-----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, FA9hzYoBM7OLz2gSST4hkUwCCUF0Ma7cBhcAQ2X1j+O9v4PEkgSdKkH3042b8wsJ URIQCKIxXU0F5SSYO035Hw== 0001042910-98-000748.txt : 19980814 0001042910-98-000748.hdr.sgml : 19980814 ACCESSION NUMBER: 0001042910-98-000748 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: NONE 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: SEC FILE NUMBER: 000-15491 FILM NUMBER: 98686645 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 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, 1998 ------------- 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, 1998, 14,755,319 shares of the issuer's common stock were outstanding. 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 1998, the Company completed the third phase of its common stock buy-back program involving 1,000,000 shares, and the Board of Directors authorized the repurchase of an additional 1,250,000 shares. As of June 30, 1998, the Company has repurchased, under all phases, a total of 2,653,159 shares at a cost of $6,198,288, or 15% of the outstanding shares at the inception of the program, which is ongoing. At June 30, 1998, there were 14,760,319 shares outstanding. On June 10, 1998, the Company entered into a long-term agreement to license the worldwide fragrance rights to the BAL A VERSAILLES/JEAN DESPREZ brands to Genesis International Marketing Corporation. See Note C to the accompanying consolidated financial statements for further discussion. In July 1998, the Company filed an amendment to its Form 10-K for the years ended March 31, 1996 and 1997, complying with a 1997 announcement by the SEC to account for the value attributable to the beneficial conversion feature on convertible debentures issued during fiscal 1997 and 1996. The effect of the restatement was to decrease net income for fiscal 1997 by $3,454,143, resulting in a net loss of ($3,277,920), and to decrease net income for fiscal 1996 by $2,800,210, resulting in net income of $4,972,481. The total stockholders' equity balance at March 31, 1997, as previously reported, was not affected by the restatement. See Note E to the accompanying consolidated financial statements for further discussion. Results of Operations - --------------------- Comparison of the three-month period ended June 30, 1998 with the three-month - ----------------------------------------------------------------------------- period ended June 30, 1997. - -------------------------- During the quarter ended June 30, 1998, net sales increased 15% to $15,307,610 as compared to $13,297,312 for the same period for the prior year. The prior year period included sales of $2,250,129 of Alexandra de Markoff (AdM) cosmetics and Bal a Versailles (BAV) fragrances, which were licensed to third parties during March and June 2 1998, respectively. The comparable period increase excluding these two brands was 38%. The increase is due to the continuing strength of the Perry Ellis brand products, with total sales of all Perry Ellis brands increasing 46% compared to the same period in the prior year from $7,223,438 to $10,518,386. Sales of the Company's own trademark, Animale, also increased by 41% compared to the same prior year period from $1,493,162 to $2,110,322. Sales to unrelated customers decreased 1% to $9,084,467 in the current period, compared to $9,174,121 in the same period in the prior year, reflecting the licensing of the AdM brand in March 1998, which products were only sold to unrelated customers. Without the affect of AdM, sales to unrelated customers increased 27%. Sales to related parties increased 49% to $6,223,143 in the current quarter compared to $4,123,191 in the same period in the prior fiscal year. Cost of goods sold increased as a percentage of net sales from 37% for the quarter ended June 30, 1997 to 41% 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 36% and 48%, respectively, during the quarter ended June 30, 1998. Operating expenses decreased by 2% compared to the prior fiscal year from $8,005,285 to $7,882,831, decreasing as a percentage of net sales from 60% to 52%. Advertising and promotional expenses increased 9% to $4,309,402 compared to $3,963,291 in the prior year period, reflecting an increase in print advertising and promotional expenses in connection with the launch of Fred Hayman's "Hollywood" for women. Selling and distribution costs decreased 15% to $1,458,425 in the current fiscal period as compared to $1,714,878 in the same period of the prior fiscal year, decreasing as a percentage of net sales from 13% to 10%. General and administrative expenses decreased by 22% compared to the prior year period from $1,283,061 to $1,000,421, decreasing as a percentage of net sales from 10% to 7%. The above decreases reflect cost reductions as a result of the Company's restructuring during the quarter ended March 31, 1998 and the support previously required for the AdM cosmetic line. Royalties increased to $481,039 for the current period compared to $284,548 in the prior year, and increased as a percentage of sales from 2% to 3%, primarily due to the increase in sales of Perry Ellis brand products as a percentage of total sales. Depreciation and amortization decreased by $125,963 reflecting the reduction in depreciation of molds and equipment relating to discontinued and licensed brands. As a result of the above, the Company had operating income of $1,169,756 or 8% of net sales for the three-month period ended June 30, 1998, compared to $335,985 or 3% of net sales for the comparable period in the prior year. Interest expense increased to $504,459 in the current fiscal year as compared to $415,058 in the same period in the prior year, remaining relatively constant at 3% of net sales. Exchange gains were $8,538 in the current year as compared to $104,013 in the same period in the prior year. Income before taxes for the current fiscal year was $673,835, or 4% of net sales compared to $24,940 in the same period in the prior year. 3 Giving effect to the tax provision, net income amounted to $417,778 or 3% of net sales for the current quarter ended June 30, 1998, as compared to $15,507 for the same quarter in the prior fiscal year. Liquidity and Capital Resources - ------------------------------- Working capital increased to $36,844,681 as of June 30, 1998, compared to $36,323,891 at March 31, 1998, reflecting the current period's net income. In January 1998, the Company completed the third phase of its common stock buy-back program involving 1,000,000 shares, and the Board of Directors authorized the repurchase of an additional 1,250,000 shares. As of June 30,1998, the Company has repurchased under all phases a total of 2,653,159 shares at a cost of $6,198,288. The accompanying consolidated balance sheets also include treasury stock transactions 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 is 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. 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. During the fiscal year ended March 31, 1998, the Company was not in compliance with certain financial covenants relating to "Earnings Before Interest, Taxes, Depreciation and Amortization" (EBITDA), minimum tangible net worth and minimum fixed charge coverage ratio, as well as a restricted payment covenant concerning the amount of treasury stock which can be purchased by the Company. GECC has agreed to waive this noncompliance through June 30, 1998, and has amended the Credit Agreement to reflect changes in certain covenants going forward. Management believes that, based on current circumstances, and the recent restructuring activities which have reduced overhead, funds from operations, the income tax refund and the Credit Agreement will be sufficient to fund the Company's operating needs. Impact of Currency Exchange - --------------------------- The Company has completed the centralization of manufacturing in the United States and closed its French operations which will minimize the currency exchange impact in the future. 4 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. 5 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED BALANCE SHEETS ---------------------------
June 30, March 31, ASSETS 1998 1998 - --------------------------------------------------- -------------------- -------------------- (unaudited) CURRENT ASSETS: Cash and cash equivalents $170,111 $205,760 Receivables, net of allowance for doubtful accounts, sales returns and allowances of approximately $2,141,000 and $2,170,000 at June 30, 1998 and March 31, 1998, respectively 6,712,922 9,403,548 Trade receivables from related parties 21,126,345 17,973,197 Inventories, net 25,736,883 24,629,669 Prepaid expenses and other current assets 10,046,031 9,949,959 Income tax receivable 4,347,134 4,347,134 -------------------- -------------------- TOTAL CURRENT ASSETS 68,139,426 66,509,267 Equipment and leasehold improvements, net 1,692,665 2,020,741 Trademarks, licenses and goodwill, net 25,000,208 25,378,263 Other 1,934,423 1,972,794 -------------------- -------------------- TOTAL ASSETS $96,766,722 $95,881,065 ==================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY - --------------------------------------------------- CURRENT LIABILITIES: Borrowings, current portion $18,918,345 $17,853,772 Accounts payable 9,880,239 9,674,407 Accrued expenses 1,871,918 2,033,090 Income taxes payable 624,243 624,107 -------------------- -------------------- TOTAL CURRENT LIABILITIES 31,294,745 30,185,376 Borrowings, less current portion 3,904,752 4,107,618 Deferred tax liability 419,632 419,632 -------------------- -------------------- TOTAL LIABILITIES 35,619,129 34,712,626 -------------------- -------------------- COMMITMENTS AND CONTINGENCIES - - -------------------- -------------------- STOCKHOLDERS' EQUITY : Preferred stock, $0.01 par value, 5,000,000 shares authorized, 0 issued and outstanding Common stock, $0.01 par value, 30,000,000 shares authorized, 17,452,478 and 17,447,478 shares issued at June 30, 1998 and March 31, 1998, respectively 174,525 174,475 Additional paid-in capital 73,015,087 73,007,949 Accumulated deficit (5,346,626) (5,764,404) Cumulative translation adjustment (363,631) (355,331) -------------------- -------------------- 67,479,355 67,062,689 Less - 2,692,159 and 2,489,755 shares of common stock in treasury, at cost, at June 30, 1998 and March 31, 1998, respectively (6,331,762) (5,894,250) -------------------- -------------------- TOTAL STOCKHOLDERS' EQUITY 61,147,593 61,168,439 -------------------- -------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $96,766,722 $95,881,065 ==================== ====================
See notes to consolidated financial statements. 6 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED STATEMENTS OF INCOME ---------------------------------
Three months ended June 30, ---------------------------------------- 1998 1997 ----------------- ----------------- (Unaudited) Net sales: Unrelated customers $9,084,467 $9,174,121 Related parties 6,223,143 4,123,191 ----------------- ----------------- 15,307,610 13,297,312 Cost of goods sold 6,255,023 4,956,042 ----------------- ----------------- Gross margin 9,052,587 8,341,270 ----------------- ----------------- Operating expenses: Advertising and promotional 4,309,402 3,963,291 Selling and distribution 1,458,425 1,714,878 General and administrative, net of licensing fees of $133,333 in 1998 1,000,421 1,283,061 Depreciation and amortization 633,544 759,507 Royalties 481,039 284,548 ----------------- ----------------- Total operating expenses 7,882,831 8,005,285 ----------------- ----------------- Operating income 1,169,756 335,985 Interest expense and bank charges 504,459 415,058 Exchange gains (8,538) (104,013) ----------------- ----------------- Income before income taxes 673,835 24,940 Income taxes 256,057 9,433 ----------------- ----------------- Net income $ 417,778 $ 15,507 ================= ================= Earnings per common share: Basic $0.03 $0.00 ================= ================= Diluted $0.03 $0.00 ================= =================
See notes to consolidated financial statements. 7 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY ---------------------------------------------------------
COMMON STOCK RETAINED --------------------------- ADDITIONAL EARNINGS NUMBER PAR PAID-IN (ACCUMULATED ISSUED VALUE CAPITAL DEFICIT) ------------- ------------ -------------- ------------- BALANCE at April 1, 1996 11,456,426 $ 114,564 $ 37,184,527 $ 6,200,439 Net loss - - - (3,277,920) Issuance of common stock upon exercise of: Employee stock options 14,500 145 18,448 - Options 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 - Beneficial conversion feature of debentures 2,852,681 Reversal of beneficial conversion feature attributable to redeemed debentures (901,648) Foreign currency translation adjustment - - - - Purchase of 381,055 shares of treasury stock, at cost - - - - ------------- ------------ -------------- ------------- BALANCE at March 31, 1997 17,447,478 174,475 73,007,949 2,922,519 Net loss - - - (8,686,923) Foreign currency translation adjustment Purchase of 2,069,700 shares of treasury stock, at cost ============= ============ ============== ============= Balance at March 31, 1998 17,447,478 174,475 73,007,949 (5,764,404) ============= ============ ============== ============= Net income - - - 417,778 Issuance of common stock upon exercise of employee options 5,000 50 7,138 - Foreign currency translation adjustment - - - - Purchase of 202,404 shares of treasury stock, at cost - - - - ============= ============ ============== ============= Balance at June 30, 1998 (unaudited) 17,452,478 $ 174,525 $ 73,015,087 $ (5,346,626) ============= ============ ============== ============= (table continued) CUMULATIVE TRANSLATION TREASURY ADJUSTMENT STOCK TOTAL ---------------------------- ------------- BALANCE at April 1, 1996 $ 182,247 $ (133,472) $ 43,548,305 Net loss - - (3,277,920) Issuance of common stock upon exercise of: Employee stock options - - 18,593 Options - - 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 Beneficial conversion feature of debentures 2,852,681 Reversal of beneficial conversion feature attributable to redeemed debentures (901,648) 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 loss - - (8,686,923) Foreign currency translation adjustment (251,769) (251,769) Purchase of 2,069,700 shares of treasury stock, at cost (4,011,604) (4,011,604) ============= ============= ============= Balance at March 31, 1998 (355,331) (5,894,250) 61,168,439 ============= ============= ============= Net income - - 417,778 Issuance of common stock upon exercise of employee options - - 7,188 Foreign currency translation adjustment (8,300) (8,300) Purchase of 202,404 shares of treasury stock, at cost - (437,512) (437,512) ============= ============= ============= Balance at June 30, 1998 (unaudited) $ (363,631) $ (6,331,762) $ 61,147,593 ============= ============= =============
See notes to consolidated financial statements. 8 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES ---------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Three months ended June 30, ---------------------------------- (Unaudited) 1998 1997 --------------- --------------- Cash flows from operating activities: Net income $417,778 $15,507 --------------- --------------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 633,543 759,507 Changes in assets and liabilities net of effect of sold brands: Decrease in trade receivables - customers 2,690,626 4,088,137 Increase in trade receivables - related parties (3,153,148) (551,946) (Increase) decrease in inventories (1,712,204) 41,651 Decrease in prepaid expenses and other current assets 237,261 289,733 Decrease in other non-current assets 205,038 7,724 Increase (decrease) in accounts payable 205,832 (6,882,140) Decrease in accrued expenses (161,172) (520,256) Increase (decrease) in income taxes payable 136 (4,186,000) --------------- --------------- Total adjustments (1,054,088) (6,953,590) --------------- --------------- Net cash used by operating activities (636,310) (6,938,083) --------------- --------------- Cash flows from investing activities: Purchases of equipment and leasehold improvements (11,420) (19,679) Purchase of trademarks (11,002) (46,661) Cash received on brand licensing of Bal a Versailles 200,000 --------------- --------------- Net cash (used) provided by investing activities 177,578 (66,340) --------------- --------------- Cash flows from financing activities: Payments - receivable financing and overdraft facilities - (912,921) Payments - other notes payable (8,004) (18,309) (Payments) proceeds - note payable to Finova Capital Corp. - (7,878,091) Proceeds - note payable to GE Capital 1,138,233 16,818,175 Payments - note payable to Lyon Credit Corp. (39,408) (206,823) Proceeds - note payable to Popular Bank 11,070 149,000 Payments - note payable to Fred Hayman Beverly Hills (134,639) (125,249) Payments (proceeds) - note payable to International Finance Bank (105,545) 190,000 Purchases of treasury stock (437,512) (506,931) Proceeds from issuance of common stock 7,188 - --------------- --------------- Net cash provided by financing activities 431,383 7,508,851 --------------- --------------- Effect of exchange rate changes on cash (8,300) (111,066) --------------- --------------- Net (decrease) increase in cash and cash equivalents (35,649) 393,362 Cash and cash equivalents, beginning of period 205,760 191,486 --------------- --------------- Cash and cash equivalents, end of period $170,111 $584,848 =============== ===============
See notes to consolidated financial statements. 9 PARLUX FRAGRANCES, INC. AND SUBSIDIARIES ---------------------------------------- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ A. The Consolidated Balance Sheet as of June 30, 1998, the Consolidated Statements of Income for the three-month period ended June 30, 1998 and 1997, and the Consolidated Statements of Cash Flows for the three-month period ended June 30, 1998 and 1997, 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, 1998 and the results of their operations and their cash flows for the three-month period ended June 30, 1998 and 1997. 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, 1998 Form 10-K as filed with the Securities and Exchange Commission on July 21, 1998. Certain reclassifications were made to the June 30, 1997 financial statements to conform with the presentation of the June 30, 1998 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, 1998 March 31, 1998 ------------- -------------- Finished products $13,573,038 $13,509,636 Components and packaging material 8,088,233 8,386,879 Raw material 4,075,612 2,733,154 ------------ ----------- $25,736,883 $24,629,669 ============ =========== The cost of inventories includes product costs and handling charges, including allocation of the Company's applicable overhead in the amount of $3,330,000 and $3,409,000 at June 30, 1998 and March 31, 1998, respectively. The above amounts are net of reserves for potential inventory obsolescence of approximately $3,344,000 and $4,671,000 at June 30, 1998 and March 31, 1998, respectively. 10 C. Trademarks, Licenses and Goodwill Trademarks, licenses and goodwill are attributable to the following brands: June 30, 1998 March 31, 1998 ------------- -------------- Owned Brands: Alexandra de Markoff $11,178,803 $11,179,839 Fred Hayman Beverly Hills 2,748,616 2,747,434 Bal A Versailles 3,230,395 3,227,406 Animale 1,439,134 1,431,332 Other 209,143 209,078 Licensed Brands: Perry Ellis 7,940,340 7,940,340 Barishnikov 2,470,241 2,470,241 ------------- -------------- 29,216,672 29,205,670 Less: accumulated amortization (4,216,464) (3,827,407) ------------- -------------- $25,000,208 $25,378,263 ============= ============== On March 2, 1998, the Company entered into an exclusive agreement to license the 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. As part of the Agreement, the Company sold the inventory, promotional material and molds relating to AdM which resulted in a loss of approximately $923,000 which was reflected in the statement of operations for the year ended March 31, 1998. At closing, the purchaser provided as consideration, $202,000 in cash and a $4,000,000 non-interest bearing receivable due in periodic installments based on the purchaser's use of the inventory, with any remaining balance due on January 1, 2000. In accordance with generally accepted accounting principles and based on the Company's current borrowing cost of 9.25%, the note was reduced to a present value of $3,659,753. On June 9, 1998, the Company entered into an exclusive agreement to license the 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. As part of the agreement, the Company sold the inventory, promotional materials and molds relating to BAV for its approximate book value. At closing, the purchaser provided as consideration, $200,000 in cash and a $500,000 non-interest bearing note due in quarterly installments of $83,333 through December 1999. At June 30, 1998, $2,139,887 and $1,815,028 are included in other current assets and other assets, respectively, relating to the AdM and BAV receivables. 11 D. Borrowings - Banks and Others The composition of debt is as follows:
June 30, 1998 March 31, 1998 ------------- -------------- Revolving credit facility payable to General Electric Capital Corporation, interest at LIBOR plus 2.50% or prime (8.50% at June 30, 1998) plus .75%, at the Company's option, net of restricted cash of $144,753 and $1,209,955, respectively $17,957,184 $16,818,951 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 4,045,187 4,179,826 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 624,581 663,989 Unsecured $1,000,000 line of credit payable to International Finance Bank, interest at the bank's prime rate plus 2%, due August 1, 1998 79,927 185,472 Letter of credit refinancing facility of $500,000 payable to Popular Bank of Florida, interest at the bank's prime rate plus 2%, due July 1998 11,070 --- Other notes payable 105,148 113,152 -------------- ------------- 22,823,097 21,961,390 Less: long-term borrowings (3,904,752) (4,107,618) -------------- ------------- Short-term borrowings $18,918,345 $17,853,772 ============== =============
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, 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. 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. At June 30, 1998, based on the borrowing base at that date, the credit line amounted to approximately $19,200,000. 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 12 certain financial covenants relating to net worth, interest coverage and other financial ratios. During the fiscal year ended March 31, 1998, the Company was not in compliance with certain financial covenants relating to EBITDA, minimum tangible net worth and minimum fixed charge coverage ratio, as well as a restricted payment covenant concerning the amount of treasury stock which can be purchased by the Company. GECC has agreed to waive this noncompliance through June 30, 1998, and has amended the Credit Agreement to reflect changes in certain covenants going forward. Management believes that, based on current circumstances, and the recent restructuring activities which have reduced overhead, funds from operations, the income tax refund and the Credit Agreement will be sufficient to fund the Company's operating needs. 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 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. In a 1997 announcement discussed in Topic No. D-60 by the Emerging Issues Task Force, the staff of the Securities and Exchange Commission ("S.E.C.") indicated that when debt is convertible at a discount from the then current common stock market price, the discounted amount reflects at that time an incremental yield, e.g. a "beneficial conversion feature" which should be recognized as a return to the debt holders from the date the debt is issued to the date it first becomes convertible. Based on the market price of the Company's common stock on the date of issuance of the convertible debt, the convertible debentures issued by the Company during the period November 1995 through 13 July 1996 had a beneficial conversion feature of $7,156,001. Although management believes that the Company followed generally accepted accounting principles in existence at the time of the issuances, it has complied with the SEC announcement, restating its net income and per share information for the year ended March 31, 1997 ("fiscal 1997") and fiscal 1996, to reflect such accounting treatment for this non-cash charge, which has been recorded as additional interest expense in the restated consolidated financial statements. In addition, the October 1996 redemption of certain debentures no longer results in a loss of $901,648 previously reported as an extraordinary item during the year ended March 31, 1997, since the price paid in excess of the carrying value of the debentures was charged to additional paid-in capital to offset the beneficial conversion feature originally recorded at the date of issuance. The effect of the restatement was to decrease net income for fiscal 1997 by $3,454,143, resulting in a net loss of ($3,277,920), and to decrease net income for fiscal 1996 by $2,800,210, resulting in net income of $4,972,481. The total stockholders' equity balance at March 31, 1997, as previously reported, was not affected by the restatement. F. Transactions With Related Parties The Company had net sales of $6,223,143 and $4,123,191 during the three-month periods ended June 30, 1998 and June 30, 1997, respectively, to Perfumania, Inc. (Perfumania), a company in which the Company's Chairman and Chief Executive Officer has an ownership interest. Net amounts due from Perfumania totaled $21,126,345 and $17,973,197 at June 30, 1998 and March 31, 1998, respectively. Amounts due from related parties are non-interest bearing and are realizable in less than one year. G. 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, retroactively adjusted for the adoption of the provisions of SFAS 128:
Three Months Ended June 30, --------------------------- 1998 1997 ---- ---- Net income $ 417,778 $ 15,507 ============= ============ Weighted average number of shares outstanding used in basic earnings per share calculation 14,871,902 16,898,357 ============= ============ Basic net income per common share $0.03 $0.00 ============= ============ Weighted average number of shares outstanding used in basic earnings per share calculation 14,871,902 16,898,357 Affect of dilutive securities: Stock options and warrants, net of treasury shares acquired 187,819 167,435 ------------- ------------ Weighted average number of shares outstanding used in diluted earnings per share calculation 15,059,721 17,065,792 ============= ============ Diluted net income per common share $0.03 $0.00 ============= ============ Antidilutive securities not included in diluted earnings per share computation: Options and warrants to purchase common stock 288,478 286,478 ============= ============ Exercise Price $2.19-$8.11 $3.13-$8.11 ============= ============
14 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, --------------------------- 1998 1997 ---- ---- Cash paid for: Interest $503,695 $ 475,386 Income taxes $ 18,320 $ 4,297,948 I. Income Taxes The provision for income taxes for the periods ended June 30, 1998 and 1997 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 thirteenth 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, and based on the Company's current sales projections, management 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 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 Richard Barrie Fragrances acquisition, pursuant to which the Company has the exclusive right to manufacture and distribute fragrances and personal care products using the Baryshnikov trademark. The license has recently been renewed through March 31, 2001 and is further renewable for a subsequent three-year period upon achieving specified sales or minimum 15 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: In 1998, the Company entered into an exclusive worldwide agreement with Creative Fragrances, Inc. for the worldwide manufacturing and distribution rights to PHANTOM covering men's and women's fragrances and beauty related products. The agreement expires in April 2003. Royalties are payable at 5% of net sales. There are no minimum sales or advertising requirements. 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. 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 approximated 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. 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 contract period ending March 31, 1997, renewable for subsequent three-year and four-year periods upon achieving specified sales or minimum royalty levels. The license required the payment of royalties 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 informed the Licensor that it would not renew the agreement. In accordance with the licensing agreement, the Company produced and sold the TODD OLDHAM trademarked products until March 31, 1998, with no sales or advertising minimums. In addition, the Company was required to destroy all remaining unsold inventory and advertising material relating to the trademarked products. Sales of TODD OLDHAM products represented less than 1% and 2% of total Company net sales for the fiscal years ended March 31, 1998 and 1997, respectively. The Company incurred a loss of approximately $3,200,000 as a result of terminating the agreement. * * * * * * * * * * 16 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, 1998 17 EX-27 2 FDS --
5 3-MOS MAR-31-1999 APR-01-1998 JUN-30-1998 170,111 0 29,980,553 (2,141,286) 25,736,883 68,139,426 6,323,988 (4,631,323) 96,766,722 31,294,745 0 0 0 174,525 60,973,068 96,766,722 15,307,610 15,307,610 6,255,023 6,255,023 7,844,293 30,000 504,459 673,835 256,057 417,778 0 0 0 417,778 0.03 0.03
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