-----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, Fpu0GXVQGVRMRcfuEymXbYCPtzK0iYh0vhnI76pFQRSYfmUqSG3xIjRcyalg8pVN YJFeXuzH2jnKtsqWiWIdkg== 0000950144-97-009137.txt : 19970815 0000950144-97-009137.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950144-97-009137 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97660765 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 FRGRANCES 10-Q 6/30/97 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, 1997 ------------- 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 (IRS employer of incorporation or organization) identification no.) 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, 1997, 16,707,823 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 In January 1997, the Company completed the first phase of its common stock buy-back program involving 350,000 shares, and the Board of Directors authorized a second phase of 500,000 additional shares. As of August 12, 1997, the Company has repurchased a total of 700,655 shares at a cost of $2,480,924 (594,055 shares at a cost of $2,256,104 as of June 30, 1997). On May 23, 1997, the Company entered into an agreement with General Electric Capital Corporation for a $25 million senior secured revolving credit facility. See "Liquidity and Capital Resources" for further discussion. RESULTS OF OPERATIONS COMPARISON OF THE THREE-MONTH PERIOD ENDED JUNE 30, 1997 WITH THE THREE-MONTH PERIOD ENDED JUNE 30, 1996. During the quarter ended June 30, 1997, net sales decreased 29% to $13,297,312 as compared to $18,739,627 for the same period for the prior year. The decrease was primarily due to the decrease in Perry Ellis "America" brand fragrance and Perry Ellis brand cosmetics gross sales of approximately $4,163,617, as these brands were launched during the quarter ended June 30, 1996. In addition, gross sales of Alexandra de Markoff (AdM) brand cosmetics decreased 45% to $1,997,891, as compared to $3,651,046 in the prior year, due to out-of-stock situations relating to the transition of manufacturing from Revlon, from whom the Company purchased the AdM brand, to third party manufacturers. The Company believes that production will be substantially in line by August 31, 1997. Gross sales of all brands other than those noted above increased by 1% from $10,377,022 in the prior year to $10,515,173 in the current year. Sales to unrelated customers, which were directly affected by the out-of-stock situation discussed above, decreased 36% to $9,174,121 in the current period compared to $14,385,864 in the same period in the prior year. Sales to related parties decreased 5% to 2 3 $4,123,191 in the current quarter compared to $4,353,763 in the same period in the prior fiscal year. Cost of goods sold increased as a percentage of net sales from 34% for the quarter ended June 30, 1996 to 37% for the current quarter. The increase was mainly attributable to the increase in the percentage of net sales to related parties as compared to total net sales. Cost of goods sold on sales to unrelated customers and related parties approximated 32% and 50%, respectively, during the quarter ended June 30, 1997. Operating expenses decreased by 10% compared to the prior fiscal year from $8,872,194 to $8,005,285, but increased as a percentage of net sales from 47% to 60%. Advertising and promotional expenses decreased 19% to $3,963,291 compared to $4,873,164 in the prior year period, reflecting a reduction in 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. The prior year period included increased promotional activity related to the launch of the Perry Ellis "America" brand fragrances. Selling and distribution costs decreased by 5% to $1,757,166 in the current fiscal period as compared to $1,851,608 in the same period of the prior fiscal year, increasing as a percentage of net sales from 10% to 13%. This increase was mainly attributable to the out-of-stock situation previously discussed, which resulted in a lower sales base to absorb these fixed costs. General and administrative expenses increased by 18% compared to the prior year period from $1,700,060 to $2,000,280, increasing as a percentage of net sales from 9% to 15%, reflecting the full period's effect of staff additions during the first quarter of fiscal 1997 and increased support required for the AdM cosmetic line. Royalties decreased to $284,548 for the current period compared to $447,362 in the prior year, but remained relatively constant at 2% of net sales. As a result of the above, the Company had operating income of $335,985 or 3% of net sales for the three-month period ended June 30, 1997, compared to $3,581,939 or 19% of net sales for the comparable period in the prior year. Interest expense decreased to $415,058 in the current fiscal year as compared to $487,873 in the same period in the prior year, remaining relatively constant at 3% of net sales. Exchange gains were $104,013 in the current year as compared to $25,792 in the same period in the prior year. Income before taxes for the current fiscal year was $24,940 compared to $3,119,858 or 17% of net sales, in the same period in the prior year. Giving effect to the tax provision, the Company reported net income of $15,507 for the current quarter ended June 30, 1997, as compared to $1,934,075 for the same quarter in the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES Working capital remained relatively constant at $49,168,064 as of June 30, 1997, compared to $49,320,272 at March 31, 1997. On July 24, 1996, the Board of Directors authorized the repurchase of up to 350,000 shares of the Company's common stock. This phase of the repurchase was completed during January 1997, at which time the Board of Directors authorized the repurchase of 3 4 an additional 500,000 shares. As of August 12, 1997, the Company has repurchased a total of 700,655 shares at a cost of $2,480,924 (594,055 shares at a cost of $2,256,104 as of June 30, 1997). The Company has overdraft and trade financing facilities aggregating 16,100,000 French francs (approximately $2,738,000 as of June 30, 1997). These credit facilities are reviewed annually. In May 1997, the Company entered into a three-year loan and Security Agreement (the Credit Agreement) with General Electric Capital Corporation (GECC). Under the Credit Agreement, the Company is able to borrow, depending on the availability of a borrowing base, on a revolving basis, up to $25,000,000 at an interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal prime rate, at the Company's option. Proceeds from the Credit Agreement were used, in part, to repay the Company's previous $10,000,000 credit facility with Finova Capital Corporation and Merrill Lynch Financial Services, Inc. GECC 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 acquisitions without the prior consent of GECC. The Credit Agreement also contains certain financial covenants relating to net worth, interest coverage and other financial ratios. Due mainly to the out-of-stock situation previously discussed which resulted in lost revenues and profits, the Company is not in compliance with certain of these financial covenants. Management is currently negotiating a waiver of this non-compliance with GECC and a modification of the covenants for future periods. Management believes that, based on current circumstances, it will be able to restructure the financial covenants with GECC, and the new Credit Agreement will be sufficient to fund the Company's operating needs. IMPACT OF CURRENCY EXCHANGE The Company's sales and purchases are virtually all in U.S. dollars or French francs. 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. The Company has completed the centralization of manufacturing in the United States which will minimize the currency exchange impact on intercompany transactions for the future. 4 5 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There are no legal proceedings of any significance. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits - Exhibit 27.......Financial Data Schedule (for S.E.C. use only). (b) There were no filings on Form 8-K during the period. 5 6 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, March 31, 1997 1997 ------------- ------------- (Unaudited) ASSETS - --------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 584,848 $ 191,486 Receivables, net of allowance for doubtful accounts, sales returns and allowances of approximately $2,674,000 and $2,494,000 at June 30, 1997 and March 31, 1997, respectively 10,201,704 14,289,841 Trade receivables from related parties 23,414,281 22,862,335 Inventories, net 35,553,672 35,595,323 Prepaid expenses and other current assets 7,976,393 8,266,126 ------------- ------------- TOTAL CURRENT ASSETS 77,730,898 81,205,111 Equipment and leasehold improvements, net 2,912,832 3,253,800 Trademarks, licenses and goodwill, net 26,431,608 26,783,807 Other 134,802 142,526 ------------- ------------- TOTAL ASSETS $ 107,210,140 $ 111,385,244 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY - --------------------------------------------- CURRENT LIABILITIES: Borrowings, current portion $ 20,931,456 $ 12,665,065 Accounts payable 5,022,668 11,904,808 Accrued expenses 1,102,710 1,622,966 Income taxes payable 1,506,000 5,692,000 Advances from customers -- -- ------------- ------------- TOTAL CURRENT LIABILITIES 28,562,834 31,884,839 Borrowings, less current portion 4,698,621 4,949,230 Deferred tax liability 432,440 432,440 ------------- ------------- TOTAL LIABILITIES 33,693,895 37,266,509 ------------- ------------- COMMITMENTS -- -- ------------- ------------- STOCKHOLDERS' EQUITY : Preferred stock, $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding -- -- Common stock, $0.01 par value, 30,000,000 shares authorized, 17,447,478 shares issued 174,475 174,475 Additional paid-in capital 66,753,596 66,753,596 Retained earnings 9,192,379 9,176,872 Cumulative translation adjustment (214,628) (103,562) ------------- ------------- 75,905,822 76,001,381 Less - 633,055 and 420,055 shares of common stock in treasury, at cost, at June 30, 1997 and March 31, 1997, respectively (2,389,577) (1,882,646) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 73,516,245 74,118,735 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 107,210,140 $ 111,385,244 ============= =============
See notes to consolidated financial statements. 6 7 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Three months ended June 30, ------------------------------- 1997 1996 ------------ ------------ (Unaudited) Net sales: Unrelated customers $ 9,174,121 $ 14,385,864 Related parties 4,123,191 4,353,763 ------------ ------------ 13,297,312 18,739,627 Cost of goods sold 4,956,042 6,285,494 ------------ ------------ Gross margin 8,341,270 12,454,133 ------------ ------------ Operating expenses: Advertising and promotional 3,963,291 4,873,164 Selling and distribution 1,757,166 1,851,608 General and administrative 2,000,280 1,700,060 Royalties 284,548 447,362 ------------ ------------ Total operating expenses 8,005,285 8,872,194 ------------ ------------ Operating income 335,985 3,581,939 Interest expense and bank charges 415,058 487,873 Exchange gains (104,013) (25,792) ------------ ------------ Income before income taxes 24,940 3,119,858 Income taxes 9,433 1,185,783 ------------ ------------ Net income $ 15,507 $ 1,934,075 ============ ============ Earnings per common and common equivalent share $ 0.00 $ 0.13 ============ ============ See notes to consolidated financial statements. 7 8 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK ---------------------------- ADDITIONAL NUMBER PAR PAID-IN RETAINED ISSUED VALUE CAPITAL EARNINGS ---------- ------------ ------------ ------------ BALANCE at April 1, 1995 3,490,214 $ 34,902 $ 11,563,537 $ 1,271,947 Net income -- -- -- 7,772,691 Issuance of common stock upon exercise of: Employee stock options 11,175 112 33,910 -- Warrants 1,056,916 10,569 3,006,022 -- Sale of stock in private placements 1,001,514 10,015 7,605,570 -- Stock issued in connection with the acquisition of assets 424,000 4,240 3,739,760 -- Conversion of debentures, net of unamortized debt issuance costs 1,073,688 10,737 6,932,408 -- Adjustment for stock split 4,398,919 43,989 -- (43,989) Foreign currency translation adjustment -- -- -- -- ---------- ------------ ------------ ------------ BALANCE at March 31, 1996 11,456,426 114,564 32,881,207 9,000,649 Net income -- -- -- 176,223 Issuance of common stock upon exercise of: Employee stock options 14,500 145 18,448 -- Options issued in connection with the acquisition of assets 176,000 1,760 1,406,240 -- Warrants 60,000 600 415,650 -- Stock issued in connection with the acquisition of assets 370,000 3,700 3,002,550 -- Conversion of debentures, net of unamortized debt issuance costs 5,370,552 53,706 29,029,501 -- Foreign currency translation adjustment -- -- -- -- Purchase of 381,055 shares of treasury stock, at cost -- -- -- -- ---------- ------------ ------------ ------------ BALANCE at March 31, 1997 17,447,478 174,475 66,753,596 9,176,872 Net income -- -- -- 15,507 Foreign currency translation adjustment -- -- -- -- Purchase of 213,000 shares of treasury stock, at cost -- -- -- -- ---------- ------------ ------------ ------------ BALANCE at June 30, 1997 (Unaudited) 17,447,478 $ 174,475 $ 66,753,596 $ 9,192,379 ========== ============ ============ ============
CUMULATIVE TRANSLATION TREASURY ADJUSTMENT STOCK TOTAL ------------ ------------ ------------ BALANCE at April 31, 1995 $ 345,753 $ (133,472) $ 13,082,667 Net income -- -- 7,772,691 Issuance of common stock upon exercise of: Employee stock options -- -- 34,022 Warrants -- -- 3,016,591 Sale of stock in private placements -- -- 7,615,585 Stock issued in connection with the acquisition of assets -- -- 3,744,000 Conversion of debentures, net of unamortized debt issuance costs -- -- 6,943,145 Adjustment for stock split -- -- -- Foreign currency translation adjustment (163,506) -- (163,506) ------------ ------------ ------------ BALANCE at March 31, 1996 182,247 (133,472) 42,045,195 Net income -- -- 176,223 Issuance of common stock upon exercise of: Employee stock options -- -- 18,593 Options issued in connection with the acquisition of assets -- -- 1,408,000 Warrants -- -- 416,250 Stock issued in connection with the acquisition of assets -- -- 3,006,250 Conversion of debentures, net of unamortized debt issuance costs -- -- 29,083,207 Foreign currency translation adjustment (285,809) -- (285,809) Purchase of 381,055 shares of treasury stock, at cost -- (1,749,174) (1,749,174) ------------ ------------ ------------ BALANCE at March 31, 1997 (103,562) (1,882,646) 74,118,735 Net income -- -- 15,507 Foreign currency translation adjustment (111,066) -- (111,066) Purchase of 213,000 shares of treasury stock, at cost -- (506,931) (506,931) ------------ ------------ ------------ BALANCE at June 30, 1997 (Unaudited) $ (214,628) $ (2,389,577) $ 73,516,245 ============ ============ ============
See notes to consolidated financial statements 8 9 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended June 30, ------------------------------- (Unaudited) 1997 1996 ------------ ------------ Cash flows from operating activities: Net income $ 15,507 $ 1,934,075 ------------ ------------ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 689,205 514,283 Changes in assets and liabilities net of effect of acquisitions: Decrease (increase) in trade receivables - customers 4,088,137 (3,323,698) Increase in trade receivables - related parties (551,946) (2,401,007) Decrease (increase) in inventories 41,651 (5,344,233) Decrease (increase) in prepaid expenses and other current assets 289,733 (2,227,126) Decrease in other non-current assets 7,724 154,445 Decrease in accounts payable (6,882,140) (5,808,387) (Decrease) increase in accrued expenses (520,256) 1,592,498 (Decrease) increase in income taxes payable (4,186,000) 1,310,910 ------------ ------------ Total adjustments (7,023,892) (15,532,315) ------------ ------------ Net cash used by operating activities (7,008,385) (13,598,240) ------------ ------------ Cash flows from investing activities: Purchases of equipment and leasehold improvements (19,679) (107,482) Sale (purchase) of trademarks 23,641 (6,173) Cash received in acquisition of Richard Barrie Fragrances, Inc. -- 55,293 ------------ ------------ Net cash provided (used) by investing activities 3,962 (58,362) ------------ ------------ Cash flows from financing activities: Payments - receivable financing and overdraft facilities (912,921) (563,468) Payments - note payable (18,309) (2,850) (Payments) proceeds - note payable to Finova Capital Corp. (7,878,091) 1,952,812 Proceeds - note payable to GE Capital Corp. 16,818,175 -- Proceeds - note payable Eagle Bank -- 12,608 Payments - note payable to Lyon Credit Corp. (206,823) -- Proceeds - note payable to Popular Bank 149,000 -- Payments - note payable to Fred Hayman Beverly Hills (125,249) (116,057) Proceeds - note payable to International Finance Bank 190,000 -- 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 Purchases of treasury stock (506,931) -- Proceeds from issuance of common stock -- 1,417,415 ------------ ------------ Net cash provided by financing activities 7,508,851 14,234,490 ------------ ------------ Effect of exchange rate changes on cash (111,066) (68,384) ------------ ------------ Net increase in cash and cash equivalents 393,362 509,504 Cash and cash equivalents, beginning of period 191,486 339,423 ------------ ------------ Cash and cash equivalents, end of period $ 584,848 $ 848,927 ============ ============
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, 1997, the Consolidated Statements of Income for the three-month period ended June 30, 1997 and 1996, and the Consolidated Statements of Cash Flows for the three-month period ended June 30, 1997 and 1996, 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, 1997 and the results of their operations and their cash flows for the three-month period ended June 30, 1997 and 1996. 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, 1997 Form 10-K as filed with the Securities and Exchange Commission on June 28, 1997. Certain reclassifications were made to the June 30, 1996 financial statements to conform with the presentation of the June 30, 1997 financial statements. 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, 1997 MARCH 31, 1997 ------------ -------------- Finished products $13,369,893 $16,075,376 Components and packaging material 16,519,849 14,944,196 Raw material 5,663,930 4,575,751 ----------- ----------- $35,553,672 $35,595,323 =========== =========== The above amounts are net of reserves for potential inventory obsolescence of approximately $2,790,000 and $2,833,000 at June 30, 1997 and March 31, 1997, 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. 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. 10 11 Parlux provided as consideration $750,000 in cash which was paid on July 1, 1996, and 370,000 shares of common stock. The common stock was valued at $3,006,250, the average price of the shares on January 30, 1996, the date of the original asset purchase agreement, which in management's opinion, better reflected the acquisition price, since the average price of the common stock at the date of closing was affected by matters unrelated to the acquisition or the regular operations of the Company. 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 2,417,957 Accounts payable and other liabilities (1,481,555) ----------- Fair value of net assets acquired $ 3,756,250 =========== D. BORROWINGS - BANKS AND OTHERS The composition of debt is as follows:
JUNE 30, 1997 MARCH 31, 1997 ------------- -------------- Revolving credit facility payable to General Electric Capital Corporation, interest at LIBOR plus 2.50% or prime (8.25% at June 30, 1997) plus .75%, at the Company's option, net of restricted cash of $627,245 $16,818,176 $ -- 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 4,569,448 4,694,699 Revolving credit facility payable to Finova Capital Corporation, interest at Citibank N.A. prime (8.25% at March 31, 1997) plus 1 3/4 %, repaid in May 1997, net of restricted cash of $884,464 -- 7,878,090 Note payable to Lyon Credit Corporation, secured by certain equipment, interest at 11%, payable in equal monthly installments of $19,142, including interest, through September 2001 778,034 984,858 Unsecured $1,000,000 line of credit payable to International Finance Bank, interest at the bank's prime rate plus 2%, due January 1, 1998 943,125 753,125 Letter of credit refinancing facility of $500,000 payable to Popular Bank of Florida, interest at the bank's prime rate plus 2%, due 149,000 -- April 1998
11 12 Receivable financing and overdraft facilities, interest at 8.75% to 10.75%, 2,197,845 3,110,766 payable on demand (1) Other notes payable 174,449 192,757 ------------ ------------ 25,360,077 17,614,295 Less: long-term borrowings (4,698,621) (4,949,230) ------------ ------------ Short-term borrowings $ 20,931,456 $ 12,665,065 ============ ============ (l) Denominated in French francs
In May 1997, the Company entered into a Loan and Security Agreement (the Credit Agreement) with General Electric Capital Corporation (GECC), pursuant to which the Company is able to borrow, depending on the availability of a borrowing base, on a revolving basis for a three-year period, up to $25,000,000 at an interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal prime rate, at the Company's option. GECC has taken a security interest in substantially all of the domestic assets of the Company. Proceeds from the Credit Agreement were used, in part, to repay the Company's previous $10,000,000 credit facility with Finova Capital Corporation and Merrill Lynch Financial Services, Inc. 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 acquisitions without the prior consent of GECC. The Credit Agreement also contains certain financial covenants relating to net worth, interest coverage and other financial ratios. Due mainly to the out-of-stock situation previously discussed which resulted in lost revenues and profits, the Company is not in compliance with certain of these financial covenants. Management is currently negotiating a waiver of this non-compliance with GECC and a modification of the covenants for future periods. The Company has overdraft and trade financing facilities aggregating 16,100,000 French francs (approximately $2,738,000 as of June 30, 1997). These credit facilities are reviewed annually. 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. The Debentures were convertible into shares of the Company's common stock at 85% of the closing price of the stock as listed on NASDAQ over specific time frames. 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. Subsequent to March 31, 1996, the remaining $11,700,000 were converted into 1,348,058 shares of common stock. During April and May 1996, the Company issued an additional $13,000,000 of 5% convertible debentures, $3,000,000 pursuant to Regulation S and $10,000,000 pursuant to Regulation D with the same conversion features and terms as those issued above, of 12 13 which $9,355,324, plus accrued interest of $130,916, were converted into 1,868,272 shares of common stock. On July 2, 1996, the Company issued an additional $10,000,000 of 5% Debentures, pursuant to Regulation D, with the same conversion features and terms as those issued above, except that the conversion rate was 86%. During October 1996, $8,412,236 of the debentures, plus accrued interest of $72,466, were converted into 2,154,222 shares of common stock. During October 1996, the Company entered into agreements to redeem $5,232,440 of the May and July Debentures which had not been converted, plus $105,638 of accrued interest thereon, by issuing $6,239,726 of 10% bonds which were repaid in accordance with their terms in December 1996. The redemption resulted in a one-time charge to net income of $901,648 during the quarter ended December 31, 1996, which was not deductible for income tax purposes. F. TRANSACTIONS WITH RELATED PARTIES The Company had net sales of $4,123,191 and $4,353,763 during the three-month periods ended June 30, 1997 and June 30, 1996, respectively, to Perfumania, Inc. (Perfumania), and no sales during the same periods to L.Luria & Son, Inc. (Luria), companies affiliated with the Company's Chairman and Chief Executive Officer. Net amounts due from Perfumania totaled $22,718,847 and $22,136,106 at June 30, 1997 and March 31, 1997, respectively. Amounts due from Luria totaled $695,434 and $726,229 at June 30, 1997 and March 31, 1997, respectively. Amounts due from related parties are non-interest bearing and are realizable in less than one year. G. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE Earnings per common and common equivalent share and the weighted average number of shares of common stock outstanding used in the computations, are summarized as follows:
THREE-MONTHS ENDED JUNE 30, -------------------------------------------------------------- 1997 1996 --------------------------- ---------------------------- FULLY FULLY PRIMARY DILUTED PRIMARY DILUTED ----------- ------- ----------- ------- Net income $ 15,507 (1) $ 1,934,075 (1) Add-reduction of interest expense -- 91,326(2) ----------- ----------- Adjusted for per share computation $ 15,507 $ 2,025,401 =========== =========== Number of shares: Weighted average shares outstanding 16,898,357 12,355,367 Add-net additional shares issuable (3) 167,435 2,999,389 ----------- ----------- weighted average shares used in the per 17,065,792 15,354,756 =========== =========== share computation Earnings per common and common equivalent share $0.00 $0.13 ===== =====
(1) The calculation of fully diluted earnings per share was not required, since it would be antidilutive. 13 14 (2) Reduction of interest expense assumes that the Debentures were converted into shares of common stock on the date of their issuance. Accordingly, no interest expense on the convertible debentures would have been incurred. (3) Assumes exercise or conversion of outstanding common stock equivalents (options, warrants and convertible debentures) at the beginning of the period, or at the date of issuance if issued during the period , net of the assumed repurchase of common stock from exercise proceeds. The assumed repurchase of common stock is based on the average price of the Company's common stock during the period for primary and, when dilutive, the end of period price for fully diluted. 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, --------------------------- 1997 1996 ------------ --------- Cash paid for: Interest $ 475,386 $482,102 Income taxes $4,297,948 $243,201 In addition to the RBF acquisition discussed in Note C, which was partially funded through the issuance of common stock and notes, during the quarter ended June 30, 1996, the Company used barter credits totaling $18,200 in payment of advertising expenses. 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, 1997 and 1996 reflects an effective tax rate of approximately 38%. I. LICENSE AND DISTRIBUTION AGREEMENTS PERRY ELLIS: The Company acquired the Perry Ellis license from Sanofi Beaute in December 1994. The Perry Ellis license is entering its twelfth 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. FRED HAYMAN: In June 1994, the Company entered into an Asset Purchase Agreement with Fred Hayman Beverly Hills, Inc. (FHBH), pursuant to which the Company purchased substantially all of the assets and liabilities of the FHBH fragrance division. In addition, FHBH granted to Parlux an exclusive royalty free 55-year license to use FHBH's United States Class 3 trademarks Fred Hayman(R), 273(R), Touch(R), With 14 15 Love(R) and Fred Hayman Personal Selections(R) and the corresponding international registrations. There are no minimum sales or advertising requirements. BARYSHNIKOV: The Company assumed the Baryshnikov license as part of the RBF acquisition, pursuant to which the Company has the exclusive right to manufacture and distribute fragrances and personal care products using the Baryshnikov trademark. The initial term of the license expires on December 31, 1997, renewable for subsequent three and four-year periods upon achieving specified sales or minimum royalty levels. The license requires the payment of royalties, and the spending of certain minimum amounts for advertising based upon the annual net sales of the products. 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. 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 spend certain minimum amounts for advertising based upon the annual net sales of the products. See Note J for further discussion. 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 initial three-year period expired March 31, 1997, and the Company has informed the Licensor that it will not renew the agreement. In accordance with the licensing agreement, the Company may produce and sell the Todd Oldham trademarked products until March 31, 1998, with no sales or advertising minimums. Sales of Todd Oldham products represented less than 1% and 3% of total Company net sales for the three-month periods ended June 30, 1997 and 1996, respectively. 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 provided for the continued use of the Francesco Smalto trademark through September 30, 1996. The agreement contained certain production 15 16 restrictions and required a fixed amount of royalties during the period. Sales of Francesco Smalto products represented less than 1% of total Company net sales for the three-month period ended June 30, 1996. J. SUBSEQUENT EVENT On August 8, 1997, the Company consummated the sale of certain assets relating to the Vicky Tiel brands to Five Star Fragrances Company, Inc. ("FSF") for approximately $680,000, which closely approximates the net book value of assets sold. The Company sold to FSF all inventories, fixed assets and licenses related to the brands, and FSF assumed certain liabilities for purchase orders issued prior to August 8, 1997. * * * * * * * * * * 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, 1997 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS MAR-31-1998 APR-01-1997 JUN-30-1997 584,848 0 12,875,782 (2,674,078) 35,553,672 77,730,898 7,564,881 (4,652,049) 107,210,410 28,562,834 0 0 0 174,475 73,341,770 107,210,140 13,297,312 13,297,312 4,956,042 4,956,042 7,861,272 40,000 415,058 29,940 9,433 15,507 0 0 0 15,507 0.00 0.00
-----END PRIVACY-ENHANCED MESSAGE-----