-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NTnaEu3Lf+I6r0HG8B+m0wksS8V/BbK65xCliOi4fQxYuEqqWC0F52isNuGh/RVG Lz3rrK+CvErIZK14uaqxGA== 0000950144-96-005577.txt : 19960816 0000950144-96-005577.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950144-96-005577 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARLUX FRAGRANCES INC CENTRAL INDEX KEY: 0000802356 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 222562955 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15491 FILM NUMBER: 96613939 BUSINESS ADDRESS: STREET 1: 3725 S W 30TH AVE CITY: FT LAUDERDALE STATE: FL ZIP: 33312 BUSINESS PHONE: 3059467700 MAIL ADDRESS: STREET 1: 3725 S W 30TH AVENUE CITY: FT LAUDERDALE STATE: FL ZIP: 33312 10-Q 1 PARLUX FRAGRANCES, INC. 10-Q 06/30/96 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ( Mark One ) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended: June 30, 1996 Or______ [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to _____________________ Commission file number: 0-15491 PARLUX FRAGRANCES, INC. ( Exact name of registrant as specified in its charter ) DELAWARE 22-2562955 ( State or other jurisdiction of (IRS employer identification no. ) incorporation or organization ) 3725 S.W. 30th Avenue, Ft. Lauderdale, FL 33312 ( Address of principal executive offices ) ( Zip code ) Registrant's telephone number, including area code 954-316-9008 ------------------------------------------------------------------------ Former name, former address and former fiscal year, if changed since last report Indicate with an "X" whether the registrant ( 1 ) has filed all reports required to be filed by Section 13 or 15( d ) of the Securities Exchange Act of 1934 during the preceding 12 months ( or for such shorter period that the registrant was required to file such reports ), and ( 2 ) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate with an "X" whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15( d ) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: As of August 12, 1996, 13,694,711 shares of the issuer's common stock were outstanding. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS See pages 6 to 9. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is management's discussion and analysis of certain significant factors which have affected the Registrant's ( the Company's ) financial position and operating results during the periods included in the accompanying financial statements and notes. This discussion and analysis should be read in conjunction with such financial statements and notes. RECENT DEVELOPMENTS On June 28, 1996, the Company consummated the acquisition of substantially all of the assets and assumption of certain liabilities of Richard Barrie Fragrances, Inc. ( RBF ) for a combination of cash and Parlux common stock, pursuant to an asset purchase agreement entered into on January 31, 1996. See Note C to the accompanying consolidated financial statements for further discussion. RESULTS OF OPERATIONS COMPARISON OF THE THREE-MONTH PERIOD ENDED JUNE 30, 1996 WITH THE THREE-MONTH PERIOD ENDED JUNE 30, 1995. During the quarter ended June 30, 1996, net sales increased 84% to $18,739,627 as compared to $10,208,769 for the same period for the prior year. Of these, net sales of Parlux continued brands ( brands which the Company owned or held licenses at March 31, 1995) were $15,453,685, an increase of 51% from the prior year. Net sales of Alexandra de Markoff ( AdM ) brand cosmetics totaled $3,285,942 in the current period. The AdM brand was acquired on December 27, 1995, and accordingly, there were no sales of AdM in the prior year period. Sales to unaffiliated parties increased 55% to $14,385,864 in the current period compared to $9,290,439 in the same period in the prior year. Sales to affiliated parties increased 374% to $4,353,763 in the current quarter compared to $918,330 in the same period in the prior fiscal year. In June 1991, the Company entered into a barter arrangement ( the Barter Agreement ) for which the Company would receive advertising credits in exchange for inventory of one of its "discontinued brands," Joan Collins. The Company expects to be able to fully utilize these advertising credits as part of its normal ongoing advertising expenditures. Advertising credits, less unearned income, are accounted for as prepaid expenses on the Company's balance sheet at the time such inventory is bartered. Unearned income equals the amount of advertising credits minus the cost of goods bartered. As advertising credits 2 3 are used by the Company, unearned income is debited and the cost of goods sold is credited. As a result, as the advertising credits are used, the aggregate cost of goods sold as a percentage of net sales decreases and gross margin as a percentage of net sales increases. Cost of goods sold for the quarter ended June 30, 1996 increased to 34% of net sales as compared to 31% of net sales in the same period in the prior year. During the quarter ended June 30, 1995, the Company utilized advertising credits amounting to $268,000 generating $134,000 of earned income which partially offset cost of goods sold during the period. Without the effects of the Barter Agreement, cost of goods sold would have been 34% for the current quarter compared to 32% for the same quarter in the prior year. The increase was mainly attributable to the increased sales to affiliated parties which result in lower margins, offset by the reduction in costs of certain components utilized in production. Operating expenses increased by 84% compared to the prior fiscal year from $4,832,741 to $8,872,194, but remained relatively constant at 47% of net sales. Advertising and promotional expenses increased 105% to $4,873,164 compared to $2,373,033 in the prior year period, reflecting increased print advertising and promotional expenses in connection with the U.S. domestic department and specialty store business resulting mainly from Perry Ellis and AdM brand activities. Selling and distribution costs increased by 119% to $1,851,608 in the current fiscal period as compared to $843,528 in the same period of the prior fiscal year, increasing as a percentage of net sales from 8% to 10%. This increase was mainly attributable to the hiring of its own domestic in-house sales force during the current quarter in lieu of using commissioned manufacturers representatives, and increased warehousing and space rental costs. These costs were incurred to position the Company for future growth. General and administrative expenses increased by 25% compared to the prior year period from $1,361,077 to $1,700,060 but decreased as a percentage of net sales from 13% to 9%, further reflecting the economies of scale realized from the FHBH, Perry Ellis and AdM acquisitions. Royalties increased to $447,362 for the current period compared to $255,103 in the prior year, principally due to the royalties required on the sale of Perry Ellis brand products. As a result of the above, the Company had operating income of $3,581,939 or 19% of net sales for the three-month period ended June 30, 1996, compared to $2,242,912 or 22% of net sales for the comparable period in the prior year. Interest expense remained relatively constant at $487,873 in the current fiscal year as compared to $481,213 in the same period in the prior year, reflecting lower interest rates on convertible debentures outstanding during the period. Exchange gains were $25,792 in the current year as compared to $53,491 in the same period in the prior year. Income before taxes for the current fiscal year was $3,119,858 or 17% of net sales, compared to $1,815,190 or 18% of net sales, in the same period in the prior year. Giving effect to the tax provision, the Company reported net income of $1,934,075 or 10% of net sales for the current quarter ended June 30, 1996, as compared to $1,141,966 or 11% of net sales for the same quarter in the prior fiscal year. 3 4 Liquidity and Capital Resources Working capital increased to $47,502,998 at June 30, 1996 from $30,800,351 at March 31, 1996. The increase during the three-month period was mainly attributable to: ( i ) During May 1996, the Company issued $10,000,000 of 5% convertible debentures, due May 1, 1998, in private placements pursuant to Regulation D. The net proceeds were used to repay current liabilities; (ii) During April 1996, the Company issued $3,000,000 of 5% convertible debentures in private placements pursuant to Regulation S. In June 1996, the debentures, plus accrued interest of $20,411, were converted into 308,727 shares of common stock, increasing working capital and stockholders' equity by approximately $2,950,000, net of placement costs; ( iii ) In connection with the RBF acquisition, the Company issued 370,000 shares of common stock to RBF, which increased stockholders' equity by $3,746,250, and, ( iv ) current period net income. On July 2, 1996, the Company issued an additional $10,000,000 of 5% convertible debentures, due June 1, 1997, in private placements pursuant to Regulation D. In August 1995, the Company entered into an agreement to borrow, on an unsecured basis, $500,000 from Distribudora de Perfumes Senderos, Ltda., with an additional $500,000 available at the option of the Company, to be drawn upon prior to October 31, 1995. The note bears interest at 12% per annum and was originally due on February 23, 1996, but was subsequently extended through September 30, 1996. In connection with the note, the Company issued warrants to purchase 53,978 shares of Parlux common stock at a price of $8.11 per share, which expire on August 21, 1997. The Company borrowed a total of $674,722 under the agreement. In May 1996, the Company paid $500,000 of this amount, leaving a balance of $174,722. This remaining balance was paid in full during August 1996. In June 1995, the Company borrowed, on an unsecured basis, $300,000 from an individual related to the Company's Chairman of the Board. The note bears interest at 11% per annum and was due on June 27, 1997. In connection with the note, the Company issued warrants to purchase 60,000 shares of Parlux common stock at a price of $6.94 per share, which expire on June 27, 1997. On July 15, 1996, these warrants were exercised, effectively converting the loan to equity. In December 1994, the Company entered into a Loan and Security Agreement ( the Credit Agreement ) with Finova Capital Corporation, pursuant to which the Company is able to borrow, on a revolving basis for a three-year period, up to $5,000,000 at an interest rate of 2% in excess of the Citibank, N.A. "base or prime rate." Finova has taken a security interest in substantially all of the domestic assets of the Company. The Credit Agreement contains customary events of default and covenants which prohibit, among other things, incurring additional indebtedness in excess of a specified amount, paying dividends, creating liens, and engaging in mergers and consolidations without the prior consent of Finova. The Credit Agreement also contains certain financial covenants relating to net worth, interest coverage and other financial ratios. In May 1996, the Credit Agreement was amended to provide for a temporary increase in the line up to $6,000,000 until August 29, 1996. 4 5 Simultaneously with the closing of the Credit Agreement, the Company restructured a prior loan extended by the National Bank of Kuwait SAK ( NBK ) by paying NBK approximately $2,120,000, including interest, from borrowings under the Credit Agreement. In exchange for such payment, NBK released Parlux, and its subsidiaries, from all outstanding liabilities and guarantees owed to NBK except for those obligations relating to a new $560,000 term loan, and a $1,000,000 letter of credit made available to support the Finova loan. The combined $1,560,000 facility was fully cash collateralized by certain shareholders' deposits. In addition, these shareholders have signed a subordination agreement in connection with the Credit Agreement. The term loan was repaid during February 1996. The Company is currently pursuing additional facilities, including an increase in the Credit Agreement, to finance future growth. There can be no assurance that such financing facilities will become available, or, if available, that they will be on terms satisfactory to the Company. Impact of Currency Exchange The Company's sales and purchases are virtually all in U.S. dollars or French francs. Since approximately 5% of the Company's sales are currently manufactured in France, a strengthening of the French franc vis-a-vis the U.S. dollar results in exchange rate losses for the Company. Conversely, a weakening of the French franc vis-a-vis the U.S. dollar results in exchange rate gains for the Company. The Company monitors exchange rates on a daily basis and regularly seeks to evaluate long-term expectations for the French franc in order to minimize its exchange rate risk. To date, the Company has not elected to engage in currency hedging transactions. The Company continues to centralize manufacturing in the United States which will minimize the currency exchange impact on intercompany transactions for the future. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no legal proceedings of any significance. 5 6 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS June 30, March 31, 1996 1996 ----------- ----------- CURRENT ASSETS: (Unaudited) Cash and cash equivalents $848,927 $339,423 Receivables, net of allowance for doubtful accounts, sales returns and allowances of approximately $3,895,000 and $2,121,000 at June 30, 1996 and March 31, 1996, respectively 14,282,004 10,892,347 Trade receivables from affiliates 15,883,430 13,482,423 Inventories, net 42,891,277 35,762,570 Prepaid expenses and other current assets 9,416,339 7,189,213 ------------- ------------- TOTAL CURRENT ASSETS 83,321,977 67,665,976 Equipment and leasehold improvements, net 3,198,342 2,475,919 Trademarks, licenses and goodwill, net 27,226,179 24,623,417 Other 394,725 473,611 ------------- ------------- TOTAL ASSETS $114,141,223 $95,238,923 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Borrowings, current portion $12,517,695 $11,564,917 Convertible debentures - 250,000 Accounts payable 14,086,284 18,739,117 Accrued expenses 3,136,090 1,543,591 Income taxes payable 6,078,910 4,768,000 Advances from customers - - ------------- ------------- TOTAL CURRENT LIABILITIES 35,818,979 36,865,625 Borrowings, less current portion 4,617,036 4,694,239 Convertible debentures 10,250,000 11,450,000 Deferred tax liability 183,864 183,864 ------------- ------------- TOTAL LIABILITIES 50,869,879 53,193,728 ------------- ------------- COMMITMENTS - - ------------- ------------- STOCKHOLDERS' EQUITY : Preferred stock, $0.01 par value, 5,000,000 shares authorized, 0 issued and outstanding - - Common stock, $0.01 par value, 15,000,000 shares authorized, 13,638,546 and 11,456,426 shares issued at June 30, 1996 and March 31, 1996, respectively 136,385 114,564 Additional paid-in capital 52,194,839 32,881,207 Retained earnings 10,934,724 9,000,649 Cumulative translation adjustment 138,868 182,247 ------------- ------------- 63,404,816 42,178,667 Less - 39,000 shares of common stock in treasury, at cost (133,472) (133,472) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 63,271,344 42,045,195 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $114,141,223 $95,238,923 ============= =============
See notes to consolidated financial statements. 6 7 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Three months ended June 30, -------------------------- 1996 1995 ----------- ------------ (Unaudited) Net sales: Unaffiliated customers $14,385,864 $9,290,439 Affiliates 4,353,763 918,330 ----------- ------------ 18,739,627 10,208,769 Cost of goods sold 6,285,494 3,133,116 ----------- ------------ Gross margin 12,454,133 7,075,653 ----------- ------------ Operating expenses: Advertising and promotional 4,873,164 2,373,033 Selling and distribution 1,851,608 843,528 General and administrative 1,700,060 1,361,077 Royalties 447,362 255,103 ----------- ------------ Total operating expenses 8,872,194 4,832,741 ----------- ------------ Operating income 3,581,939 2,242,912 Interest expense and bank charges 487,873 481,213 Exchange gains (25,792) (53,491) ----------- ------------ Income before income taxes 3,119,858 1,815,190 Income taxes 1,185,783 673,224 ----------- ------------ Net income $1,934,075 $1,141,966 =========== ============ Earnings per common and common equivalent share $0.13 $0.12 =========== ============
See notes to consolidated financial statements. 7 8 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK RETAINED --------------------- ADDITIONAL EARNINGS CUMULATIVE NUMBER PAR PAID-IN (ACCUMULATED TRANSLATION TREASURY ISSUED VALUE CAPITAL DEFICIT) ADJUSTMENT STOCK TOTAL -------- ---------- --------- ------------ ------------ --------- ----------- BALANCE at April 1, 1994 2,861,189 $28,612 $8,868,994 ($2,959,264) $129,258 - $6,067,600 Net income - - - 4,231,211 - - 4,231,211 Issuance of common stock in connection with: Exercise of employee stock options 19,025 190 61,020 - - - 61,210 Sale of stock in private placement 110,000 1,100 438,523 - - - 439,623 Acquisition of assets 500,000 5,000 2,195,000 - - - 2,200,000 Foreign currency translation adjustment - - - - 216,495 - 216,495 Purchase of 19,500 shares of treasury stock, at cost - - - - - ($133,472) (133,472) ---------- ---------- ----------- ----------- ----------- ----------- ----------- BALANCE at March 31, 1995 3,490,214 34,902 11,563,537 1,271,947 345,753 (133,472) 13,082,667 Net income - - - 7,772,691 - - 7,772,691 Issuance of common stock upon exercise of: Employee stock options 11,175 112 33,910 - - - 34,022 Warrants 1,056,916 10,569 3,006,022 - - - 3,016,591 Sale of stock in private placements 1,001,514 10,015 7,605,570 - - - 7,615,585 Stock issued in connection with the acquisition of assets 424,000 4,240 3,739,760 - - - 3,744,000 Conversion of debentures, net of 1,073,688 10,737 6,932,408 - - - 6,943,145 unamortized debt issuance costs Adjustment for stock split 4,398,919 43,989 - (43,989) - - - Foreign currency translation adjustment - - - - (163,506) - (163,506) ---------- ---------- ----------- ----------- ----------- ----------- ----------- BALANCE at March 31, 1996 11,456,426 114,564 32,881,207 9,000,649 182,247 (133,472) 42,045,195 Net income - - - 1,934,075 - - 1,934,075 Issuance of common stock upon exercise of: Employee stock options 9,500 95 9,320 - - - 9,415 Options 176,000 1,760 1,406,240 - - - 1,408,000 Stock issued in connection with the acquisition of assets 370,000 3,700 3,742,550 - - - 3,746,250 Conversion of debentures, net of - - - unamortized debt issuance costs 1,626,620 16,266 14,155,522 14,171,788 Foreign currency translation adjustment - - - - (43,379) - (43,379) ---------- ---------- ----------- ----------- ----------- ----------- ----------- BALANCE at June 30, 1996 (Unaudited) 13,638,546 $136,385 $52,194,839 $10,934,724 $138,868 ($133,472) $63,271,344 ========== ========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements. 8 9 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30, ----------------------------- (Unaudited) 1996 1995 ----------- ----------- Cash flows from operating activities: Net income $1,934,075 $1,141,966 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 514,283 343,928 Changes in assets and liabilities net of effect of acquisitions: Increase in trade receivables - customers (3,323,698) (1,108,588) (Increase) decrease in trade receivables - affiliates (2,401,007) 1,316,171 Increase in inventories (5,344,233) (1,970,023) Increase in prepaid expenses and other current assets (2,227,126) (955,705) Decrease (increase) in other non-current assets 154,445 (16,710) (Decrease) increase in accounts payable (5,808,387) 255,012 Increase in accrued expenses 1,592,498 370,771 Increase in income taxes payable 1,310,910 634,247 Decrease in advances from customers - (1,792,156) ----------- ----------- Total adjustments (15,532,315) (2,923,053) ----------- ----------- Net cash used by operating activities (13,598,240) (1,781,087) ----------- ----------- Cash flows from investing activities: Purchases of equipment and leasehold improvements (107,482) (114,084) Purchases of trademarks (6,173) (27,999) Cash received in acquisition of Richard Barrie Fragrances, Inc. 55,293 - ----------- ----------- Net cash used in investing activities (58,362) (142,083) ----------- ----------- Cash flows from financing activities: Payments - receivable financing and overdraft facilities (563,468) (160,439) (Payments) proceeds - note payable (2,850) 300,000 Proceeds - note payable to Finova Capital Corp. 1,952,812 679,867 Payments - note payable to National Bank of Kuwait - (150,000) Proceeds - note payable Eagle Bank 12,608 165,000 Payments - note payable to Sanofi Beaute, Inc. - (1,243,076) Payments - note payable to Fred Hayman Beverly Hills (116,057) - Payments - note payable to Parfums Jean Desprez (508,925) - Payments - note payable to Distr. de Perfumes Senderos (500,000) - Payments - note payable to stockholder (148,545) - Proceeds - 5% convertible debentures, net 12,691,500 - Proceeds from issuance of common stock 1,417,415 1,824,366 ----------- ----------- Net cash provided by financing activities 14,234,490 1,415,718 ----------- ----------- Effect of exchange rate changes on cash (68,384) (8,665) ----------- ----------- Net increase (decrease) in cash and cash equivalents 509,504 (516,117) Cash and cash equivalents, beginning of period 339,423 575,700 ----------- ----------- Cash and cash equivalents, end of period $848,927 $59,583 =========== ===========
See notes to consolidated financial statements. 9 10 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. The Consolidated Balance Sheet as of June 30, 1996, the Consolidated Statements of Income for the three-month period ended June 30, 1996 and 1995, and the Consolidated Statements of Cash Flows for the three-month period ended June 30, 1996 and 1995, have been prepared without audit. In the opinion of management, the statements reflect all adjustments consisting of normal recurring adjustments necessary to present fairly the financial position of Parlux Fragrances, Inc., and subsidiaries at June 30, 1996 and the results of their operations and their cash flows for the three-month period ended June 30, 1996 and 1995. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's March 31, 1996 Form 10-K as filed with the Securities and Exchange Commission on June 28, 1996. Certain reclassifications were made to the June 30, 1995 financial statements to conform with the presentation of the June 30, 1996 financial statements. All comparable share information has been restated to reflect the two-for-one stock split consummated in November 1995. B. INVENTORIES Inventories are stated at the lower of cost ( first-in, first-out method ) or market. The components of inventories are as follows:
June 30, 1996 March 31, 1996 ------------- -------------- Raw Material, Packaging and Components $24,225,773 $22,285,515 Finished Products 18,665,504 13,477,055 ---------- ------------ $42,891,277 $35,762,570 ========== ============
The above amounts are net of reserves for potential inventory obsolescence of approximately $1,871,000 and $1,200,000 at June 30, 1996 and March 31, 1996, respectively. C. ACQUISITIONS On June 28, 1996, the Company consummated the acquisition of substantially all of the assets and assumption of certain liabilities of Richard Barrie Fragrances, Inc. (RBF), pursuant to an asset purchase agreement entered into on January 31, 1996. 10 11 Parlux acquired from RBF certain inventories, fixed assets and licenses relating to the brands Baryshnikov and Melrose Place, as well as fixed assets located in RBF's office and distribution center in Orange, Connecticut. Parlux provided as consideration $750,000 in cash which was paid on July 1, 1996, and 370,000 shares of common stock valued at $3,746,250. The estimated fair value of the net assets acquired is summarized as follows: Molds and other fixed assets $ 893,856 Inventories, net 1,784,474 Other assets 141,518 Goodwill and licenses 2,831,957 Accounts payable and other liabilities (1,155,555) --------- Fair value of net assets acquired $4,496,250 ==========
On March 19, 1996, the Company consummated the acquisition of the trademarks and certain inventory for the Bal a Versailles (BAV) fragrance and beauty products brand name from Parfums Jean Desprez, S.A., pursuant to a letter of intent entered into on January 11, 1996. At closing, the Company provided as consideration $1,697,500 in cash and $2,553,360 in the form of non-interest bearing promissory notes due in varying installments through August 1996. The estimated fair value of the assets acquired is summarized as follows: Goodwill, licenses and trademarks $2,772,500 Inventories 978,360 Covenant-not-to-compete 300,000 Molds and other fixed assets 200,000 ---------- Fair value of assets acquired $4,250,860 ==========
On December 27, 1995, the Company consummated the acquisition of substantially all of the assets of Alexandra de Markoff (AdM), a prestige cosmetic line, pursuant to an asset purchase agreement entered into on September 21, 1995 between the Company and Revlon Holdings, Inc. (Revlon). Parlux acquired from Revlon certain inventories and fixed assets and the rights in certain trademarks relating to AdM. Parlux provided as consideration $8,608,000 in cash, 424,000 shares of common stock valued at $3,392,000 and agreed to accept returns and allowances in excess of $100,000 related to sales of AdM products by Revlon prior to December 27, 1995. In addition, the Company granted Revlon an option to purchase 176,000 shares of the Company's common stock, until June 30, 1996, at an exercise price of $8.00 per share, which was exercised in May 1996. 11 12 The estimated fair value of the net assets acquired is summarized as follows: Goodwill, licenses and trademarks $10,267,000 Advances for future inventory purchases 4,000,000 Molds and other fixed assets 85,000 Reserve for sales returns and allowances (2,000,000) ---------- Fair value of net assets acquired $12,352,000 ===========
D. BORROWINGS - BANKS AND OTHERS The composition of debt is as follows:
June 30, 1996 March 31, 1996 ------------- -------------- Note payable to FHBH, secured by the acquired licensed trademarks, interest at 7.25%, payable in equal monthly installments of $69,863 through June 2004 $5,057,152 $5,173,209 Revolving credit facility payable to Finova Capital Corporation, interest at Citibank N.A. prime (8.25% at June 30, 1996) plus 1 3/4%, payable on December 27, 1997 5,841,190 3,888,378 Notes payable to Parfums Jean Desprez, non- interest bearing, payable in installments through November 1996 2,044,435 2,553,360 Note payable to RBF, non-interest bearing, 750,000 --- paid on July 2, 1996 Unsecured $500,000 line of credit payable to Eagle National Bank, interest at the bank's prime rate plus 2%, due August 1, 495,000 482,392 1996 Note payable to Distribudora de Perfumes Senderos, Ltda., unsecured, interest at 12% due September 30, 1996 174,722 674,722 Receivable financing and overdraft facilities, interest at 9.20% to 10.45%, 2,004,776 2,568,244 payable on demand (1) Note payable to stockholder, interest at 10%, repaid in May 1996 --- 148,544 Unsecured notes payable to related parties, interest at 11%, due September 30, 1996 700,000 700,000 Other notes payable 67,456 70,307 ----------- ----------- 17,134,731 16,259,156 Less: long-term borrowings (4,617,036) (4,694,239) ----------- ----------- Short-term borrowings $12,517,695 $11,564,917 =========== =========== (l) Denominated in French francs
12 13 In December 1994, the Company entered into a Loan and Security Agreement ( the Credit Agreement ) with Finova Capital Corporation ( Finova ), ( formerly Greyhound Financial Corporation ) pursuant to which the Company is able to borrow, depending on the availability of a borrowing base, as defined in the Credit Agreement, on a revolving basis for a three-year period, up to $5,000,000, at an interest rate of 2% in excess of Citibank, N.A. "base or prime rate." Finova has taken a security interest in substantially all of the domestic assets of the Company. The Credit Agreement contains customary events of default and covenants which prohibit, among other things, incurring additional indebtedness in excess of a specified amount, paying dividends, creating liens, and engaging in mergers and consolidation without the prior consent of Finova. The Credit Agreement also contains certain financial covenants relating to net worth, interest coverage and other financial ratios. In May 1996, the Credit Agreement was amended to provide for a temporary increase in the line up to $6,000,000 until August 29, 1996. Simultaneously with the closing of the Credit Agreement, the Company restructured a prior loan extended by the National Bank of Kuwait SAK ( NBK ) by paying NBK approximately $2,120,015, including interest, from borrowings under the Credit Agreement. In exchange for such payment, NBK released Parlux, and all of its subsidiaries, from all outstanding liabilities and guarantees owed to NBK, except for those obligations relating to a new $560,000 term loan, and a $1,000,000 letter of credit made available to support the Finova loan. The combined $1,560,000 facility was fully cash collateralized by certain shareholders' deposits. In addition, the shareholders have signed a subordination agreement in connection with the Credit Agreement. The term loan was repaid during February 1996. The Company has overdraft and trade financing facilities aggregating 15,950,000 French francs (approximately $3,098,000 as of June 30, 1996). These credit facilities are reviewed annually. In August, 1995, the Company entered into an agreement to borrow, on an unsecured basis, $500,000 from Distribudora de Perfumes Senderos, Ltda., with an additional $500,000 available at the option of the Company, to be drawn upon prior to October 31, 1995. The note bears interest at 12% per annum and is due on February 23, 1996. The Company borrowed a total of $674,722 under the agreement. In May 1996, the Company paid $500,000, leaving a balance due of $174,722, which was subsequently paid in full during August 1996. In June 1995, the Company borrowed, on an unsecured basis, $300,000 from an individual related to the Company's Chairman of the Board. The note bears interest at 11% per annum and was due on June 27, 1997. In connection with the note, the Company issued warrants to purchase 60,000 shares of Parlux common stock at a price of $6.94 per share, which expire on June 27, 1997. On July 15, 1996, these warrants were exercised effectively converting the loan to equity. The Company is currently pursuing additional facilities, including an increase in the Credit Agreement, to finance future growth. There can be no assurance that such financing facilities will become available, or, if available, that they will be on terms satisfactory to the Company. 13 14 E. CONVERTIBLE DEBENTURES During the period November 2, 1995 through March 31, 1996, the Company issued $3,700,000 of 7% convertible debentures and $15,000,000 of 5% convertible debentures (the Debentures), pursuant to Regulation S with maturities between one and two years. The Debentures were convertible into shares of the Company's common stock at 85% of the average closing price of the stock over a five-day period prior to conversion. As of March 31, 1996, $7,000,000 of the Debentures, plus accrued interest of $48,146, had been converted into 1,073,688 shares of common stock and $10,000,000 of the 5% Debentures and $1,700,000 of the 7% Debentures were outstanding. During the period April 1, 1996 through June 30, 1996, an additional $11,450,000 have been converted into 1,317,893 shares of common stock. Accordingly, these $11,450,000 of Debentures were classified as long-term in the accompanying consolidated balance sheet at March 31, 1996. During April and May 1996, the Company issued an additional $13,000,000 ($3,000,000 and $10,000,000 pursuant to Regulation S and Regulation D, respectively) in 5% Debentures with the same conversion features and terms as those issued above, of which $3,000,000, plus accrued interest of $20,411, have been converted into 308,727 shares of common stock during June 1996. The remaining $10,000,000 may convert, at the option of the holder, during the period August 12, 1996 through May 1, 1998 (the maturity date of the debenture). On July 2, 1996, the Company issued an additional $10,000,000 of 5% Debentures, due June 1, 1997, in private placements pursuant to Regulation D, with the same conversion features and terms as those issued above, except that the conversion rate is 86%. F. TRANSACTIONS WITH AFFILIATES Sales to Perfumania, Inc., a public company affiliated with the Company's Chairman of the Board, amounted to $4,353,763 or 23% of net sales for the three-month period ended June 30, 1996, as compared to $918,330 or 9% of net sales in the same period for the prior fiscal year. Amounts due from Perfumania amounted to $15,883,430 and $13,482,423 at June 30, 1996 and March 31, 1996, respectively. G. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE On October 26, 1995, the Company announced a two-for-one stock split in the form of a dividend to shareholders of record as of November 3, 1995. The following share and per share data have been retroactively adjusted to reflect the transaction. Fully diluted earnings per common and common equivalent share have been computed based upon the weighted average number of shares of common stock outstanding of 14 15 15,351,469 and 9,722,738 for the three-month periods ended June 30, 1996 and 1995, respectively. H. CASH FLOW INFORMATION The Company considers temporary investments with an original maturity of three months or less to be cash equivalents. Supplemental disclosures of cash flow information are as follows:
Three-months ended June 30, --------------------------- 1996 1995 ---- ---- Cash paid for: Interest $482,102 $386,198 Income taxes $243,201 $ 38,813
In addition to the RBF, BAV and AdM acquisitions discussed in Note C, which were partially funded through the issuance of common stock and notes, the Company used barter credits totaling $18,200 ($684,000 in 1995) in payment of advertising expenses. Additionally, during 1995, notes payable and accrued interest in the amount of $350,000 and $178,750, respectively, were repaid through the issuance of common stock in connection with the exercise of certain warrants and options. I. INCOME TAXES As of March 31, 1995, the Company had utilized its remaining U.S. net operating loss carryovers. The provision for income taxes for the periods ended June 30, 1995 and 1996 reflects an effective tax rate of approximately 38%. I. LICENSE AND DISTRIBUTION AGREEMENTS PERRY ELLIS: As discussed in Note C, the Company acquired the Perry Ellis license from Sanofi Beaute. The Perry Ellis license is entering its eleventh year, and is renewable every two years if the average annual sales in the completed period exceed 75% of the average sales of the previous four years. All minimum sales levels have been met by the previous licensee, and the Company believes that this will continue. The license requires the payment of royalties, which decline as a percentage of net sales as net sales volume increases, and the spending of certain minimum amounts for advertising based upon net sales levels achieved in the prior year. VICKY TIEL: In September 1992, the Company entered into an exclusive worldwide license agreement with VICKY TIEL S.A. in which the Company secured the rights to manufacture and distribute fragrances and beauty care products using the VICKY TIEL trademark for an initial five-year period, renewable for a subsequent five-year period upon achieving specified sales or minimum royalty levels. Under this agreement, the Company is obligated to pay royalties calculated as a percentage of net sales, which decline as net sales volume increases. The Company is also obligated to 15 16 spend certain minimum amounts for advertising based upon the annual net sales of the products. TODD OLDHAM: In December 1992, the Company entered into an exclusive worldwide licensing agreement with L-7 Designs, Inc. in which the Company secured the rights to manufacture and distribute fragrances and beauty care products using the TODD OLDHAM trademark for an initial period of three-years, renewable for subsequent three-year and four-year periods upon achieving specified sales or minimum royalty levels. The license requires the payment of royalties, which decline as a percentage of net sales as net sales volume increases, and the spending of certain minimum amounts for advertising based upon net sales levels. The Company launched a TODD OLDHAM women's fragrance line in March 1995. PHANTOM OF THE OPERA: In April 1993, the Company entered into an exclusive worldwide agreement with Creative Fragrances, Inc., for the worldwide distribution rights to PHANTOM OF THE OPERA covering men's and women's fragrances and beauty related products. The agreement expires in April 1998. Royalties are payable at 7% of net sales, and there are no minimum royalty requirements, nor are there minimum requirements for sales or advertising. FRANCESCO SMALTO: In May 1995, the Company terminated its license agreement with FRANCESCO SMALTO INTERNATIONAL (SMALTO) for breach of contract. On October 5, 1995, the Company entered into a transition and termination agreement with SMALTO which provides for the continued use of the Francesco Smalto trademark through September 30, 1996. The agreement contains certain production restrictions and requires a fixed amount of royalties during the period, which the Company anticipates will not exceed 5% of net sales of SMALTO fragrances. Sales of Francesco Smalto products represented approximately 7% of total Company net sales for the year ended March 31, 1996, and less than 1% in the three-month period ended June 30, 1996. J. SUBSEQUENT EVENTS On July 12, 1996, a proxy statement was distributed to shareholders of record as of June 28, 1996, requesting a special shareholders' meeting to vote on a proposed increase in the authorized shares of common stock from 15,000,000 to 30,000,000 shares. On August 12, 1996, the shareholders approved the proposal. On July 18, 1996, the Company filed a Form S-3 registration statement with the Securities and Exchange Commission to register 460,000 shares of previously issued and outstanding common stock, and 1,617,646 shares of common stock underlying the $10,000,000 of 5% convertible debentures issued during May 1996. * * * * * * * * * * 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PARLUX FRAGRANCES, INC. /s/ Ilia Lekach Ilia Lekach, Chairman and Chief Executive Officer /s/ Frank A. Buttacavoli Frank A. Buttacavoli, Executive Vice President, Chief Financial Officer and Director Date: August 13, 1996 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF PARLUX FRAGRANCES, INC. FOR THE THREE MONTHS ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS MAR-31-1997 APR-01-1996 JUN-30-1996 848,927 0 34,060,434 (3,895,000) 42,891,277 83,321,977 6,565,628 (3,367,286) 114,141,223 35,818,979 0 0 0 136,385 63,134,959 114,141,223 18,739,627 18,739,627 6,285,494 8,831,402 0 15,000 487,873 3,119,858 1,185,783 1,934,075 0 0 0 1,934,075 .13 .13
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