<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              AMENDMENT NO. 1 TO
                                   FORM 10-K
  
(Mark One)

---         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
 X             SECURITIES EXCHANGE ACTO OF 1934 (FEE REQUIRED)
---                  FOR THE FISCAL YEAR ENDED JULY 31, 1996

                                       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: 1-9135

                                  ALFIN, INC.
             (Exact name of Registrant as specified in its charter)

            NEW YORK                                    13-3032734
(State or other Jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                   Identification Number)

720 Fifth Avenue, New York, 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:

                                                Name of each exchange
Title of each class                             on which registered
-------------------                             ---------------------
Common Stock, $.01 par                          American Stock Exchange
value per share                               

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
                                  ----           ----


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 definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K [X].

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price on October 23, 1996, was $8,668,357.
As of October 24, 1996, the Registrant had 11,662,926 shares of Common Stock
outstanding. 

                      DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's Proxy Statement for its 1996 Annual Meeting of Stockholders is
incorporated by reference into Part III of this Annual Report on Form 10-K.
          
<PAGE>   2
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 distributing cosmetics
and other beauty products and providing facial and other beauty services.
Products and services are sold through television marketing on the Home Shopping
Network ("HSN"), in department stores and in specialty stores throughout the
United States and Canada.


PRODUCTS AND MAJOR DISTRIBUTION AGREEMENTS

CURRENT PRODUCTS

The Company develops, distributes and sells skin care and cosmetics products
under the trademark "ADRIEN ARPEL". ARPEL acts as an operator of
service-oriented skin care salons in department and specialty stores. Since
April 1994, ARPEL has also been distributing its products through television
marketing with HSN.

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
better segment of the market and are competitively priced with other comparable
brands. In fiscal 1996, approximately 51.9% of ARPEL'S net sales were made to
HSN and approximately 48.1% were made to department stores. Net sales of ARPEL
products represented 99% and 96% of the Company's consolidated net sales for the
fiscal years ended July 31, 1996 and 1995, respectively.

DISCONTINUED PRODUCTS

The Company was originally engaged in the manufacturing, importation,
distribution, marketing and merchandising of fine imported fragrance products.
Beginning in 1993, the Company significantly reduced its distribution of
fragrance products. During July 1995, the Company ceased distribution of
fragrance products, due to the unprofitability of this business.

During March 1996 the Company sold its exclusive worldwide manufacturing,
distribution and licensing rights for FRACAS and BANDIT and other fragrances by
Robert Piquet to Fashion Fragrances and Cosmetics Ltd. ("FF&C") for $1.2
million. Under this purchase agreement, the Company has received $500,000 with
the remaining payments of $300,000 and $400,000 due to be paid in December 1996
and July 1997 respectively. The Company recorded a gain of $394,392 on the sale
of this asset. Until the Company receives final payment under the purchase
agreement FF&C will be a licensee of the rights to Robert Piquet. The Company is
not entitled to any royalties under this licensing agreement.





                                        1
<PAGE>   3
SALES AND MARKETING

Net sales of ARPEL products represented 99% and 96% of consolidated net sales
for the fiscal years ended July 31, 1996 and 1995, respectively.

The Company's major domestic accounts include Burdines, Dayton/Hudson, Dillards,
Federated Department Stores, Foley's, Hechts, HSN, Kaufmanns, and Mercantile.
ARPEL also sells directly to the Canadian department store, the Bay. Sales to
department stores accounted for approximately 48.1% of sales for fiscal 1996.
The arrangement with HSN represented approximately 51.9% of sales for fiscal
1996. No other 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.

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 6.1%, 3.0% and 4.0% for the fiscal years ended July
31, 1996, 1995 and 1994, respectively.

Sales to foreign accounts, expressed as a percentage of net sales, were 6.4%,
3.0% and 5.0% for the fiscal years ended July 31, 1996, 1995 and 1994,
respectively.

RESEARCH AND DEVELOPMENT

The Company did not spend a material amount on research and development during
the fiscal years ended July 31, 1996, 1995 and 1994.

ADVERTISING

The Company advertises through cooperative advertising programs, and catalogs.
Advertising costs as a percentage of consolidated retail store sales for the
fiscal years ended July 31, 1996, 1995 and 1994 were 9.7%, 9.4%, and 10.3%,
respectively. The Company also promotes its products through the use of
promotional materials and in-store displays.

MANUFACTURING

The Company does not maintain any manufacturing facilities. It subcontracts to
manufacture its products, in accordance with the Company's specifications and
formulas. (Note: See Trademark and Regulations paragraph). The Company believes
that other manufacturing subcontractors 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.


                                        2
<PAGE>   4
TRADEMARKS AND REGULATIONS

The Company owns the relevant Trademarks of the products which are distributed
by the Company. The ADRIEN ARPEL and ARPEL names are registered as trademarks in
the United States and a number of foreign countries.

The Food and Drug Administration ("FDA") monitors certain aspects of the
cosmetic industry, particularly those that relate to advertising claims and
purported benefits with respect to cosmetic products and the physical
composition of 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 material product liability litigation.

COMPETITION

The market for 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 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
department stores and television marketing, and therefore, the Company.



                                        3
<PAGE>   5
EMPLOYEES

As of July 31, 1996, the Company had 109 employees. Of these, 70 were engaged in
sales and marketing activities, 30 in administrative functions and 9 in
distribution activities.

RECENT EVENTS

On October 23, 1996, Jean Farat, the Company's Chairman and Chief Executive
Officer, resigned from the Company. Mrs. Elisabeth Fayer, a Director and major
shareholder, was elected President of the Company by the Board of Directors
prior to the resignation. Since the resignation, Mrs. Fayer also serves as Chief
Executive Officer. 

On October 28, 1996 the Company received notice from Adrienne Newman
terminating her Employment Agreement based on an alleged breach of the
Employment Agreement by the Company.  Ms. Newman serves as the President of
Adrien Arpel, Inc. and has been the selling host under the name of Adrien
Arpel, in its sales program on the Home Shopping Network, Inc. ("HSN").

The Company believes that it has fully complied with all terms of the
employment Agreement and that the termination by Ms. Newman is itself a breach
of the Employment Agreement.  The Company intends to fully enforce all of its
rights under the Employment Agreement.

On November 8, 1996 the Company and Adriene Newman reached an agreement whereby
Ms. Newman will appear as the selling host for ARPEL, the core unit of the
Company, on HSN shows scheduled for November 14-18, 1996, December 12-16, 1996
and January 23-27, 1997 (the "HSN Selling Period").  During the HSN Selling
Period, Ms. Newman will be acting as an independent contractor and not as an
employee of the Company.  The Company and Ms. Newman also agreed to refrain
from initiating legal action, if any, against the other in connection with
their dispute over Ms. Newman's termination as an employee of the Company until
after the HSN Selling Period.

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 $233,000.

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 $725,000 at July 31, 1996. 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.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None


                                        4
<PAGE>   6
                                     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.


<TABLE>
<CAPTION>
   Quarter Ended                      High                 Low
   -------------                      ----                 ---

<S>                                  <C>                  <C>
July 31, 1994                         2-1/6                1-1/8
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
October 31, 1995                      1-3/4               1-1/16
January 31, 1996                     1-9/16                15/16
April 30, 1996                        2-1/8                1-1/8
July 31, 1996                        3-1/16                1-1/4
</TABLE>




The number of shareholders of record of the Common Stock on October 23, 1996 was
4,900. 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.




                                        5
<PAGE>   7
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.
<TABLE>
<CAPTION>
(000's omitted, except                  Fiscal Years Ended July 31
per share amounts)               1996           1995            1994            1993             1992
--------------------------------------------------------------------------------------------------------
<S>                             <C>           <C>             <C>             <C>             <C>
0perating Data:
Net Sales                       $34,733       $ 32,151        $ 29,358        $ 34,764        $ 40,576

Gross Profit                     23,353         22,859          21,707          21,729          27,759

Operating income (loss)           2,820          1,960            (924)         (7,555)         (1,806)

Other income (expense)               54           (460)           (503)            832          (1,010)


Income (loss) before
 provision (benefit) for
 income taxes                     2,874          1,500          (1,427)         (6,723)         (2,816)

Net income (loss)               $ 2,693       $  1,365        $ (1,427)       $ (6,723)       $ (2,816)
                                -------       --------        --------        --------        --------
Net income (loss) per
 Common equivalent share:       $  0.22       $   0.12        $  (0.14)       $  (0.85)       $  (0.42)
                                =======       ========        ========        ========        ========


Balance Sheet Data:

  Working Capital               $   988       $ (2,629)       $ (5,905)       $ (6,835)       $ (4,531)

        Total assets             11,228         10,756          12,362          14,615          20,363

  Short-term debt                 1,938          2,863           5,421           7,641          10,367

  Long-term debt                    425            725             149             149             149

  Shareholders' equity          $ 4,131       $  1,388        $     24        $    151        $  3,374
                                =======       ========        ========        ========        ========
</TABLE>



                                        6
<PAGE>   8
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:
<TABLE>
<CAPTION>
                                     Relationship to Net Sales
                                 for the Fiscal Years Ended July 31,
                                   1996         1995         1994
                                 -----------------------------------
<S>                               <C>          <C>           <C>
Net sales                         100.0%       100.0%        100.0%

Cost of goods sold                 32.8         28.9          26.1

Selling, general and
 administrative expenses           59.1         65.0          77.1

Operating Income (loss)             8.1          6.1          (3.2)


Other (expense) income, net         0.2         (1.4)         (1.7)
Net Income (loss) before
 provision for income tax           8.3          4.7          (4.9)
                                  -----        -----         -----
Net income (loss)                   7.8%         4.2%         (4.9%)
                                  =====        =====         =====
</TABLE>



FISCAL YEARS ENDED JULY 31, 1996 AND 1995

The Company recorded net income of $2,692,692 for the fiscal year ended July 31,
1996 as compared to $1,364,646 for the fiscal year ended July 31, 1995.

Net sales for the fiscal year ended July 31, 1996 increased to $34,733,375 from
$32,151,204 recorded in the prior fiscal year, an increase of $2,582,171 or
8.0%. Sales of cosmetic products increased to $34,428,701 from $31,073,515 as
compared to the prior year, a 10.8% increase. Sales of fragrance products
decreased to $304,674 from $1,077,689, as compared to the prior fiscal year, a
71.7% decrease. The Company decided to suspend its fragrance business during the
latter part of fiscal 1995. The fiscal 1996 fragrance sales were related to the
sale of the Company's remaining inventory of fragrance products.



                                        7
<PAGE>   9
The cosmetic sales increase of $3,355,186 is primarily attributable to the
Company's continued success of selling cosmetic products through HSN. Sales to
HSN increased to $17,858,631 from $15,667,416 recorded in the prior fiscal year,
an increase of $2,191,215 or 14.0%. The Company commenced selling products
through HSN of Canada during January 1996 with $933,261 of sales to HSN of
Canada being recorded during the fiscal year ended July 31, 1996. Sales of
cosmetic products through department stores increased to $16,570,070 from
$15,406,099 recorded in the prior fiscal year an increase of $1,163,971 or 7.6%.

Cost of goods sold as a percentage of net sales was 32.8% for the fiscal year
ended July 31, 1996, as compared to 28.9% for the fiscal year ended July 31,
1995. Cost of goods sold for cosmetic products was 32.1% for the fiscal year
ended July 31, 1996, as compared to 28.5% for the fiscal year ended July 31,
1995. The increase in the cosmetic cost of goods sold percentage is primarily
related to sales of cosmetic products to HSN.

Selling, general and administrative expenses decreased to $20,532,894 for the
fiscal year ended July 31, 1996 from $20,898,893 for the fiscal year ended July
31, 1995, a 1.8% decrease. The decrease is primarily attributable to decreases
in advertising and promotional expenses related to the Company's decision to
cease its fragrance business.

Interest expenses decreased to $313,100 for the fiscal year ended July 31, 1996,
from $439,743 recorded during the prior fiscal year ended July 31, 1995, a 28.8%
decrease. This decrease is primarily attributable to lower debt levels. The
Company recorded a gain of $394,392 related to the sale of its licensing and
distribution rights to Robert Piquet during March 1996.

Net income per common and common equivalent share for the fiscal year ended July
31, 1996 was $0.22 as compared to $0.12 for the fiscal year ended July 31, 1995.

The remaining NOL available to the Company for federal income tax reporting
purposes at July 31, 1996 is approximately $4,300,000.  The Company has
$707,000 of the NOL carry forward available for use for the tax year ending
July 31, 1997.


FISCAL 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 marked the first year since fiscal 1989 that the Company has
recorded profits.

Net sales for the fiscal year ended July 31, 1995 increased to $32,151,204 from
$29,357,922 recorded in the prior fiscal year, an increase of $2,793,282 or
9.5%. Sales of cosmetic products increased to $31,073,515, from $24,771,150 or
24.5%, while sales of fragrance products decreased to $1,077,689 from $4,586,772
or 76.5%, as compared to the prior fiscal year.


                                        8
<PAGE>   10
The cosmetic sales increase of $6,302,365 was primarily attributable to the
success of selling cosmetic products through 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. Net sales of
cosmetic products through department stores decreased by $773,089 primarily due
to a net decrease of 38 unprofitable locations through which ARPEL products were
sold.

The fragrance sales decrease of $3,509,083 was primarily attributable to the
Company's decision to temporarily suspend its current fragrance business, during
the latter part of fiscal 1995.

The Company's fragrance sales have decreased during the last three fiscal years
as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended
     July 31               Net Sales             $ Decrease       % Decrease
------------------------------------------------------------------------------
<S>                       <C>                    <C>                   <C>
1995                      $ 1,077,689            $3,509,083            76%
1994                        4,586,772             6,184,468            57%
1993                       10,771,240             6,242,760            36%
</TABLE>

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. 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 was
primarily attributable to lower margins earned during fiscal 1994 related to the
sale of discontinued product lines and inventory overstocks.

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 was 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 July 31, 1995 fiscal year selling, general and administrative
expenses include a charge of $500,000 related to salon assets, which were
determined to be outdated.

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 was 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 was approximately $4,300,000.



                                        9
<PAGE>   11
FISCAL YEARS ENDED JULY 31, 1994 AND 1993

Net sales for the fiscal year ended July 31, 1994 decreased to $29,357,922 from
$34,764,246 in the prior fiscal year, a $5,406,324 or 15.6% decrease. Fragrance
net sales decreased to $4,586,772 from $10,771,240 or 57.4%. Cosmetic net sales
increased to $24,771,150 from $23,993,006 or 3.2%, as compared to the prior
fiscal year.

The fragrance sales decrease of $6,184,468 was 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.

Sales of specialty packaged cosmetic products through television marketing with
the HSN, commenced during the third quarter and totaled approximately $4,574,300
for fiscal 1994.

During June 1994, the Company received notice from Premier Salons International
("Premier") that they would 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.

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 was $5,295,589 lower than the prior year and
was primarily attributable to the effects of the Company's cost reduction
programs and the net effect on operations of the sales of cosmetic products
through HSN. 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.

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 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 was primarily attributable to increased cost of sales on the HSN
cosmetic products.


                                       10
<PAGE>   12
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 was primarily attributable to decreases in
advertising and promotional expenses related to products which were discontinued
during the fiscal year ended July 31, 1995, 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 were $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 fiscal year ended July 31, 1994. Interest expense decreased $215,535
during the fiscal year, ended July 31, 1994, due to reduced debt levels and
steady interest rates. The Company recorded foreign exchange gains of $21,224
during the fiscal year, ended July 31, 1994, 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.

LIQUIDITY AND CAPITAL RESOURCES

The Company had positive working capital of $986,797 at July 31, 1996, an
increase of $3,615,951 from a working capital deficit of $2,629,154 at July 31,
1995.

Total bank borrowings were reduced by $1.2 million from $3,525,000 at July 31,
1995 to $2,325,000 at July 31, 1996. At July 31, 1996 the Company had a Term
Promissory Note due to Midlantic National Bank ("Midlantic") in the amount of
$725,000. 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.

In addition to the Term Promissory Note with Midlantic, the Company maintains a
revolving secured line of credit of up to $1.8 million with Credit Lyonnais, New
York. This loan is secured by the domestic accounts receivable of ARPEL and
bears interest at the higher of (a) the rate per annum established by Credit
Lyonnais, New York as the reference rate for short term commercial loans (b) the
overnight cost of funds of Credit Lyonnais, New York, plus 1/4 of 1%. Under the
financing arrangement with Credit Lyonnais, New York $100,000 is due to be paid
on October 30, 1996 with the balance to be paid in full on November 29,1996. At
July 31, 1996 borrowings under this line of credit were $1.6 million versus
$2,100,000 at July 31, 1995.

At July 31, 1996, shareholder advances to the Company from Fine Fragrances
Distribution ("FFD") were $4,826 versus $34,826 at July 31, 1995.


                                       11
<PAGE>   13
At July 31, 1996, the Company had $2,167,725 invested in marketable securities.
The Company has been investing excess cash in marketable securities since April
1996. The Company plans to use these investments to meet current and
intermediate working capital needs. The Company has also met with various
lenders to determine the type of financing arrangements which are available
should additional resources be needed. While the Company believes it can secure
additional financing, if such financing should become necessary, there can be no
assurance that such financing will be available, or if available, would be on
terms acceptable to the Company.

During the fiscal year ended July 31, 1996, the Company has been able to
maintain inventory levels which are more closely matched with manufacturing lead
times and customer demands. The Company has also been successful in reducing its
trade accounts payable to manageable levels.

In addition, as discussed, in Footnote 14, on October 28, 1996 the Company's
host for its sales programs on HSN terminated her Employment Agreement based on
an alleged breach of contract.

EFFECTS OF INFLATION-

The Company did not have any significant price increases for its products during
the fiscal years ended July 31, 1996, 1995, or 1994.

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 the
Consolidated Financial Statements appearing on page F-1 of this Annual Report 
on Form 10-K.

ITEM 9.         DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.




                                       12
<PAGE>   14
                                    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 ("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.


                                       13
<PAGE>   15
                                     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 (1) (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. (2)(Exhibit 3.2)

3.3      By-laws of the Company, as amended. (2) (Exhibit 3.3)

4.1      Form of specimen of the Company's Common Stock certificate. (3)
         (Exhibit 4.1)

10.1     Stock Option Plan. (4) (Exhibit 10.1)

10.2     New Jersey EA. Bond Financing Agreement, dated July 20,1983 and Note of
         Company thereunder.(5) (Exhibit 10.2)

10.3     Lease Agreement, dated November 30, 1983, for 720 Fifth Avenue, New
         York, New York. (6) (Exhibit 10.3)

10.4     Form of Stock Option Agreement under the Stock Option Plan. (4)
         (Exhibit 10.4)

10.5     Alfin, Inc. (f/k/a/ Alfin Fragrances, Inc.) Stock Option Plan, as
         amended. (3) (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. (1)
         (Exhibit 10.6)


                                       14
<PAGE>   16
10.7     Employment Agreement, dated as of April 4, 1990, between the Company
         and Adrienne Newman. Amending the employment agreement dated as of
         November 1, 1983 with Adrienne Newman and Seligman & Latz, Inc. (2) 
         (Exhibit 10.7)

10.8     Warrant Agreement, dated as of April 4, 1990, between the Company and
         Adrienne Newman. (2) (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)

10.20    Term Promissory Note dated February 1994, between Midlantic National
         Bank and the Company. (9)(Exhibit 10.20)


                                       15
<PAGE>   17



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    Warrant Agreement, dated November 19, 1993, between the Company and
         Adrienne Newman. (9)(Exhibit 10.22)


10.23    The 1993 Stock Option Plan of Alfin, Inc. (9)(Exhibit 10.23)

10.24    Agreement dated August 1, 1995 between the Company and CECE SA (Exhibit
         10.24)

10.25    Fourth Amendment to Amended and Restated Revolving Credit and Term Loan
         Agreement dated July 31, 1995, between the Company and Midlantic
         National Bank(Exhibit 10.25)

10.26    Agreement dated March 7,1996 between the Company and Fashion Fragrances
         and Cosmetics, Ltd. related to the sale of the business known as Robert
         Piquet (filed herewith).

10.27    Agreement dated April, 1996 between the Company and Fashion Fragrances
         and Cosmetics Ltd. Related to the licensing of Robert Piquet (filed
         herewith).

10.28    Agreement dated December 11, 1995, 1996 between the Company and Lauren
         Greenwald (filed herewith)

10.29    Fifth Amendment to Amended and Restated Revolving Credit and Term Loan
         Agreement dated December 11, 1995, between the Company and Midlantic
         National Bank (filed herewith)

10.30    Amendment No. 5 dated as of January 31, 1996, between the Company,
         Adrien Arpel, Inc. and Credit Lyonnais Bank (filed herewith)

10.31    Agreement dated November 8, 1996 between the Company and Adrienne
         Newman with respect to the sale of Adrien Arpel cosmetic products and 
         kits on The Home Shopping Network. (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 of the Company's
         Current Report on Form 8-K, reporting an event on April 5, 1990 (File
         No. 0-11434).

(2)      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). 

(3)      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).


                                       16
<PAGE>   18
(4)      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).

(5)      Incorporated by reference from the designated Exhibit to the Company's
         Registration Statement on Form S-1. File No. 2-85600).

(6)      Incorporated by reference from the designated Exhibit to the Company's
         Annual Report on form 10-K for the ear ended July 31, 1984. (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).

(10)     Incorporated by reference from the designated Exhibits to the Company's
         Annual report in Form 10K for the year ended July 31, 1995. (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.



                                       17
<PAGE>   19

                                   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 6, 1996               ALFIN, INC.

                                      By:      _______________________
                                               Elisabeth Fayer
                                               Chief Executive Officer/
                                                Director

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Elisabeth Fayer 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 October 28, 1996 on behalf of the
Registrant and in the capacities indicated.

<TABLE>
<CAPTION>

         Signature                                     Title


<S>                                                    <C>
         /S/ Elisabeth Fayer
         ----------------------                        Chief Executive Officer/
             Elisabeth Fayer                           Director


         /S/ Michael D. Ficke
         ----------------------                        Vice President
             Michael D. Ficke                          Chief Financial Officer
</TABLE>




<PAGE>   20






<TABLE>
<S>                                                    <C>
         /s/ JACQUES DESJARDINS
         ----------------------                        Director
             Jacques Desjardins



         /s/ STEVEN KORDA
         ----------------------                        Director
             Steven Korda


         /s/ SUZANNE LANGLOIS
         ----------------------                        Director
             Suzanne Langlois
</TABLE>



<PAGE>   21











                          ALFIN, INC. AND SUBSIDIARIES

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>

                                                                           PAGE
                                                                           ----


<S>                                                                         <C>
Report of Independent Public Accountants                                    F-2


Consolidated Balance Sheets as of July 31,
1996 and 1995                                                               F-3


Consolidated Statements of Operations for
the Three Fiscal Years Ended July 31, 1996                                  F-4


Consolidated Statements of Shareholders' Equity
for the Three Fiscal Years Ended July 31, 1996                              F-5


Consolidated Statements of Cash Flows for the
Three Fiscal Years Ended July 31, 1996                                      F-6

Notes to Consolidated Financial Statements                                  F-7


Schedule VIII - Valuation and Qualifying Accounts
for the Three Fiscal Years Ended July 31, 1996                              F-19
</TABLE>






                                       F-1
<PAGE>   22
                    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, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended July 31, 1996. 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 consolidated financial statements referred to above present 
fairly, in all material respects, the financial position of Alfin, Inc. and 
subsidiaries as of July 31, 1996 and 1995, and the results of their operations 
and their cash flows for each of the three years in the period ended 
July 31, 1996, 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 3 to the
financial statements, the fiscal year ended July 31, 1996 is the second
profitable year of operations in six years; however, the Company is
significantly dependent upon the Home Shopping Network ("HSN") and must satisfy 
the remaining amount due under its previous line of credit facility in November
1996. It has not yet obtained replacement financing. In addition, as discussed
in Note 14, on October 28, 1996 the Company's chief spokesperson for its slaes
programs on HSN terminated her Employment Agreement based on an alleged breach
of contract.  These factors 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 Notes 3 and 14. 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
November 11, 1996                                  ARTHUR ANDERSEN  LLP

                                       F-2
<PAGE>   23
                          ALFIN, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JULY 31, 1996 AND 1995

<TABLE>
<CAPTION>
ASSETS                                                         1996                 1995
------                                                         ----                 ----
<S>                                                       <C>                 <C>
CURRENT ASSETS:
Cash & cash equivalents                                   $  2,210,972             515,636

Accounts receivable, net of allowances
for doubtful accounts and chargebacks
of $998,769 and $634,593 at July 31,
1996 and 1995, respectively and sales
allowances of $256,264 and $406,264 at
July 31, 1996 and 1995, respectively                           680,370           1,392,315


Inventories                                                  3,271,126           3,326,567

Prepaid expenses & other current assets                        746,513              29,288
                                                          ------------        ------------

Total current assets                                         6,908,981           5,263,806
                                                          ------------        ------------

PROPERTY & EQUIPMENT                                         4,998,954           7,350,970
Less-accumulated depreciation &
      amortization                                          (3,537,025)         (5,621,515)
                                                          ------------        ------------
      Property & equipment, net                              1,461,929           1,729,455
                                                          ------------        ------------

OTHER ASSETS:
      License agreements & trademarks, net of
      accumulated amortization of $867,961
      at July 31,1995
                                                                    --             866,408
                                                         
      Goodwill, net of accumulated amortization
      of $472,957 and $394,131 at July 31,1996
      and 1995, respectively                                 2,680,081           2,758,907

Other                                                          177,195             137,694
                                                          ------------        ------------



      Total other assets                                     2,857,276           3,763,009
                                                          ------------        ------------


      Total assets                                        $ 11,228,186        $ 10,756,270
                                                          ============        ============
</TABLE>


<TABLE>
<CAPTION>
 LIABILITIES &
SHAREHOLDERS' EQUITY                                           1996                1995
--------------------                                           ----                ----
<S>                                                      <C>                 <C>
CURRENT LIABILITIES:
      Current portion of mortgage,
      note & other loans payable                          $  1,933,499        $  2,828,019
      Due to related parties                                     4,826              34,826

      Accounts Payable                                       2,177,078           3,106,090

      Accrued expenses-other                                 1,806,781           1,924,025
                                                          ------------        ------------

      Total current liabilities                              5,922,184           7,892,960


NOTE PAYABLE                                                   425,000             725,000
                                                          ------------        ------------

      Total liabilities                                      6,347,184           8,617,960
                                                          ------------        ------------

REDEEMABLE PREFERRED STOCK                                     750,000             750,000

SHAREHOLDERS' EQUITY:
       Common stock, $.01 par value
       17,000,000 shares authori-
       zed; 11,662,926 & 11,519,311
       shares issued & outstanding at
       July 31,1996 & 1995, respectively                       116,629             115,193



       Additional paid-in capital                           12,787,290          12,629,976


       Accumulated deficit                                  (8,772,917)        (11,356,859)
                                                          ------------        ------------

       Total shareholders' equity                            4,131,002           1,388,310
                                                          ------------        ------------

            Total liabilities and
            shareholders' equity                          $ 11,228,186        $ 10,756,270
                                                          ============        ============
</TABLE>


   The accompanying notes are an integral part of these consolidated balance
                                    sheets.



                                       F-3

<PAGE>   24
                          ALFIN, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    FOR THE THREE FISCAL YEARS ENDED JULY 31

<TABLE>
<CAPTION>
                                       1996               1995                1994
--------------------------------------------------------------------------------------------



<S>                               <C>                 <C>                 <C>
NET SALES                         $ 34,733,375        $ 32,151,204        $ 29,357,922

COST OF GOODS SOLD                  11,380,089           9,292,033           7,650,989
                                  ------------        ------------        ------------
Gross Profit on Sales               23,353,286          22,859,171          21,706,933

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES             20,532,894          20,898,893          22,630,785
                                  ------------        ------------        ------------
Operating Income (loss)              2,820,392           1,960,278            (923,852)
                                  ------------        ------------        ------------
OTHER (EXPENSE) INCOME

  Interest Expense                $   (313,100)       $   (439,743)       $   (461,131)


  GAIN on sale of
   license agreement                   394,392                --                  --

 Other Expense                         (27,992)            (20,889)            (42,165)
                                  ------------        ------------        ------------

  Total other income                    53,300            (460,632)           (503,296)
  (expense)                       ------------        ------------        ------------

Income (loss) before
 provision for income taxes          2,873,692           1,499,646          (1,427,148)

Provision for income taxes             181,000             135,000                --
                                  ------------        ------------        ------------


NET INCOME (LOSS)                 $  2,692,692        $  1,364,646        $ (1,427,148)
                                  ============        ============        ============

NET INCOME (LOSS) PER
COMMON & COMMON
EQUIVALENT SHARE                  $       0.22        $       0.12            $($0.14)
                                  ============        ============        ============
</TABLE>


                     The accompanying notes are an integral
                     part of these consolidated statements.

                                       F-4

<PAGE>   25
                           ALFIN, INC. & SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE THREE FISCAL YEARS ENDED JULY 31, 1996

<TABLE>
<CAPTION>

                                       Number of                     Additional
                                        Common          Common         Paid-In         Accumulated
                                        Shares           Stock         Capital            Deficit
                                        ------           -----         -------            -------

<S>                                  <C>                <C>           <C>              <C>
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)

Stock Dividends on Redeemable
Preferred Stock                          93,615             936          107,814          (108,750)
Stock Issued for Options                 50,000             500           49,500                --
Net Income                                                                               2,692,692
                                     ----------        --------       ----------       -----------

Balance, July 31, 1996               11,662,926         116,629       12,787,290        (8,772,917)
                                     ==========        ========       ==========       ===========
</TABLE>




  The accompanying notes are an integral part of these consolidated statements.

                                       F-5

<PAGE>   26
                          ALFIN, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE THREE FISCAL YEARS ENDED JULY 31, 1996

<TABLE>
<CAPTION>

Cash Flows from Operating Activities               1996               1995               1994
------------------------------------               ----               ----               ----

<S>                                            <C>                <C>                <C>
Net Income (Loss)                              $ 2,692,692        $ 1,364,646        $(1,427,148)
Adjustments to Reconcile Net
 Income (Loss) to Net Cash
 Provided by (Used in)
   Operating Activities:

Depreciation and Amortization                      749,887          1,491,472          1,136,909

Loss on Disposal of Fixed Assets                     3,750            192,605            210,816

Gain on Sale of License Agreement                 (394,392)                --                 --

Change in Assets and Liabilities:

 Decrease (Increase) Accounts Receivable           711,945          1,296,533         (1,245,273)
 Decrease (Increase) Inventory                      55,441           (773,234)         1,212,515
 (Increase) Decrease Prepaid Expenses
 and Other                                         (56,726)           291,344              7,485
(Decrease) Increase Accounts Payable &
 Accrued Expenses                               (1,046,256)          (989,177)           215,265

(Decrease) Non-Current Liabilities                      --                 --           (120,000)
                                               -----------        -----------        -----------

Total Adjustments                                   23,649          1,509,543          1,417,717
                                               -----------        -----------        -----------
Net Cash Provided by (Used in)
 Operating Activities                            2,716,341          2,874,189             (9,431)
                                               -----------        -----------        -----------

Cash Flows from Investing Activities

Capital Expenditures                              (346,485)          (387,616)          (193,140)

Sale of License Agreement                          500,000                 --                 --
                                               -----------        -----------        -----------
Net Cash Provided by (Used in)
 Investing Activities                              153,515           (387,616)          (193,140)
                                               -----------        -----------        -----------
Cash Flows from Financing Activities

Payment of Lines of Credit                        (822,520)        (1,371,408)        (6,208,442)

Borrowings from Line of Credit                     328,000            730,175          5,114,322

Proceeds from Related Parties                           --                 --          1,036,851

Payments to Related Parties                        (30,000)          (265,174)        (1,002,618)

Payment of Debt Obligations                       (300,000)        (1,074,974)        (1,310,616)

(Payment) Proceeds from Term
Promissory Note                                   (400,000)                --          1,450,000

Proceeds from Sale of Stock                         50,000                 --                 --
                                               -----------        -----------        -----------
Cash (Used in),
 Financing Activities                           (1,174,520)        (1,981,381)          (920,503)
                                               -----------        -----------        -----------

Net Increase(Decrease) in Cash                   1,695,336            505,192         (1,123,074)

 Cash at Beginning of Year                         515,636             10,444          1,133,518
                                               -----------        -----------        -----------
 Cash at End of Year                           $ 2,210,972        $   515,636        $    10,444
                                               ===========        ===========        ===========

Cash Paid During the Year For:
   Interest                                    $   297,432        $   398,774        $   457,425
   Income Taxes                                    271,695             25,819               --
</TABLE>



                   The accompanying notes are an integral part
                        of these consolidated statements.

                                       F-6
<PAGE>   27

                          ALFIN, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1) DESCRIPTION OF BUSINESS:


Alfin, Inc. (the "Company") was engaged in the 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 department stores. During the
third quarter of fiscal year 1994, ARPEL began selling specialty packaged
cosmetic products through television marketing.


(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:


PRINCIPLES OF CONSOLIDATION -


The accompanying financial statements include the accounts of Alfin, Inc., and
ADRIEN ARPEL, INC.

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.





                                       F-7
<PAGE>   28
      Inventories at July 31, 1996 and 1995 were comprised of:
<TABLE>
<CAPTION>

                                                  1996                  1995
                                                  ----                  ----
<S>                                            <C>                    <C>
Finished Goods                                 $1,303,538             $1,424,009
Raw Material and
Components                                      1,967,588              1,902,558
                                               ----------             ----------
                                               $3,271,126             $3,326,567
                                               ==========             ==========
</TABLE>

CASH & CASH EQUIVALENTS

The Company maintains money market accounts with maturities of three months or
less which are reflected as cash equivalents.

TRADE RECEIVABLES-

Trade receivables are shown net of certain valuation allowances which consist
of reserves for bad debts, reserves for returns and provisions for advertising
and salary charge backs. The provisions for advertising and salary chargebacks
are based on agreements with department stores with which the Company does
business. The Company is liable for certain advertising and salary charges
which takes place at the store level which will be deducted by the department
store at the time payment is made to the Company. The Company believes that
this presentation more accurately reflects the actual amount which will be
collected as cash receipts and that this treatment is consistant with other
fragrance and cosmetic companies. At July 31, 1996 and 1995 the Company's
provision for advertising and salary deductions was $661,353 and $364,432
respectively.

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.

Property and equipment were comprised of the following at July 31, 1996 and
1995:

<TABLE>
<CAPTION>

                                                   1996                   1995
                                                   ----                   ----

<S>                                           <C>                   <C>
Land                                          $   427,500           $   427,500
Building & Improvements                         1,224,687             1,224,687
Furniture & Fixtures                            1,393,462             2,444,087
Machinery & Equipment                           1,710,590             3,013,920
Leasehold Improvements                            242,715               240,776
                                              -----------           -----------
Total Property & Equipment                      4,998,954             7,350,970
Accumulated Depreciation                       (3,537,025)           (5,621,515)
                                              -----------           -----------
Net Property & Equipment                      $ 1,461,929           $ 1,729,455
                                              ===========           ===========
</TABLE>

OTHER ASSETS -

During March 1996 the Company sold its exclusive worldwide manufacturing,
distribution and licensing rights for FRACAS and BANDIT and other fragrances by
Robert Piquet to Fashion Fragrances and Cosmetics Ltd. ("FF&C") for $1.2
million. Under the agreement, the Company has received $500,000 with the
remaining payments of $300,000 and $400,000 due to be paid in December 1996 and
July 1997 respectively. The Company recorded a gain of $394,392 on the sale of
this asset. Until the Company receives final payment under the purchase
agreement FF&C will be a licensee of the rights to Robert Piquet. The Company is
not entitled to any royalties under this licensing agreement.

Goodwill related to the acquisition of ARPEL is being amortized using the
straight-line method over 40 years.

                                       F-8
<PAGE>   29
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, notes payable and long
term debt approximate their fair value.

INCOME TAXES

Income taxes consist of taxes on taxable income and deferred taxes for
differences in the basis of assets and liabilities for financial statement and
income tax reporting. The differences arise primarily because of the reserve
method for bad debts, accrued expenses and the use of accelerated depreciation
methods.

FOREIGN CURRENCY TRANSLATION -

Gains and losses resulting from foreign currency transactions are included in
other (expense) income and are immaterial.

FOREIGN SALES -

Net sales to foreign accounts, located in the Americas, Europe, the Middle East,
and the Far East, were approximately $2,214,243, $949,188 and $1,359,377 for the
fiscal years ended July 31, 1996, 1995 and 1994, respectively.

NET LOSS PER SHARE -

Net loss per share was computed for the fiscal years 1996 and 1995,
respectively, and using the weighted average number of common shares
outstanding, as follows:

<TABLE>
<S>                        <C>                     <C>
   1996 - 12,200,730       1995 - 11,529,542       1994 - 11,006,477
</TABLE>


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
51.9% of net sales during fiscal year 1996 and approximately 24.5% of net
outstanding accounts receivable at July 31, 1996, 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.

RECENTLY ISSUED ACCOUNTING STANDARDS -

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This
statement establishes financial accounting and reporting standards for the
impairment of long lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used, and for long-lived assets and
certain identifiable intangibles to be disposed of. This statement is effective
for financial statements for the July 31, 1997 fiscal year, although earlier
application is encouraged. The Company belives that the adoption of SFAS No. 121
will not have a material effect on its financial position or results of
operations.


                                       F-9
<PAGE>   30
In November 1995, the Financial Accounting Standards Board ("FASB") issued FASB
Statement No. 123, "Accounting for Stock-Based Compensation". This statement
establishes a fair value based method of accounting for an employee stock option
or similar equity instrument but allows companies to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees". Companies electing to remain with the accounting under APB Opinion
No. 25, must however, make pro forma disclosures of net income and earnings per
share as if the fair value based method of accounting defined in SFAS No. 123
had been applied. These disclosure requirements are effective for financial
statements for the July 31, 1997 fiscal year.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

CONCENTRATION OF REVENUES

Approximately 81% of department store sales are derived from merchandise, 5%
from salon services and 14% from seasonal promotional items. Net sales of ARPEL
products represented 99% and 96% of the Company's consolidated net sales for the
fiscal years ended July 31, 1996 and 1995, respectively.

(3) GOING CONCERN

During the fiscal year ended July 31, 1996, the Company continued to realize the
results of its restructuring efforts. The Company has effectively reduced staff
levels, implemented cost reduction programs and renegotiated its debt facilities
into more manageable terms. These factors combined with the success of sales of
ARPEL products through the Home Shopping Network ("HSN") has resulted in the
Company's second consecutive profitable year. However, the Company still remains
significantly dependent on HSN, which was responsible for approximately 50% of
net sales and must satisfy approximately $1.6 million under its previous line of
credit facility by November 1996. Although the Company has met with various
lenders to determine the type of financing arrangements, which are available,
the Company has not yet obtained replacement financing.

Previous 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 and meet customer orders. During the latter part of fiscal year 1995,
the Company also decided to suspend its distribution of fragrance products. The
Company has been concentrating 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. In addition, the Company believes that replacement financing
arrangements can be made available.

In addition, as discussed in Note 14, on October 28, 1996 the Company's selling
host for its sales programs on HSN terminated her Employment Agreement based on
an alleged breach of contract.  Refer to Note 14 for a further discussion.

(4) COMMON STOCK DIVIDENDS:

The Company has paid no cash dividends with respect to its common stock since
its inception. Dividends of common stock have been issued to holders of the
Company's Senior Cumulative Redeemable Preferred Stock (See Footnote 9).

                                      F-10
<PAGE>   31


(5) WARRANTS:

The following table lists the warrant transactions that have occurred for the
period August 1, 1993 through July 31, 1996:


                               FISCAL YEARS ENDED
                                 J U L Y   3 1

<TABLE>
<CAPTION>

                                  1996             1995           1994
------------------------------------------------------------------------------

<S>                             <C>            <C>              <C>
Warrants outstanding,
beginning of period             1,000,000       1,100,000         110,000
Granted                              --              --         1,000,000
Exercised                            --              --              --
Forfeited                         125,000         100,000          10,000

Warrants outstanding,
end of period                     875,000       1,000,000       1,100,000
Exercise prices per share
for shares under warrant,
end of period                   $    1.25       $    1.25       $1.25-$1.63
</TABLE>


Of the 875,000 warrants granted to Ms. Adrien Newman outstanding as of July 31,
1996, 625,000 are currently exercisable. Expiration of these warrants is in
November 1998.

(6) INCOME TAXES:

The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 109 "Accounting for Income Taxes" which requires using
the asset and liability method of accounting for income taxes. Under the asset
and liability method, 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. The
Company has recorded a valuation allowance equal to the amount of deferred
taxes for the fiscal years ended Juoly 31, 1996 and 1995 due to:

     --The prior operating history of the Company.
     --Dependence of the Company upon the Home Shopping
       Network ("HSN") in providing profitability.
     --No written commitment between the Company and HSN
       for appearances during fiscal 1998.
     --The status of litigation with Adrienne Newman 
       regarding her employmewnt agreement with the
       Company. Ms. Newman has been the Company's main spokesperson on HSN.

                                     F-11

     
<PAGE>   32
      Significant components of the Company's deferred income tax assets and
      liabilities at July 31, 1996 and July 31, 1995, are as follows:


<TABLE>
<CAPTION>
                                               July 31            July 31
                                                1996               1995
                                            -----------        -----------


<S>                                         <C>                <C>        
     Deferred Income Tax Assets:                

       Net operating loss
               carry forwards               $ 1,468,000        $ 2,900,000

     Alternative minimum Tax
               credit carry forward             114,000             --

     Bad debt reserve                           202,000            209,000

     Inventory reserve                          672,000            156,000

      Other                                     114,000            408,000
                                            -----------        -----------

                                              2,570,000          3,673,000

       Valuation allowance                   (2,341,000)        (3,421,000)
                                            -----------        -----------

       Net deferred tax asset                   229,000            252,000

     Deferred Income Tax Liabilities:

       Depreciation and Amortization           (229,000)          (252,000)

     Net deferred income taxes              $         0        $         0
                                            ===========        ===========
</TABLE>


At July 31, 1996, the amount of federal operating loss carry forwards was
$4,300,000 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 $707,000 of the carry forwards available for
use for the year ended July 31, 1997.

 The Provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                      For the Fiscal Year Ended July 31,
                                      ----------------------------------

<S>                                       <C>            <C>     
                                            1996           1995
                                          --------       --------
                    Current:
                    Federal               $ 96,000       $ 60,000
                    State                   85,000         75,000
                                          --------       --------

                    Total Current          181,000        135,000
                                          --------       --------

               Deferred
                    Federal                      0              0
                    State                        0              0
                                          --------       --------
                    Total Deferred               0              0
                                          --------       --------

                    Total Provision       $181,000       $135,000
                                          ========       ========
</TABLE>


                                      F-12
<PAGE>   33
 (7)  LONG TERM DEBT:

 Long term debt consists of the following:


<TABLE>
<CAPTION>
                                             1996               1995
                                          -----------        -----------


<S>                                       <C>                <C>        
       Term Promissory Note               $   725,000        $ 1,025,000
       Term loan                                   --            400,000
       Lines of credit                      1,600,000          2,100,000
       Related party loans                      4,826             34,826
       Notes payable (construction)            33,499             28,019
                                          -----------        -----------

                                            2,363,325          3,587,845
       Less, current portion               (1,938,325)        (2,862,845)
                                          -----------        -----------

       Long-term notes payable            $   425,000        $   725,000
                                          ===========        ===========
</TABLE>


 TERM PROMISSORY NOTE:

 At July 31, 1996, the Company had a term promissory note due to Midlantic in
 the amount of $725,000. 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 of 8.25% at July 31, 1996 and 1995.
 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 of 8.25%, at July
 31, 1996 and 1995, and is guaranteed by ARPEL. This term loan was paid during
 Fiscal 1996.


 The aggregate contractual annual principal payments of the term promissory note
 are as follows:


<TABLE>
<S>                                               <C>     
                       1997....................   $300,000
                       1998....................   $300,000
                       1999....................   $125,000
                       2000....................   $      0
</TABLE>


                                      F-13











<PAGE>   34
 LINES OF CREDIT:

 In addition to the above, 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. During January 1996, the Company amended its agreement with Credit
 Lyonnais to extend the expiration date of its line of credit to November 29,
 1996. The loan is secured by domestic accounts receivable of ARPEL. Borrowings
 under this line of credit were $1,600,000 and $2,100,000 at July 31, 1996 and
 1995, respectively. This line of credit bears interest at the higher of (a) the
 rate per annum established by Credit Lyonnais, New York as the reference rate
 for short term commerical loans (b)the overnight cost of funds of Credit
 Lyonnais, New York plus 1/4 of 1%. Under the financing arrangement with Credit
 Lyonnais, New York, $100,000 is due to be paid on October 30, 1996.


 RELATED PARTY LOANS:

 At July 31, 1996, the Company had advances from Fine Fragrance Distribution,
 Inc. ("FFD") in the amount of $4,826. These advances are due on demand and bear
 interest at a rate of 1.5% above the prime lending rate of Midlantic 8.25% at
 July 31, 1996 and 1995.

 (8)  RELATED PARTY TRANSACTIONS -

 The Company purchased inventory from vendors related to FFD. As of July 31,
 1996, FFD owned 61.6% of the Company's Common Stock. For the years ended July
 31, 1996 and 1995, the Company made inventory purchases from vendors related to
 FFD of $0 and $211,033, respectively. Refer to footnote 7 for related party
 loans.

 (9)  REDEEMABLE PREFERRED STOCK:

 On July 6, 1993, the Company issued 30,000 shares of $25.00, 14.5% Preferred
 Stock, maturing 10 years after issuance. Dividends paid in Common stock are
 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.

 No additional dividend has been declared or accrued as of July 31, 1996. The
 Company's Board of Directors is expected to declare a Common Stock dividend of
 approximately 66,000 shares in November 1996.


                                      F-14












<PAGE>   35
 (10) EMPLOYEE BENEFIT PLANS:


 401(k) PLAN


 During November 1995, the Board of Directors of the Company approved the
 adoption of a 401(k) Profit Sharing Plan. Under the plan eligible employees can
 contribute up to a maximum of 15% or $9,500 of their annual gross compensation.
 The Company has the option to make discretionary matching contributions. For
 the plan year ending December 31, 1996 no Company matching contribution is
 anticipated.




 (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












<PAGE>   36
 Changes in outstanding options and options available for grant pursuant to the
 1983 Plan, expressed in numbers of shares, are as follows:


<TABLE>
<CAPTION>
                                                     J u l y   3 1,

                                          1996              1995                1994
                                         -----            ------             -------
                                                                         
<S>                                      <C>              <C>            <C>
         Options outstanding,                                            
          beginning of period            5,000             9,700              55,100
         Granted                            --                --                  --
         Exercised                          --                --                  --
         Forfeited                          --            (4,700)            (45,400)
         Options outstanding,                                            
          end of period                  5,000             5,000               9,700
         Options exercisable,                                            
          end of period                  5,000             5,000               6,700
         Options available                                               
          for grant, end of                                              
          period                            --                --                  --
         Exercise price per                                              
          share for shares                                               
          under option, end                                              
          of period                      $1.00            $ 1.00         $1.00-$1.63
</TABLE>

 Changes in outstanding options and options available for grant pursuant to the
 1993 Plan, expressed in numbers of shares, are as follows:

<TABLE>
<CAPTION>
                                   July 31, 1996  July 31, 1995   July 31, 1994
                                   -------------  -------------   -------------

<S>                                <C>            <C>                <C>    
    Options outstanding,
     beginning of period               550,000         75,000             --
    Granted                                 --        500,000         75,000
    Exercised                           50,000             --             --
    Forfeited                               --        (25,000)            --
    Options outstanding,
     end of period                     500,000        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    $1.00-$1.75        $  1.75
</TABLE>


 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.


                                      F-16







<PAGE>   37
 (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:


<TABLE>
<S>                              <C>               <C>    
                                 1997              315,500
                                 1998              213,500
</TABLE>


 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 1996, 1995 and 1994 was approximately $2,008,933, $2,003,425 and
 $2,778,000, respectively. Included in these amounts is rental expense
 contingent upon sales volume for the fiscal years ended 1996, 1995 and 1994 of
 approximately $1,436,121, $1,392,893 and $2,327,400, respectively.

 Minimum annual rental commitments under non-cancelable leases in effect at July
 31, 1996, excluding escalations:

               Fiscal year ending July 31:
<TABLE>
<S>                                                                <C>    
                 1997...........................                   293,668
                 1998...........................                   267,138
                 1999...........................                   264,344
                 2000...........................                   260,931
                 2001 and thereafter............                   262,431
</TABLE>

 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:

<TABLE>
<CAPTION>
                                  FOR THE FISCAL YEARS ENDED
                                           JULY 31,

                                  1996        1995            1994
                                  ----        ----            ----

<S>                          <C>              <C>              <C>       
Advertising Costs            $1,575,905       $1,543,927       $1,674,304
</TABLE>


                                      F-17






<PAGE>   38
(14) SUBSEQUENT EVENTS:

On October 23, 1996 the Company's Chairman and Chief Executive Officer resigned
from the Company.  Ms. Elisabeth Fayer, a director and major shareholder, was
elected President of the Company prior to this resignation.  Since the
resignation, Mrs. Fayer also serves as Chief Executive Officer.

On October 28, 1996 the Company received notice from Adrienne Newman
terminating her Employment Agreement based on an alleged breach of the
Employment Agreement by the Company.  Ms. Newman serves as the President of
Adrien Arpel, Inc. and has been the selling host under the name of Adrien
Arpel, in its sales program on the Home Shopping Network, Inc. ("HSN").

The Company believes that it has fully complied with all terms of the
employment Agreement and that the termination by Ms. Newman is itself a breach
of the Employment Agreement.  The Company intends to fully enforce all of its
rights under the Employment Agreement.

On November 8, 1996 the Company and Adriene Newman reached an agreement whereby
Ms. Newman will appear as the selling host for ARPEL, the core unit of the
Company, on HSN shows scheduled for November 14-18, 1996, December 12-16, 1996
and January 23-27, 1997 (the "HSN Selling Period").  During the HSN Selling
Period, Ms. Newman will be acting as an independent contractor and not as an
employee of the Company.  The Company and Ms. Newman also agreed to refrain
from initiating legal action, if any, against the other in connection with
their dispute over Ms. Newman's termination as an employee of the Company until
after the HSN Selling Period.

The Company has not yet determined the potential impact of the effect, if any,
of this termination on its sales revenues and operating results.

 (15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)


<TABLE>
<CAPTION>
                               FIRST            SECOND             THIRD               FOURTH
    FISCAL 1996               QUARTER           QUARTER           QUARTER              QUARTER
    -----------               -------           -------           -------              -------

<S>                          <C>              <C>                <C>                <C>        
Net Sales                    $7,673,898       $ 9,110,445        $ 8,582,452        $ 9,366,580
Gross Profit                  5,502,846         5,975,188          5,712,894          6,162,358
Net Income (loss)               435,104           741,451            785,836            730,301
Net Income (loss),
per Common and Common
 Equivalent Share:           $     0.04       $      0.06        $      0.07        $      0.05


      FISCAL 1995

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
</TABLE>


                                      F-18


<PAGE>   39
                          ALFIN, INC. AND SUBSIDIARIES

                                  SCHEDULE VIII

                        VALUATION AND QUALIFYING ACCOUNTS
                    FOR THE THREE FISCAL YEARS ENDED JULY 31

-------------------------------------------------------------------------------


                                A D D I T I O N S

<TABLE>
<CAPTION>
                                          Balance at         Charged to           Charged                        Balance at
                                          Beginning          Costs and            to Other       Deductions        End of
           Description                    of Period           Expenses            Accounts          (1)            Period

<S>                                       <C>                <C>                 <C>              <C>            <C>       
 1996      Allowance for Doubtful
           Accounts Receivable,
           Chargebacks and Sales
           Returns                        $1,040,857         $4,339,814          $   --           $4,125,638     $1,255,033
                                                                             
                                                                             
 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
</TABLE>


(1) Charges to the accounts are for the purposes for which the reserves were
created.


                                      F-19



<PAGE>   40
                       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, 1996

                                   ALFIN, INC.

                                  EXHIBIT INDEX



<TABLE>
<CAPTION>
 Exhibit
   No.                      Exhibit Title                                               Page
 -------                    -------------                                               ----

<S>                <C>                                                                <C>    
  10.26            Agreement dated March 7, 1996 between the Company
                   and Fashion Fragrances and Cosmetics, Ltd. related
                   to the sale of the business known as Robert Piquet.                    1-4


  10.27            Agreement dated April 1996, between the Company and
                   Fashion Fragrances and Cosmetics Ltd. related to
                   the licensing of Robert Piquet.                                        5-8

  10.28            Agreement dated December 11, 1996 between the Company
                   and Lauren Greenwald.                                                    9

  10.29            Fifth Amendment to Amended and Restated Revolving Credit
                   and Term Loan Agreement dated December 11, 1995, between
                   the Company and Midlantic National Bank.                             10-22

  10.30            Amendment No. 5, dated as of January 31, 1996, between
                   the Company, Adrien Arpel, Inc. and Credit Lyonnais Bank.            23-27

  10.31            Agreement dated November 8, 1996 between the Company and
                   Adrienne Newman with respect to the sale of Adrien Arpel 
                   cosmetic products and kits on the Home Shopping Network.             28-31
</TABLE>





 (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.