 1,296,533 (1,245,273) 3,574,703
(Increase) Decrease Inventory (773,234) 1,212,515 2,150,552
Decrease Prepaid Expenses and Other 291,344 7,485 103,458
(Decrease) Increase Accounts Payable &
Accrued Expenses (989,177) 215,265 884
(Decrease) Non-Current Liabilities -- (120,000) --
----------- ----------- -----------
Total Adjustments 1,509,543 1,417,717 5,076,279
----------- ----------- -----------
Net Cash Provided by (Used in)
Operating Activities 2,874,189 (9,431) (1,646,458)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (387,616) (193,140) (81,721)
Proceeds from Sale of License
Agreement -- -- 1,800,000
----------- ----------- -----------
Net Cash (Used in) Provided by
Investing Activities (387,616) (193,140) 1,718,279
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Lines of Credit,
net (641,233) (1,094,120) (2,000,676)
Proceeds from Related Parties -- 1,036,851 1,565,767
Payments to Related Parties (265,174) (1,002,618) (91,896)
Payment of Debt Obligations (1,074,974) (1,310,616) (1,799,344)
Proceeds from Term Promissory Note -- 1,450,000 --
Proceeds from Sale of Stock -- -- 3,300,000
----------- ----------- -----------
Cash (Used in) Provided by,
Financing Activities (1,981,381) (920,503) 973,851
----------- ----------- -----------
Net Increase(Decrease) in Cash 505,192 (1,123,074) 1,045,672
Cash at Beginning of Year 10,444 1,133,518 87,846
----------- ----------- -----------
Cash at End of Year $ 515,636 $ 10,444 $ 1,133,518
=========== =========== ===========
Cash Paid During the Year For:
Interest $ 398,774 $ 457,425 $ 713,352
Income Taxes 25,819 -- --
The accompanying notes are an integral part
of these consolidated statements.
F-6
32
ALFIN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of business:
Alfin, Inc. (the "Company") is engaged in the manufacturing, importation,
distribution, marketing and merchandising of imported fragrance brands worldwide
pursuant to various distribution and licensing agreements. During the latter
part of fiscal year 1995, the Company made a decision to suspend distribution of
fragrance products necessitated by limited working capital.
Adrien Arpel, Inc. ("ARPEL"), a wholly owned subsidiary, develops, distributes
and sells treatment and cosmetic products. Additionally, the Company acts as an
operator of service-oriented skin care salons in better department and specialty
stores, main floor cosmetic departments of major retail department stores.
During the third quarter of fiscal year 1994, ARPEL began selling specialty
packaged cosmetic products through television marketing.
Retail fragrance and cosmetic purchases are discretionary and are frequently
made by department store customers using consumer credit. Accordingly, future
declines in general economic conditions or consumer credit purchases might
adversely affect the business and financial condition of the department stores
and television shopping, and therefore the Company.
(2) Going concern:
During the fiscal year ended July 31, 1995 the Company began to realize the
results of its restructuring efforts which have been occurring over the last
three fiscal years. Over this period of time the Company reduced staff levels,
implemented cost reduction programs and was successful in restructuring its debt
facilities into longer more manageable terms. These factors combined with the
success of the sales of ARPEL products through the Home Shopping Network ("HSN")
has resulted in the Company recording profits of $1,364,646 for the fiscal year
ended July 31, 1995. This is the first profitable year for the Company since the
fiscal year ended July 1989. However, the Company still maintains negative
working capital of $2,629,154 and is currently significantly dependent upon one
customer, and must meet a tangible net worth covenant of $1 million by July
31, 1996. During fiscal year ended July 31, 1995 HSN was responsible for 48% of
net sales.
The prior years' losses combined with the demands of reducing large debt levels
limited the Company's ability to provide inventory to its customers, in adequate
supply, on a consistent basis. The current year's profitability and positive
cash flow from operations have enabled the Company to minimize its out-of-stock
inventory situation. During the latter part of fiscal year 1995, the Company
also decided to suspend its distribution of fragrance products. The Company can
now concentrate its efforts and available cash flow toward attaining inventory
levels in the skin care and cosmetic products distributed by ARPEL which are
more closely matched with manufacturing lead times and customer demands.
F-7
33
During fiscal 1996, the Company plans to invest in the refixturing and updating
of its facial salons and counters at department store locations. The fiscal 1995
selling, general and administrative expenses include a $500,000 charge which
reflects the acceleration of depreciation on older outdated salon equipment,
furniture and fixtures. There has been increased interest in the ARPEL product
line due to the success of the sale of products through HSN. In addition to
being able to provide the customer with a full line of skin care products, the
Company wants to maintain and enhance its image as a provider of quality skin
care services.
The Company is seeking a buyer for the Robert Piguet Trademark and investigating
opportunities to sell and distribute the ARPEL product line outside of its
current United States and Canadian markets.
(3) Summary of Significant Accounting Policies:
Principles of Consolidation -
The accompanying financial statements include the accounts of Alfin, Inc., and
its following subsidiaries: ARPEL and ORINTER, S.A.
All significant intercompany transactions and accounts have been eliminated in
consolidation.
Certain reclassifications have been made to prior year balances to conform with
current year presentation.
Inventories -
Inventories are stated at the lower of cost or market. Cost is determined using
the first-in, first-out method.
Inventories at July 31, 1995 and 1994 were comprised of:
1995 1994
---------- ----------
Finished Goods $1,424,009 $1,284,736
Raw Material and
Components 1,902,558 1,268,597
---------- ----------
$3,326,567 $2,553,333
========== ==========
Property and Equipment -
Property and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives ranging from 4 to 15
years. Leasehold improvements are amortized on a straight-line basis over the
remaining terms of the respective leases or estimated useful lives, whichever is
shorter. Betterments and renewals that extend the life of the related asset are
capitalized; other repairs and maintenance costs are expensed as incurred.
F-8
34
Property and equipment were comprised of the following at July 31, 1995 and
1994:
1995 1994
---- ----
Land $ 427,500 $ 427,500
Building & Improvements 1,224,687 1,224,688
Furniture & Fixtures 2,444,087 3,195,380
Machinery & Equipment 3,013,920 2,860,587
Leasehold Improvements 240,776 240,776
----------- -----------
Total Property & Equipment 7,350,970 7,948,931
Accumulated Depreciation (5,621,515) (5,093,042)
----------- -----------
Net Property & Equipment $ 1,729,455 $ 2,855,889
=========== ===========
Other Assets -
Goodwill related to the acquisition of ARPEL is being amortized using the
straight-line method over 40 years. The Company continually evaluates the
remaining estimated useful lives and the recoverability of its intangible
assets.
Fair Value of Financial Instruments -
The carrying amounts of the Company's lines of credit approximate fair market
value based upon the relatively short-term nature of these financial
instruments. The carrying amounts of the Company's loans and notes payable
approximate their fair value. The fair value of the Company's long-term debt is
based on quoted market prices.
Foreign Currency Translation -
Gains and losses resulting from foreign currency transactions were included in
other (expense) income.
Foreign Sales -
Net sales to foreign accounts, located in the Americas, Europe, the Middle East,
and the Far East, were approximately $949,188, $1,359,377 and $2,903,257 for the
fiscal years ended July 31, 1995, 1994 and 1993, respectively.
Net Loss per share -
Net loss per share was computed considering the cumulative preferred dividends
for the fiscal years 1995 and 1994, respectively, and using the weighted average
number of common shares outstanding, as follows:
1995 - 11,529,542 1994 -11,006,477 1993 - 8,202,653
F-9
35
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 a major television network. HSN represented
48% of net sales during fiscal year 1995 and approximately 63% of net
outstanding accounts receivable at July 31, 1995, which was subsequently paid.
Concentration of credit risk with respect to trade receivables is significant
due to the dependence of certain customers in the Company's customer base.
(4) Common stock dividends:
So long as the Company is in a borrowing position under the current term loan
agreement (see Note 7), cash dividends cannot be declared or paid.
(5) Warrants:
The following table lists the warrant transactions that have occurred for the
period August 1, 1992 through July 31, 1995:
FISCAL YEARS ENDED
J U L Y 3 1
1995 1994 1993
- - ------------------------------------------------------------------------------------
Warrants outstanding,
beginning of period 1,100,000 110,000 110,000
Granted -- 1,000,000 --
Exercised -- -- --
Forfeited 100,000 10,000 --
Warrants outstanding,
end of period 1,000,000 1,100,000 110,000
Exercise prices per share
for shares under warrant,
end of period $1.25 $1.25-$1.63 $1.63-$2.63
Of the 1,000,000 warrants granted to Ms. Adrien Arpel outstanding as of July 31,
1995, 500,000 are currently exercisable. Expiration of these warrants is in
November 1998.
(6) Income taxes:
The Company adopted the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes" which required a change
from the deferred method to the asset and liability method of accounting for
income taxes. Under the asset and liability method,
F-10
36
deferred income taxes are recognized for the tax consequences of temporary
differences between financial statement and taxable income by applying statutory
tax rates applicable to future years. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date of the change. If it is more likely than not that
some portion or all of a deferred tax asset will not be realized, a valuation
allowance is recognized.
Significant components of the Company's deferred income tax assets and
liabilities at July 31, 1995 and August 1, 1994, are as follows:
JULY 31, August 1
1995 1994
-------- --------
Deferred Income Tax Assets:
Net operating loss
carry forwards $ 2,900,000 $ 3,886,000
Bad debt reserve 209,000 277,000
Inventory valuation 156,000 363,000
Other reserves 408,000 --
----------- -----------
3,673,000 4,526,000
Valuation allowance (3,421,000) (3,489,000)
----------- -----------
Net deferred tax asset 252,000 1,037,000
Deferred Income Tax Liabilities:
Depreciation and Amortization (252,000) (1,037,000)
Net deferred income taxes $ 0 $ 0
=========== ===========
At July 31, 1995, the amount of federal operating loss carry forwards was
$8,500,000 with expiration dates from 2005 to 2009, however, the use of
pre-acquisition operating loss carryforwards is limited by the Internal Revenue
Code. As a result the Company has $4,560,000 of the carry forwards available for
use for the year ended July 31, 1996.
F-11
37
(7) Long term debt:
Long term debt consists of the following:
1995 1994
---- ----
Term Promissory Note $ 1,025,000 $ 1,325,000
Term loan 400,000 1,000,000
Lines of credit 2,100,000 2,741,233
Related party loans 34,826 300,000
Notes payable (construction) 28,019 202,993
----------- -----------
3,587,845 5,569,226
Less, current portion (2,862,845) (5,420,644)
----------- -----------
Long-term notes payable $ 725,000 $ 148,582
=========== ===========
Term Promissory Note:
At July 31, 1995, the Company had a term promissory note due to Midlantic in the
amount of $1,025,000. The term promissory note is collateralized by a
distribution and administration facility and bears interest at a rate of 2%
above Midlantic's prime lending rate (8.75% and 7.25% at July 31, 1995 and 1994
respectively). The term promissory note contains provisions which cause the
entire unpaid principal balance of the note to become immediately due should the
Company not be in compliance with any of the terms of other indebtedness owed to
Midlantic. Principal installments of $25,000 under the term promissory note are
due on the first day of each month until December 1, 1998.
Term Loan:
In April 1990, the Company was provided with a $5,000,000, 5-year term loan with
Midlantic in connection with its acquisition of ARPEL. The term loan bears
interest at a rate of .5% above the bank's prime lending rate (8.75% and 7.25%,
at July 31, 1995 and 1994, respectively) and is guaranteed by ARPEL. The balance
under the term loan was $400,000 at July 31, 1995. The term loan agreement
contains financial covenants which require the Company to have consolidated
tangible net worth of not less than ($2,250,000) and capital expenditures not to
exceed $400,000, at July 31, 1995. For the fiscal year ending July 31, 1996, the
financial covenants require the Company to have consolidated tangible net worth
of not less than $1 million and capital expenditures not to exceed $400,000. The
Company was in compliance with its financial covenants at July 31, 1995. During
August 1994, the Company and Midlantic agreed to modify this term loan to be
repaid in twenty equal monthly installments of $50,000 each commencing on August
10, 1994.
F-12
38
The aggregate contractual annual principal payments of the term loan and term
promissory note are as follows:
1996.................. $700,000
1997.................. $300,000
1998.................. $300,000
1999.................. $125,000
Lines of Credit:
In addition to the above, the Company maintains a $700,000, secured line of
credit with Midlantic which bears interest at 1.5% above the bank's prime
lending rate (8.75% and 7.25% at July 31, 1995 and 1994, respectively). The
Company is required to maintain a compensating balance equal to 5% of the line
of credit. Borrowings under this line of credit were $0 and $641,233 as of July
31, 1995 and 1994, respectively. The line of credit is secured by qualified
fragrance accounts receivable and inventory of Alfin, Inc. which are
collateralized at 60% and 35%, respectively. The line of credit maintains the
same financial covenants as the term loan.
ARPEL entered into a financing agreement with Credit Lyonnais for a revolving
secured line of credit of up to $2,100,000, expiring on October 15, 1995,
subject to renewals on a yearly basis under certain conditions. The loan is
secured by domestic accounts receivable of ARPEL. Borrowings under this line of
credit were $2,100,000 at July 31, 1995 and 1994, respectively. This line of
credit bears interest based on the Eurorate (7.6% and 4.7% at July 31, 1995 and
1994, respectively), plus 1/2% or plus 1-1/2%, depending on maturities.
Related Party Loans:
At July 31, 1995, the Company had advances from FFD in the amount of $34,826.
These advances are due on demand and bear interest at a rate of 1.5% above the
prime lending rate of Midlantic (8.75% and 7.25% at July 31, 1995 and 1994,
respectively).
F-13
39
(8) Related Party Transactions -
The Company purchases inventory from vendors related to FFD. As of July 31,
1995, FFD owned 62.9% of the Company's Common Stock. For the years ended July
31, 1995 and 1994, the Company made inventory purchases from vendors related to
FFD of $211,033 and $319,050, respectively. Refer to footnote 7 for related
party loans.
(9) Redeemable Preferred Stock:
During February 1991, the Company entered into a stipulation of settlement with
respect to three class action lawsuits which provided for the Company's creation
of a settlement fund on behalf of all plaintiffs in the Lawsuit consisting of
$750,000 cash (which amount was paid and fully covered by insurance) and 30,000
shares of $25.00, 14.5% Senior Cumulative Redeemable Preferred Stock ("Preferred
Stock"), having a face value of $750,000, maturing 10 years after issuance.
Dividends on the Preferred Stock are payable in cash or by issuance of Common
Stock at the option of the Company.
On July 6, 1993, the Company issued 30,000 shares of $25.00, 14.5% Preferred
Stock. Common stock issued as dividends is payable in advance. The value of the
Common Stock payable as dividends is calculated based on the average closing
price of the Company's Common Stock during the 40 trading days prior to October
22nd of each year, minus 20% of that average price. The initial dividend was
payable two years in advance. Such dividends were paid by issuing 283,981 shares
of Common Stock. Dividends after the initial dividend payment are payable
annually in advance. Such dividends were paid by issuing 116,407 shares of
Common Stock.
No additional dividend has been declared or accrued as of July 31, 1995. The
Company's Board of Directors is expected to declare a Common Stock dividend of
approximately 92,357 shares in November 1995.
(10) Employee Benefit Plans:
Pension Plan -
During the fiscal year ended July 31, 1991, the Company filed with the Internal
Revenue Service, ("I.R.S.") a request for termination of its Defined Benefit
Pension Plan (the "Plan") which was approved by the I.R.S. during fiscal year
1992. During fiscal 1992, the Company liquidated the Plan. At the time of
liquidation, the difference between the fair value of the Plan assets and the
obligation of the Plan was immaterial.
F-14
40
Profit sharing plans -
During the fiscal year ended July 31, 1991, the Company filed with the Internal
Revenue Service, (the "I.R.S."), a request for termination of its Profit Sharing
Plan, (the "Plan"), which was approved by the I.R.S. during fiscal year 1992.
The Company liquidated the plan during the fiscal year ended July 31, 1992. No
contribution was made in fiscal year 1992.
(11) Stock option plans:
During December 1992, the Board of Directors of the Company adopted the 1993
Stock Option Plan ("the 1993 Plan") pursuant to which up to 300,000 shares of
Common Stock are authorized to be subject to options.
The 1983 Stock Option Plan ("the 1983 Plan") remains in effect under which
200,000 shares of Common Stock were reserved for issuance thereunder. As of July
31, 1993, no new grants of options may be made under the 1983 Plan.
The options available under both plans are in the form of incentive options and
non-qualified options. Incentive options are available to key employees of the
Company and non-qualified options are available to key employees, non-employee
directors and consultants of the Company at the fair market value of the Common
Stock at the date of the grant. Options are exercisable as determined by the
Board of Directors.
F-15
41
Changes in outstanding options and options available for grant pursuant to the
1983 Plan, expressed in numbers of shares, are as follows:
July 31,
1995 1994 1993
---- ---- ----
Options outstanding,
beginning of period 9,700 55,100 170,150
Granted -- -- --
Exercised -- -- --
Forfeited (4,700) (45,400) (115,050)
Options outstanding,
end of period 5,000 9,700 55,100
Options exercisable,
end of period 5,000 6,700 33,790
Options available
for grant, end of
period -- -- --
Exercise price per
share for shares
under option, end
of period $ 1.00 $1.00-$1.63 $1.00-$4.25
Changes in outstanding options and options available for grant pursuant to the
1993 Plan, expressed in numbers of shares, are as follows:
July 31, 1995 July 31, 1994
------------- -------------
Options outstanding,
beginning of period 75,000 --
Granted 500,000 75,000
Exercised -- --
Forfeited (25,000) --
Options outstanding,
end of period 550,000 75,000
Options available for grant,
end of period -- 225,000
Exercise price per share for
shares under option, end of
period $1.00-$1.75 $1.75
During April 1994, shareholders of the Company approved the grant of 300,000
options to the Chairman of the Board and CEO of the Company. The options
provided for the purchase of the Company's Common Stock at $.9375 per share. The
options were forfeited during the fiscal year ended July 31, 1995.
During October 1994, the board of directors approved the grant of stock options
totaling 500,000 shares of the Company's Common Stock to directors of the
Company, at an exercise price of $1.00 per share. There were no options
exercised during the fiscal year ended July 31, 1995.
F-16
42
(12) Commitments and Contingencies:
One officer of the Company has an employment agreement expiring April 4, 1998,
which provides for the following aggregate annual base salary, plus fringe
benefits subject to increase by the Board of Directors.
Fiscal year ending July 31:
1996 315,000
1997 315,000
1998 213,500
The above agreement provides for payment in full in the event of death or
disability of the employee.
The agreement also provides for certain increases in base salary, bonus payments
based on the profitability of the Company and commission payments based on 33%
of net profits attributable to television shopping sales. In addition, certain
stock options may be granted and become effective under such agreement if
certain conditions are met and the executive is still employed as of certain
dates.
The Company leases office space and other equipment under various non-cancelable
operating lease agreements. Rental expense for the fiscal years ended 1995, 1994
and 1993 was approximately $2,003,425, $2,778,000 and $3,320,700, respectively.
Included in these amounts is rental expense contingent upon sales volume for the
fiscal years ended 1995, 1994 and 1993 of approximately $1,392,893, $2,327,400
and $2,853,200, respectively.
Minimum annual rental commitments under non-cancelable leases in effect at July
31, 1995, excluding escalations:
Fiscal year ending July 31:
1996........................... 294,500
1997........................... 237,850
1998........................... 240,158
1999........................... 247,400
2000 and thereafter............ 627,900
The Company, in the normal course of business is a defendant in numerous
actions/lawsuits. The Company believes the outcome of these actions/lawsuits
will not have a material impact on the Company's financial position or results
from operations.
(13) Supplemental income statement information:
For the Fiscal Years Ended
JULY 31,
1995 1994 1993
---- ---- ----
Advertising Costs $1,543,927 $1,674,304 $3,323,126
Royalties expense -- -- 55,364
F-17
43
(14) Quarterly financial information
(unaudited)
First Second Third Fourth
Fiscal 1995 Quarter Quarter Quarter Quarter
----------- ------- ------- ------- -------
Net Sales $ 7,261,587 $ 8,771,169 $ 8,266,118 $ 7,852,330
Gross Profit 5,215,467 5,984,667 6,229,797 5,429,240
Net Income (loss) 50,201 655,698 684,227 (25,480)
Net Income (loss),
per Common and Common
Equivalent Share: $ 0.00 $ 0.06 $ 0.06 ($0.00)
Fiscal 1994
-----------
Net Sales $ 8,150,697 $ 6,754,032 $ 6,638,880 $ 7,814,313
Gross Profit 5,962,331 5,224,524 5,043,445 5,477,633
Net Income (loss) 11,133 (752,741) (745,916) 60,376
Net Income (loss),
per Common and Common
Equivalent Share: $ 0.00 $ (0.07) $ (0.07) $ 0.00
Fiscal 1993
-----------
Net Sales $11,975,517 $ 6,966,640 $ 8,757,529 $ 7,064,560
Gross Profit 7,804,864 5,319,256 6,057,510 2,547,736
Net Income(loss) (540,611) (1,949,592) (1,853,817) (2,378,717)
Net Income (loss),
per Common and Common
Equivalent Share: $ (0.08) $ (0.25) $ (0.23) $ (0.26)
F-18
44
ALFIN, INC. AND SUBSIDIARIES
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE FISCAL YEARS ENDED JULY 31
- - --------------------------------------------------------------------------------
ADDITIONS
---------
Balance at Charged to Charged Balance at
Beginning Costs and to Other Deductions End of
Description of Period Expenses Accounts (1) Period
1995 Allowance for Doubtful
Accounts Receivable,
Chargebacks and Sales
Returns $1,833,123 $3,525,344 $ - $4,317,610 $1,040,857
1994 Allowance for Doubtful
Accounts Receivable,
chargebacks,
and Sales Returns $2,342,426 $4,531,355 $ - $5,040,658 $1,833,123
1993 Allowance for Doubtful
Accounts Receivable,
Chargebacks and Sales
Returns $2,540,088 $2,805,249 $ - $3,002,911 $2,342,426
(1) Charges to the accounts are for the purposes for which the reserves were
created.
F-19
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: November 13, 1995 ALFIN, INC.
By: /s/ Jean Farat
---------------------
Jean Farat
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Jean Farat his true and lawful attorneys-in-fact and
agents, each acting alone, with full powers of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agents, each acting alone, full power and
authority to do and perform to all intents and purposes as he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or his substitutes, may lawfully due or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on November 13, 1995 on behalf of the
Registrant and in the capacities indicated.
Signature Title
/s/ Jean Farat Chairman of the Board
--------------------
Jean Farat
/s/ Michael D.Ficke Vice President
-------------------- Chief Financial Officer
Michael D.Ficke
46
/s/ Jacques Desjardins Director
-----------------------
Jacques Desjardins
/s/ Elisabeth Fayer Director
-----------------------
Elisabeth Fayer
/s/ Steven Korda Director
-----------------------
Steven Korda
/s/ Suzanne Langlois Director
-----------------------
Suzanne Langlois
47
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS ON FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JULY 31, 1993
ALFIN, INC.
EXHIBIT INDEX
Exhibit
No. Exhibit Title Page
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3.1 Certificate of Incorporation of the Company, as amended (5)(Exhibit 3.1)
3.2 Certificate of Amendment to the Certificate of Incorporation of
the Company, as amended, as filed with the New York State
Departmentof State on September 11, 1991. (6)(Exhibit 3.2)
3.3 By-laws of the Company, as amended. (6) (Exhibit 3.3)
4.1 Form of specimen of the Company's Common Stock certificate.(4)
(Exhibit 4.1)
10.1 Stock Option Plan. (3) (Exhibit 10.1)
10.2 New Jersey EDA Bond Financing Agreement, dated July 20,1983 and
Note of Company thereunder. (1) (Exhibit 10.2)
10.3 Lease Agreement, dated November 30, 1983, for 720 Fifth Avenue,
New York, New York. (2) (Exhibit 10.3)
10.4 Form of Stock Option Agreement under the Stock Option Plan. (3)
(Exhibit 10.4)
10.5 Alfin, Inc. (f/k/a/ Alfin Fragrances, Inc.) Stock Option Plan, as
amended. (4) (Exhibit 10.5)
10.6 Stock Purchase Agreement, dated April 5, 1990, among the Company,
Adrien Arpel, Inc. and the Security holders of Adrien Arpel, Inc.
(5) (Exhibit 10.6)
10.7 Employment Agreement, dated as of April 4, 1990, between the
Company and Adrienne Newman. (6) (Exhibit 10.7)
10.8 Warrant Agreement, dated as of April 4, 1990, between the Company
and Adrienne Newman. (6) (Exhibit 10.8)
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Exhibit
No. Exhibit Title Page
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10.9 Revolving Credit and Term Loan Agreement, dated as of July 31, 1990,
among the Company, Adrien Arpel, Inc. and Midlantic National Bank.
(6) (Exhibit 10.9)
10.10 Departmental License Agreement, dated as of July 10, 1991, between
Bullock's, Inc. and Adrien Arpel, Inc.(7) (Exhibit 10.10)
10.11 First Amendment, dated January 31, 1991, to Credit and Term Loan
Agreement dated as of July 31, 1990, among the Company, Adrien
Arpel, Inc. and Midlantic Bank. (7) (Exhibit 10.11)
10.12 Second Amendment, dated June 10, 1991, to Credit and Term Loan
Agreement dated July 31, 1990, as amended, among the Company, Adrien
Arpel, Inc. and Midlantic National Bank. (7) (Exhibit 10.12)
10.13 Form of Executive Incentive Compensation Plan Agreement, dated as of
September 1991, between the Company and Adrienne Newman. (7)
(Exhibit 10.13)
10.14 Amended and Restated Revolving Credit and Term Loan Agreement, dated
June 30, 1992, between Midlantic National Bank and the Company and
Adrien Arpel, Inc. (8) (Exhibit 10.14)
10.15 Continuing Letter of Credit Agreement, dated May 13,1993, between
the Company, Adrien Arpel, Inc. and Credit Lyonnais Bank. (8)
(Exhibit 10.15)
10.16 Amended and Restated Loan Agreement, dated June 24,1993, between the
Company and Midlantic National Bank. (8) (Exhibit 10.16)
10.17 Third Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated August 1994, between Midlantic National bank
and the Company and Adrien Arpel, Inc. (9) (Exhibit 10.17)
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Exhibit
No. Exhibit Title Page
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10.18 Amendment No. 2, dated November 19, 1993, to Employment Agreement
dated April 4, 1990, between the Company and Adrienne Newman. (9)
(Exhibit 10.18)
10.19 Amendment No. 1 to the Continuing Letter of Credit Agreement, dated
February 28, 1994, between the Company, Adrien Arpel, Inc. and
Credit Lyonnais Bank. (9) (Exhibits 10.19)
10.20 Term Promissory Note dated February 1994, between Midlantic National
Bank and the Company. (9) (Exhibit 10.20)
10.21 Second Amendment to Amended and Restated Revolving Credit and Term
Loan Agreement, dated February 1994, between Midlantic National Bank
and the Company and Adrien Arpel, Inc. (9) Exhibit 10.21)
10.22 Incentive Stock Option Agreement, dated November 22, 1993, between
the Company and Mayer D. Moyal.(9) (Exhibit 10.22)
10.23 Warrant Agreement, dated November 19, 1993, between the Company and
Adrienne Newman. (9) (Exhibit 10.23)
10.24 The 1993 Stock Option Plan of Alfin, Inc. (9) (Exhibit 10.24)
10.25 Termination agreement, dated July 7, 1995 between the Company and 1-4
Mayer D. Moyal (filed herewith)
10.26 Agreement dated August 1, 1995 between the Company and CECE SA 5-8
(filed herewith)
10.27 Fourth Amendment to Amended and Restated Revolving Credit on Term 9-15
Loan Agreement dated July 31, 1995, between the Company and
Midlantic National Bank (filed herewith)
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Exhibit
No. Exhibit Title Page
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10.24 The 1993 Stock Option Plan of Alfin, Inc. (11)(Exhibits 10.24)
10.25 Termination agreement, dated July 7, 1995 between the Company and
Mayer D. Moyal (Exhibits 10.25)
10.26 Agreement dated August 1, 1995 between the Company and CECE SA
(Exhibits 10.26)
10.27 Fourth Amendment to Amended and Restated Revolving Credit on Term
Loan Agreement dated July 31, 1995, between the Company and
Midlantic National Bank (filed herewith)
22 Subsidiaries of the Company -- Adrien Arpel, Inc., a Delaware
corporation; Suisse Laboratories Ltd., a Delaware corporation.
(1) Incorporated by reference from the designated Exhibit to the
Company's Registration Statement on Form S-1. (File No. 2-85600).
(2) Incorporated by reference from the designated Exhibit to the
Company's Annual Report on Form 10-K for the year ended July 31,
1984. (File No. 0-11434).
(3) Incorporated by reference from the designated Exhibit to the
Company's Annual Report on Form 10-K for the year ended July 31,
1985. (File No. 0-11434).
(4) Incorporated by reference from the designated Exhibit to the
Company's Annual Report on Form 10-K for the year ended July 31,
1989. (File No.0-11434).
(5) Incorporated by reference from the designated Exhibit to the
Company's Current Report on Form 8-K, reporting an event on April 5,
1990 (File No. 0-11434).
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Exhibit
No. Exhibit Title Page
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(6) Incorporated by reference from the designated Exhibit to the
Company's Annual Report on Form 10-K for the year ended July 31,
1990 (File No. 0-11434).
(7) Incorporated by reference from the designated Exhibit to the
Company's Annual Report on Form 10-K for the year ended July 31,
1992. (File No. 0-11434)
(8) Incorporated by reference from the designated Exhibit to the
Company's Annual Report on Form 10-K for the year ended July 31,
1993. (File No. O-11434)
(9) Incorporated by reference from the designated Exhibits to the
Company's Annual Report on Form 10-K for the year ended July 31,
1994. (File No. 0-11434)
(b)Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the last quarter
of the period covered by this report.
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