-----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, NQXS7F5Gx/FGravO5SRGDjmf8hUapm1YVlqcjsJkKOqXRgdFfj0UkgB4wWVBsRBn DrXOOyfjYvIMkLzdvE8P9g== /in/edgar/work/20000811/0001042910-00-001468/0001042910-00-001468.txt : 20000921 0001042910-00-001468.hdr.sgml : 20000921 ACCESSION NUMBER: 0001042910-00-001468 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000811 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARLUX FRAGRANCES INC CENTRAL INDEX KEY: 0000802356 STANDARD INDUSTRIAL CLASSIFICATION: [2844 ] IRS NUMBER: 222562955 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15491 FILM NUMBER: 693529 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 0001.txt QUARTERLY REPORT 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, 2000 ------------- 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 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 11, 2000, 9,969,184 shares of the issuer's common stock were outstanding. PART I. FINANCIAL INFORMATION Item 1. Financial Statements PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
June 30, March 31, ASSETS 2000 2000 - ------ ---- ---- - ----------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 25,587 $ 17,464 Receivables, net of allowance for doubtful accounts, sales returns and advertising allowances of approximately $3,654,000 and $3,320,000, respectively 3,917,441 6,066,149 Trade receivables from related parties 9,460,996 9,561,550 Note receivable from related party 5,043,151 2,500,000 Inventories, net 23,756,604 23,419,613 Prepaid expenses and other current assets 7,888,123 8,392,277 Investment in affiliate 3,875,540 8,034,657 ------------ ------------ TOTAL CURRENT ASSETS 53,967,442 57,991,710 Equipment and leasehold improvements, net 2,123,840 2,289,159 Trademarks, licenses and goodwill, net 21,249,897 21,468,737 Other 110,866 112,422 ------------ ------------ TOTAL ASSETS $ 77,452,045 $ 81,862,028 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES: Borrowings, current portion $ 12,024,998 $ 9,993,966 Accounts payable 9,204,736 10,554,068 Accrued expenses 775,627 1,379,483 Income taxes payable 1,560,336 1,310,811 ------------ ------------ TOTAL CURRENT LIABILITIES 23,565,697 23,238,328 Borrowings, less current portion 2,331,828 2,571,252 Deferred tax liability 827,200 2,407,664 ------------ ------------ TOTAL LIABILITIES 26,724,725 28,217,244 ------------ ------------ COMMITMENTS AND CONTINGENCIES -- -- ------------ ------------ STOCKHOLDERS' EQUITY : Preferred stock, $0.01 par value, 5,000,000 shares authorized, 0 shares issued and outstanding at June 30, and March 31, 2000 -- -- Common stock, $0.01 par value, 30,000,000 shares authorized, 17,986,065 and 17,973,103 shares issued at June 30, and March 31, 2000, respectively 179,861 179,731 Additional paid-in capital 74,001,377 73,977,590 Retained earnings (accumulated deficit) 327,548 (473,338) Accumulated other comprehensive income (loss) (743,551) 1,834,607 Notes receivable from officer (920,920) (899,105) ------------ ------------ 72,844,315 74,619,485 Less - 8,017,131 and 7,856,798 shares of common stock in treasury, at cost, at June 30, and March 31, 2000, respectively (22,116,995) (20,974,701) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 50,727,320 53,644,784 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 77,452,045 $ 81,862,028 ============ ============
See notes to consolidated financial statements. 2 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended June 30, ----------------------------------------- 2000 1999 ------------ ------------ Net sales: Unrelated customers $ 9,595,519 $ 6,623,323 Related parties 7,315,666 8,306,510 ------------ ------------ 16,911,185 14,929,833 Cost of goods sold 7,274,772 6,702,975 ------------ ------------ Gross margin 9,636,413 8,226,858 ------------ ------------ Operating expenses: Advertising and promotional 4,400,212 3,454,120 Selling and distribution 1,556,095 1,324,759 General and administrative, net of licensing fees of $162,500 in 2000 and $150,000 in 1999 1,050,224 930,229 Depreciation and amortization 538,252 620,230 Royalties 570,228 570,513 ------------ ------------ Total operating expenses 8,115,011 6,899,851 ------------ ------------ Operating income 1,521,402 1,327,007 Interest income 102,911 92,383 Interest expense and bank charges (332,562) (325,158) ------------ ------------ Income before income taxes 1,291,751 1,094,232 Income taxes provision (490,865) (415,808) ------------ ------------ Net income $ 800,886 $ 678,424 ============ ============ Income per common share: Basic $ 0.08 $ 0.05 ============ ============ Diluted $ 0.07 $ 0.05 ============ ============
See notes to consolidated financial statements. 3 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
COMMON STOCK RETAINED --------------------------- ADDITIONAL EARNINGS NUMBER PAR PAID-IN ACCUMULATED ISSUED VALUE CAPITAL (DEFICIT) ------------ ------------ -------------- ------------- BALANCE at March 31, 1998 17,447,478 $174,475 $73,007,949 ($5,764,404) Comprehensive income: Net income - - - 1,418,455 Foreign currency translation adjustment - - - - Total comprehensive income Issuance of common stock upon exercise of employee options 15,000 150 22,637 - Purchase of 1,165,276 shares of treasury stock, at cost - - - - Notes receivable from officer - - - - ---------- --------- ------------- -------------- BALANCE at March 31, 1999 17,462,478 174,625 73,030,586 (4,345,949) Comprehensive income: Net income - - - 3,872,611 Unrealized holding gains on investment in affiliate, net of taxes of $1,340,521 - - - - Foreign currency translation adjustment - - - - Total comprehensive income - - - - Issuance of common stock upon exercise of: Employee stock options 10,625 106 14,504 Warrants 500,000 5,000 932,500 Purchase of 4,049,767 shares of treasury stock, at cost - - - - Notes receivable from officer - - - - ----------- ------------ ------------- ------------ BALANCE at March 31, 2000 17,973,103 179,731 73,977,590 (473,338) Comprehensive income: Net income - - - 800,886 Unrealized holding loss on investment in affiliate, net of a tax credit of $239,943 - - - - Foreign currency translation adjustment - - - - Total comprehensive income Issuance of common stock upon exercise of: Employee stock options 12,962 130 23,787 Warrants - - - Purchase of 312,333 shares of treasury stock, at cost - - - - Notes receivable from officer - - - - ---------- ------------ -------------- ------------- BALANCE at June 30, 2000 17,986,065 $ 179,861 $ 74,001,377 $ 327,548 =========== =========== ============= ============
[RESTUBBED]
ACCUMULATED NOTES OTHER RECEIVABLE COMPREHENSIVE TREASURY FROM (LOSS) INCOME (1) STOCK OFFICER TOTAL ----------------- ----- ------- ----- BALANCE at March 31, 1998 ($355,331) ($5,894,250) ($150,000) $61,018,439 Comprehensive income: Net income - - - 1,418,455 Foreign currency translation adjustment 3,826 - - 3,826 -------------- Total comprehensive income 1,422,281 -------------- Issuance of common stock upon exercise of employee options - - - 22,787 Purchase of 1,165,276 shares of treasury stock, at cost - (2,332,817) - (2,332,817) Notes receivable from officer - - (276,446) (276,446) ---------------- ------------- ------------- -------------- BALANCE at March 31, 1999 (351,505) (8,227,067) (426,446) 59,854,244 Comprehensive income: Net income - - - 3,872,611 Unrealized holding gains on investment in affiliate, net of taxes of of $1,340,521 2,187,166 - - 2,187,166 Foreign currency translation adjustment (1,054) - - (1,054) -------------- Total comprehensive income 6,058,723 -------------- Issuance of common stock upon exercise of: Employee stock options 14,610 Warrants 937,500 Purchase of 4,049,767 shares of treasury stock, at cost - (12,747,634) (12,747,634) Notes receivable from officer - - (472,659) (472,659) ---------------- ------------- ------------- -------------- BALANCE at March 31, 2000 1,834,607 (20,974,701) (899,105) 53,644,784 Comprehensive income: Net income - - - 800,886 Unrealized holding loss on investment in affiliate, net of a tax benefit of $239,943 (2,578,653) - - (2,578,653) Foreign currency translation adjustment 495 - - 495 -------------- Total comprehensive income (1,777,272) -------------- Issuance of common stock upon exercise of: Employee stock options 23,917 Warrants - Purchase of 312,333 shares of treasury stock, at cost - (1,142,294) (1,142,294) Notes receivable from officer - - (21,815) (21,815) ---------------- ------------- ------------- -------------- BALANCE at June 30, 2000 $ (743,551) $ (22,116,995) $ (920,920) $ 50,727,320 ================ ============= ============ ============
(1) Accumulated other comprehensive (loss) income includes foreign currency translation adjustments and unrealized holding gains (losses) on investment in affiliate. See notes to consolidated financial statements. 4 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended June 30, -------------------------------- 2000 1999 ----------- ----------- Cash flows from operating activities: Net income $ 800,886 $ 678,424 ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 538,252 620,230 Provision for doubtful accounts 210,000 101,869 Reserve for prepaid promotional supplies and inventory obsolescence 150,000 909,498 Changes in assets and liabilities Decrease in trade receivables - customers 1,938,708 128,107 Increase in note and trade receivables - related parties (2,442,597) (3,121,378) Increase in inventories (14,810) (3,144,446) Decrease in prepaid expenses and other current assets and income tax receivable 31,973 1,174,495 Decrease in other non-current assets 1,556 3,984 (Decrease) increase in accounts payable (1,349,332) 3,620,385 (Decrease) increase in accrued expenses and income taxes payable (354,331) 500,183 ----------- ----------- Total adjustments (1,290,581) 792,927 ----------- ----------- Net cash (used in) provided by operating activities (489,695) 1,471,351 ----------- ----------- Cash flows from investing activities: Purchases of equipment and leasehold improvements (105,216) (568,312) Purchase of trademarks (48,877) (27,520) ----------- ----------- Net cash used in investing activities (154,093) (595,832) ----------- ----------- Cash flows from financing activities: Proceeds - note payable to GE Capital 2,028,282 396,768 Payments - note payable to Fred Hayman Beverly Hills (155,580) (144,731) Payments - note payable to Lyon Credit Corp. (49,125) (43,998) Payments - note payable to Bankers Capital Leasing (31,969) (29,689) Payments - other notes payable -- (12,947) Notes receivable from officer (21,815) -- Purchases of treasury stock (1,142,294) (949,019) Proceeds from issuance of common stock 23,917 -- ----------- ----------- Net cash provided by (used in) financing activities 651,416 (783,616) ----------- ----------- Effect of exchange rate changes on cash 495 (1,402) ----------- ----------- Net increase in cash and cash equivalents 8,123 90,501 Cash and cash equivalents, beginning of period 17,464 184,148 ----------- ----------- Cash and cash equivalents, end of period $ 25,587 $ 274,649 =========== ===========
See notes to consolidated financial statements. 5 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. Basis of Presentation The consolidated financial statements include the accounts of Parlux Fragrances, Inc. and Parlux, S.A., a wholly-owned inactive French subsidiary ("S.A.") and Parlux Ltd. (jointly referred to as the "Company"). All material intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. The financial information presented herein, which is not necessarily indicative of results to be expected for the current fiscal year, reflects all adjustments which, in the opinion of management, are necessary for a fair presentation of the interim unaudited consolidated financial statements. 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, 2000 Form 10-K as filed with the Securities and Exchange Commission on July 14, 2000. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Management is currently negotiating with other banks to obtain financing to replace the Credit Agreement. As of June 30, 2000, the Company has not obtained financing from an alternative source. Management's plan initially consists of obtaining sufficient financing from alternative sources to replace the Credit Agreement and management believes that funds from operations and any new financing will be sufficient to meet the Company's operating needs. There is no assurance, however, that alternative financing will be available in the future, and if available, at terms and conditions agreeable to the Company. This factor among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Certain reclassifications were made to the June 30, 1999 financial statements to conform with the presentation of the June 30, 2000 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, 2000 March 31, 2000 ------------- -------------- Finished products $13,158,595 $13,616,034 Components and packaging material 6,776,985 6,780,534 Raw material 3,822,290 3,023,045 ----------- ----------- $23,756,604 $23,419,613 =========== =========== 6 The cost of inventories includes product costs and handling charges, including allocation of the Company's applicable overhead in the amount of $1,845,000 at June 30, 2000 and March 31, 2000. The above amounts are net of reserves for potential inventory obsolescence of approximately $1,722,000 and $1,520,000 at June 30, 2000 and March 31, 2000, respectively. C. Trademarks, Licenses and Goodwill Trademarks, licenses and goodwill, which are being amortized over twenty-five years, are attributable to the following brands: June 30, March 31, -------- --------- 2000 2000 ---- ---- Owned Brands: Alexandra de Markoff $11,191,174 $11,191,171 Fred Hayman Beverly Hills 2,813,674 2,804,864 Bal A Versailles 2,948,942 2,948,942 Animale 1,563,888 1,452,824 Other 215,714 215,714 Licensed Brands: Perry Ellis 7,963,755 7,963,755 ----------- ----------- 26,697,147 26,648,270 Less: accumulated amortization (5,447,250) (5,179,533) ----------- ----------- $21,249,897 $21,468,737 =========== =========== On June 9, 1998, the Company entered into an exclusive agreement to license the Bal A Versailles (BAV) rights to Genesis International Marketing Corporation for an annual licensing fee of $100,000 during the initial year of the agreement, increasing to $150,000 for subsequent years for the remainder of the initial term, and to $200,000 each year thereafter. The initial term of the agreement is for ten years, automatically renewable every five years. On March 2, 1998, the Company entered into an exclusive agreement to license the Alexandra de Markoff (AdM) rights to Cosmetic Essence, Inc. for an annual fee of $500,000. The initial term of the agreement is ten years, automatically renewable for additional ten and five year terms. The annual fee reduces to $100,000 after the third renewal. D. Borrowings - Banks and Others The composition of borrowings is as follows: June 30, 2000 March 31, 2000 ------------- -------------- Revolving credit facility payable to General Electric Capital Corporation, interest at LIBOR plus 2.50% or prime (9.50% at June 30, 2000) plus .75%, at the Company's option, net of restricted cash of $538,310 and $2,468,377 at June 30 and March 31, 2000, respectively $10,953,895 $ 8,925,613 Note payable to Fred Hayman Beverly Hills (FHBH), collateralized by the acquired licensed trademarks, interest at 7.25%, payable in equal monthly installments of $69,863, including interest, through June 2004 2,875,827 3,031,407
7 Note payable to Lyon Credit Corporation, collateralized by certain equipment, interest at 11%, payable in equal monthly installments of $19,142, including interest, through September 2001 266,996 316,121 Capital lease payable to Bankers Leasing, collateralized by certain computer hardware and software, payable in quarterly installments of $36,378, including interest, through January 2002. 241,239 273,208 Other notes payable 18,849 18,869 ---------- ---------- Less: long-term borrowings (2,331,828) (2,571,252) ---------- ---------- Short-term borrowings $12,024,998 $9,993,966 =========== ==========
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 was able to borrow, on a revolving basis for a three-year period, depending on the availability of a borrowing base, 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. Substantially all of the domestic assets of the Company collateralize this borrowing. 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 principally to the significant treasury stock purchases under the Company's stock buy back program, as of March 31, 2000, the Company was not in compliance with financial covenants relating to tangible net worth, current ratio and minimum fixed charge coverage ratio as well as the restricted payment covenants exceeding the amount of fixed assets and treasury stock which can be purchased as well as advances to related parties and employees. GECC has agreed to extend the maturity of the Credit Agreement until August 29, 2000, while reducing the borrowing limit to $15 million, more in line with the Company's current needs. At June 30, 2000, based on the borrowing base at that date, the credit line amounted to approximately $13,147,000, and accordingly, the Company had approximately $1,655,000 available under the credit line, excluding the effect of restricted cash of approximately $538,000. Management believes that, based on current circumstances, the Company will be able to obtain sufficient financing from alternative sources to replace the Credit Agreement and funds from operations and any new financing will be sufficient to meet the Company's operating needs. However, there can be no assurance that alternative financing will be available in the future, and if available at terms and conditions agreeable to the Company. E. Related Parties Transactions As of June 30, 2000, the Company had loaned a total of $920,920 ($899,105 at March 31, 2000) to its Chairman/CEO, which is recorded as a component of 8 stockholders' equity in the accompanying consolidated balance sheets. The notes are unsecured, bear interest at 10% per annum, and are due in one balloon payment on March 31, 2001. As of this date, interest payments are current through June 30, 2000. The Company had net sales of $7,315,666 and $8,306,510 during the three-month periods ended June 30, 2000 and June 30, 1999, respectively, to Perfumania, Inc. ("Perfumania"), a wholly-owned subsidiary of E Com Ventures, Inc. ("ECMV"), a company in which the Company's Chairman and Chief Executive Officer has an ownership interest and holds identical management positions. Net trade accounts receivable and note receivable owed by Perfumania to the Company amounted to $9,460,996 and $5,043,151, respectively, at June 30, 2000 ($9,561,550 and $2,500,000, respectively, at March 31, 2000). Amounts due from related parties are non-interest bearing and are realizable in less than one year, except for the subordinated note receivable discussed below. On July 1, 1999, Perfumania and the Company's Board of Directors approved the transfer of 1,512,406 shares of Perfumania treasury stock to the Company in consideration for a partial reduction of the outstanding trade receivable balance in the amount of $4,506,970. The transfer price was based on a per share price of $2.98, which approximated 90% of the closing price of Perfumania's common stock for the previous 20 business days. (In accordance with generally accepted accounting principles, these securities are considered available-for-sale securities and must be recorded at fair value. Changes in unrealized gains and losses are charged or credited as a component of accumulated other comprehensive income, net of tax, and are included in the accompanying consolidated statement of changes in stockholders' equity at March 31, 2000). In connection with the agreement for the transfer of the shares, the parties executed a registration rights agreement whereby the Company would be able to demand registration of the shares with the Securities and Exchange Commission at any time after February 29, 2000. Both agreements were consummated on August 31, 1999, and the demand registration was requested on March 3, 2000. Effective February 1, 2000, ECMV was formed as a holding company and accordingly, former Perfumania shareholders now hold common stock in ECMV. A registration statement was filed by ECMV during April 2000. As of June 30, 2000, the fair market value of the investment in ECMV is $3,886,883 ($2.57 per share). In addition, on October 4, 1999, the parties entered into an agreement which converted $8 million of the outstanding trade receivable into a subordinated secured note receivable. The note bears interest at prime plus one percent and is repayable in installments of $3,000,000 in October 1999, six equal monthly installments of $500,000 from November 1999 through April 2000, with the balance of $2,000,000 due on May 31, 2000. As of March 31, 2000, $5,500,000 of the note receivable had been repaid in accordance with its terms. During the period of April 1, 2000 through June 30, 2000, the Company received cash payments of $4.72 million from Perfumania, including the April installment and May interest payment due under the note receivable. On June 1, 2000, the parties entered into a new subordinated $5 million note agreement which refinanced the remaining $2 million under the October 4, 1999 note, as well as converted $3 million of the outstanding trade receivable due from Perfumania to the Company. The new note is repayable in six equal monthly installments of $500,000, plus interest, from July 2000 through December 2000, with the balance of $2 million due on December 29, 2000. The terms and conditions of the new note are identical to the October 4, 1999 note. As indicated in various public press releases, Perfumania has reported both aggregate and comparative store sales increases for each of the months during the period February 1999 through July 2000. In addition, during September 1999, its subsidiary, perfumania.com, successfully completed a public offering in which Perfumania also sold one million of its perfumania.com shares, 9 subsequently selling an additional two million shares and five hundred thousand shares in January 2000 and May 2000, respectively, generating over $25 million in cash from the four transactions. Additionally, during May 2000, Perfumania entered into a new $40 million line of credit agreement with General Motors Commercial Credit Corporation. Based on the factors described above, management believes that the receivable from Perfumania is fully collectible. During the period of July 1, 2000 through August 10, 2000, the Company received additional cash payments of $1.54 million from Perfumania, including the July and August installments due under the note receivable. F. Basic and Diluted Earnings Per Common Share The following is the reconciliation of the numerators and denominators of the basic and diluted net income per common share calculations:
Three Months Ended June 30, --------------------------- 2000 1999 ----------- ---------- Net income $ 800,886 $ 678,424 ========== ========== Weighted average number of shares outstanding used in basic earnings per share calculation 10,070,585 13,599,459 ========== ========== Basic net income per common share $0.08 $0.05 ========== ========== Weighted average number of shares outstanding used in basic earnings per share calculation 10,070,585 13,599,459 Affect of dilutive securities: Stock options and warrants, net of treasury shares acquired 617,090 68,860 ----------- ---------- Weighted average number of shares outstanding used in diluted earnings per share calculation 10,687,675 13,668,139 =========== ========== Diluted net income per common share $0.07 $0.05 =========== ========== Antidilutive securities not included in diluted earnings per share computation: Options and warrants to purchase common stock 1,036,000 2,565,570 =========== ========== Exercise Price $4.00-$8.00 $1.88-$8.00 =========== ===========
G. 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, 2000 1999 ---- ---- Cash paid for: Interest $444,876 $246,610 Income taxes $241,340 $ 20,823 During June 2000, the Company entered into a barter agreement for which it received $1,200,000 of advertising credits in exchange for all of its remaining finished goods inventory of Baryshnikov products. The Company deferred the gross margin of $472,181 on the barter sale until the advertising is used, and recorded the advertising credits, net of unearned income, as a prepaid expense in the accompanying June 30, 2000 balance sheet, while increasing cost of goods sold for an equal amount. As advertising credits are used by the Company, advertising and promotional expense will be charged, a pro-rata share of the unearned income debited, with a corresponding credit to cost of goods sold. 10 As a result, as the advertising credits are used, cost of goods sold decreases and gross margin increases both in the aggregate and as a percentage of net sales. H. Income Taxes The provision for income taxes for the periods ended June 30, 2000 and 1999 reflects an effective tax rate of approximately 38%. I. License and Distribution Agreements As of June 30, 2000 and March 31, 2000, the Company held exclusive worldwide licenses to manufacture and distribute fragrance and other related products under the trademarks for Perry Ellis, Ocean Pacific ("OP"), and Phantom. Under each of these arrangements, the Company must pay royalties at various rates based on net sales, and spend minimum amounts for advertising based on sales volume. The agreements expire on various dates and are subject to renewal. The Company believes that it is presently in compliance with all material obligations under the above agreements. Effective January 1, 2000, the Company entered into an exclusive license agreement with PEZ Candy, Inc. ("PEZ"), to manufacture and distribute men's and women's fragrances and other related products under the PEZ trademark throughout the western hemisphere. The Company anticipates launching the first PEZ fragrances for Summer 2001 season. On October 13, 1999, the Company was notified by the Baryshnikov licensor of its intent to immediately terminate the license agreement with the Company, which was to expire on March 31, 2001, due to the Company's unwillingness to develop and distribute a new women's fragrance by October 31, 1999, as stipulated in the license agreement. On January 11, 2000, a settlement was reached which entitled the Company to continue producing and selling Baryshnikov brand products until April 30, 2000, at which time all remaining unsold inventory and advertising material would be destroyed. On April 28, 2000, the parties agreed to extend the sales period until June 30, 2000. Sales of Baryshnikov products represented less than 2% of total Company net sales for each of the three years ended March 31, 2000. Management believes that the effect of this matter will not have a material adverse effect on the Company's financial position or results of operations. As discussed above, on June 29, 2000, the Company entered into a barter agreement covering all of its remaining Baryshnikov finished goods inventory. * * * * 11 Item 2. Management's Discussion and Analysis of Financial - ------ ------------------------------------------------- Condition and Results of Operations ------------------------------------ The Company may periodically release forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, including those in this Form 10-Q, involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company or its industry to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These risks and uncertainties include, among others, collectability of trade receivables from related parties, future trends in sales and the Company's ability to introduce new products in a cost-effective manner. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date thereof. The Company undertakes no obligation to publicly release the result of any revisions to those forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. 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 29, 2000, the Company entered into a barter agreement for which it received $1.2 million of advertising credits in exchange for all of its remaining finished goods inventory of Baryshnikov products. See Note G to the accompanying Consolidated Financial Statements for further discussion. On June 1, 2000, the Company entered into a new subordinated note agreement with Perfumania, Inc. See Note E to the accompanying Consolidated Financial Statements for further discussion. On May 25, 2000, the Company entered into a forbearance and amendment agreement with General Electric Credit Corporation. See "Liquidity and Capital Resources" for further discussion. Results of Operations - --------------------- Comparison of the three-month period ended June 30, 2000 with the three-month - -------------------------------------------------------------------------------- period ended June 30, 1999. - -------------------------- During the quarter ended June 30, 2000, net sales increased 13% to $16,911,185 as compared to $14,929,833 for the same period for the prior year. The increase is mainly attributable to improvement in international gross sales from $3,839,844 to $5,356,791, the continuing strength of Perry Ellis brand products and the $1,200,000 barter sale of Baryshnikov brand products discussed above. Excluding comparative sales of Baryshnikov brand products, net sales increased 6% during the current period. Approximately $2,191,000 and $1,475,000 of the increase is related to the initial launches of the Perry Ellis "Portfolio for Men" (August 1999) and "Portfolio for Women" (March 2000) fragrances, respectively, which are expected to continue their roll-out through the Fall 2000 season. Total gross sales of all Perry Ellis brands increased 15% compared to the same period in the prior year from $10,813,515 to $12,447,534. 12 Sales to unrelated customers increased 45% to $9,595,519 in the current period, compared to $6,623,323 in the same period in the prior year, reflecting the improvement in international sales and the continued launch of the Perry Ellis "Portfolio" products. Sales to related parties decreased 12% to $7,315,666 in the current quarter compared to $8,306,510 in the same period in the prior fiscal year. Cost of goods sold decreased as a percentage of net sales from 45% for the quarter ended June 30, 1999 to 43% for the current quarter, including the effect of the barter transaction. Without the effect of the barter transaction, cost of goods sold for the current quarter would have been 40%. The decrease was mainly attributable to the sale of certain closeout merchandise to international customers at below cost during the prior year period. Cost of goods sold on sales to unrelated customers and related parties approximated 40% and 41%, respectively, during the quarter ended June 30, 2000, as compared to 45% and 44%, respectively, in the prior year comparable quarter, excluding the effect of the barter transaction. Operating expenses increased by 18% compared to the prior fiscal year from $6,899,851 to $8,115,011, increasing as a percentage of net sales from 46% to 48%. Advertising and promotional expenses increased 27% to $4,400,212 compared to $3,454,120 in the prior year period, the necessary investment to fund the continuing launch costs for "Portfolio". Selling and distribution costs increased 17% to $1,556,095 in the current fiscal period as compared to $1,324,759 in the same period of the prior fiscal year, decreasing as a percentage of net sales from 10% to 9%. General and administrative expenses increased by 13% compared to the prior year period from $930,229 to $1,050,224, remaining relatively constant at 6% of net sales. Depreciation and amortization decreased by $81,978 or 13% during the current period from $620,230 to $538,252, reflecting the full amortization as of March 31, 2000 of goodwill in connection with the cancelled Baryshnikov license agreement. Royalties remained relatively constant at approximately $570,000, decreasing as a percentage of sales from 4% to 3%, as guaranteed minimum royalties for the Baryshnikov brand during the prior year period are no longer required as the license was cancelled. As a result of the above, the Company had operating income of $1,521,402 or 9% of net sales for the three-month period ended June 30, 2000, compared to $1,327,007 or 9% of net sales for the comparable period in the prior year. Net interest expense decreased slightly to $229,651 in the current fiscal year as compared to $232,775 in the same period in the prior year. Income before taxes for the current fiscal year was $1,291,751, or 8% of net sales compared to $1,094,232 or 7% of net sales in the same period in the prior year. Giving effect to the tax provision, net income amounted to $800,886 or 5% of net sales for the current quarter ended June 30, 2000, as compared to $678,424 or 5% of net sales for the same quarter in the prior fiscal year. Liquidity and Capital Resources - ------------------------------- Working capital decreased to $30,401,745 as of June 30, 2000, compared to $34,753,382 at March 31, 2000, reflecting the current period's net income, offset by the reduction in the unrealized holding gain on investment in affiliate and the purchase of approximately $1,142,000 in treasury stock as discussed below. 13 In September 1999, the Company completed the fourth phase of its common stock buy-back program and the Board of Directors authorized the repurchase of an additional 2,500,000 shares. As of June 30, 2000, the Company has repurchased under all phases a total of 7,978,131 shares at a cost of $21,983,523. The accompanying consolidated balance sheets also include an additional 39,000 shares of treasury stock purchased at a cost of $133,472 prior to fiscal 1996. 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 was able to borrow, on a revolving basis, depending on the availability of a borrowing base, 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. Substantially all of the domestic assets of the Company collateralize this borrowing. 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 principally to the significant treasury stock purchases under the Company's stock buy back program, as of March 31, 2000, the Company was not in compliance with financial covenants relating to tangible net worth, current ratio and minimum fixed charge coverage ratio as well as the restricted payment covenants exceeding the amount of fixed assets and treasury stock which can be purchased as well as advances to related parties and employees. GECC has agreed to extend the maturity of the Credit Agreement until August 29, 2000, while reducing the borrowing limit to $15 million, more in line with the Company's current needs. The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Management is currently negotiating with other banks to obtain financing to replace the Credit Agreement. As of June 30, 2000, the Company has not obtained financing from an alternative source. Management's plan initially consists of obtaining sufficient financing from alternative sources to replace the Credit Agreement and management believes that funds from operations and any new financing will be sufficient to meet the Company's operating needs. There is no assurance, however, that alternative financing will be available in the future, and if available, at terms and conditions agreeable to the Company. This factor among others may indicate that the Company will be unable to continue as a going concern for a reasonable period of time. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Year 2000 ("Y2K") Issues - ------------------------ As of June 30, 2000, the Company's management information system hardware consisted of an IBM AS 400, coupled with networked personal computer workstations. The Company has upgraded its JD Edwards software to the latest release, which is Y2K compliant. JD Edwards released its final Y2K upgrade during September 1999 which was implemented by the Company. In connection therewith, a hardware upgrade was completed on its 9406 processor from a model 310 to a model 620, which more than doubled the commercial processing workload (CPW) to support the new release and other business applications. In addition, the upgrade of the Company's Pitney Bowes shipping system was completed during November 1999. The new upgrade interfaces fully with the AS400 and JD Edwards software. The costs incurred in connection with the upgrades, including outside consultants, amounted to approximately $400,000. 14 To date, the Company has not encountered any significant Y2K problem, and continues to devote the necessary internal resources to ensure all Y2K issues are addressed in a timely manner. Internal modifications to all personnel computer operating systems have been completed. Testing of electronic data interchange (EDI) modifications with all major customers has also been completed. Verification of Y2K compliance with major suppliers continues, however, no significant problems have been encountered. Management believes that such processing issues, if any, will be resolved. Nevertheless, if the Company, its customers or suppliers are unable to resolve such processing issues, it could result in material financial risks such as the inability to produce and distribute the Company's products. Contingency plans for order processing are already in place. Item 3. Quantitative and Qualitative Disclosures About Market Risks - ------- ----------------------------------------------------------- During the quarter ended June 30, 2000, there have been no material changes in the information about the Company's market risks as of March 31, 2000, as set forth in Item 7A of the 2000 Form 10-K. 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 - None (b) There were no filings on Form 8-K during the period. 15 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 Operating Officer, Chief Financial Officer and Director Date: August 11, 2000 EX-27 2 0002.txt FDS --
5 3-MOS MAR-31-2001 APR-1-2000 JUN-30-2000 25,587 0 17,032,767 (3,654,330) 23,756,604 53,967,442 7,179,323 (5,055,483) 77,452,045 23,565,697 0 0 0 179,861 50,547,459 77,452,045 16,911,185 16,911,185 7,274,772 7,274,772 7,905,011 210,000 229,651 1,291,751 490,865 800,886 0 0 0 800,886 0.08 0.07
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