-----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, K7TT1B/fHokP/1EpQms5hPioo5yUdCQmj7Evp3u92Ul58zEBUulyodZRnkJ0DX7k 7AKkrhzRs49mIBQcKZsE3Q== 0000950005-96-000562.txt : 19960904 0000950005-96-000562.hdr.sgml : 19960904 ACCESSION NUMBER: 0000950005-96-000562 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960812 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EROX CORP CENTRAL INDEX KEY: 0000878616 STANDARD INDUSTRIAL CLASSIFICATION: 2844 IRS NUMBER: 943107202 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-23544 FILM NUMBER: 96608995 BUSINESS ADDRESS: STREET 1: 4034 CLIPPER CT CITY: FREMONT STATE: CA ZIP: 94538 BUSINESS PHONE: 5102266874 10QSB 1 FORM 10-QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (MARK ONE) [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended JUNE 30, 1996 [ ] TRANSITION REPORT UNDER SECTION 13 OR A5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (no fee required) Commission file number 0-23544 EROX CORPORATION --------------------------------------------- (Name of small business issuer in its charter) CALIFORNIA 94-3107202 ------------------------------- ------------------ (State or other jurisdiction of (I.R.S. employee incorporation or organization) Identification No.) 4034 CLIPPER COURT, FREMONT, CALIFORNIA 94538 -------------------------------------- --------- (Address of principal executive offices) (Zip code) Issuer's telephone number: (510) 226-6874 Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 9,974,805 shares of Common Stock as of July 31, 1996. Total Pages: 13 EROX CORPORATION INDEX Page PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets (Unaudited) as of June 30, 1996 and December 31, 1995.............................................2 Statements of Income (Unaudited) for the Three Months and Six Months Ended June 30, 1996 and 1995............................................3 Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 1996 and 1995......................................4 Notes to Condensed Financial Statements (Unaudited)...............5 Item 2. Management's Discussion and Analysis Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................6 PART II OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders.................9 Item 6. Exhibits and Reports on Form 8-K..................................9 SIGNATURES...................................................................10 PART I FINANCIAL INFORMATION Item 1. Financial Statements 1 EROX CORPORATION Condensed Balance Sheets (unaudited)
June 30, December 31, 1996 1995 ------------- -------------- Assets Current assets: Cash and cash equivalents $ 747,373 $ 2,186,828 Accounts receivable, net of allowances of $55,934 2,888,989 1,954,508 and $316,972 in 1996 and 1995, respectively Inventory 2,932,652 1,799,728 Other current assets 48,037 168,785 ------------ ------------ Total current assets 6,617,051 6,109,849 Property and equipment, net 63,343 78,214 ------------ ------------ $ 6,680,394 $ 6,188,063 ============ ============ Liabilities and Shareholders' equity Current liabilities: Accounts payable $ 1,444,702 $ 731,777 Loan payable, bank -- 500,000 Other accrued expenses 1,379,882 1,395,056 ------------ ------------ Total current liabilities 2,824,584 2,626,833 Commitments -- -- Shareholders' equity: Convertible preferred stock, issuable in series, no par value, 10,000,000 shares authorized, no shares issued a -- -- Common stock, no par value, 40,000,000 shares authorized, 9,974,805 and 9,911,972 shares issued and outstanding at June 30, 1996 and December 31, 1995, respectively 16,958,884 16,823,918 Accumulated deficit (13,103,074) (13,262,688) ------------ ------------ Total shareholders' equity 3,855,810 3,561,230 ------------ ------------ $ 6,680,394 $ 6,188,063 ============ ============ See accompanying notes
2 EROX CORPORATION Condensed Statements of Income (unaudited)
Three months ended June 30, Six months ended June 30, ------------------------------ ---------------------------- 1996 1995 1996 1995 ------------ ------------ ----------- ----------- Net sales $ 5,142,144 $ 2,009,363 $ 9,193,002 $ 3,121,960 Cost of goods sold 1,451,520 604,909 2,511,362 895,387 ------------ ------------ ----------- ----------- Gross profit 3,690,624 1,404,454 6,681,640 2,226,573 Expenses: Research and development 78,269 83,461 161,306 146,161 Selling, general and administrative 3,515,559 1,695,880 6,372,716 3,052,761 ------------ ------------ ----------- ----------- Total expenses 3,593,828 1,779,341 6,534,022 3,198,922 ------------ ------------ ----------- ----------- Income (loss) from operations 96,796 (374,887) 147,618 (972,349) Interest income 206 36,469 12,828 79,847 Interest expense 1,023 - 2,459 - Other (expense) 3,624 - 1,627 - ------------ ------------ ----------- ----------- Net income (loss) $ 99,603 $ (338,418) $ 159,614 $ (892,502) ============ ============ =========== =========== Net income (loss) per share $ 0.01 $ (0.03) $ 0.02 $ (0.09) ============ ============ =========== =========== Shares used in calculation of net income (loss) per share 10,499,030 9,851,972 10,375,896 9,851,972 ============ ============ =========== =========== See accompanying notes
3 EROX CORPORATION Statements of Cash Flows (unaudited)
Six months ended June 30, 1996 1995 ------------ ----------- Cash Flows from Operating Activities Net income (loss) $ 159,614 $ (892,502) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 65,824 98,757 Changes in operating assets and liabilities: Accounts receivable (934,481) (1,069,354) Inventory (1,132,924) (523,851) Other current assets 120,748 36,621 Accounts payable and accrued liabilities 697,751 440,225 ------------ ------------ Net cash used in operating activities (1,023,468) (1,910,104) Cash Flows from Investing Activities Proceeds from maturity of held-to-maturity investments - 3,461,735 Purchase of property and equipment (50,953) (18,958) ------------ ------------ Net cash provided by (used in) investing activities (50,953) 3,442,777 Cash Flows from Financing Activities Proceeds from issuance of common stock 134,966 - Proceeds from (payments on) bank borrowings (500,000) - ------------ ------------ Net cash provided by (used in) financing activities (365,034) 0 Net increase/(decrease) in cash and cash equivalents (1,439,455) 1,532,673 Cash and cash equivalents at beginning of the period 2,186,828 520,181 ------------ ------------ Cash and cash equivalents at end of the period $ 747,373 $ 2,052,854 ============ ============ See accompanying notes
4 EROX CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months and six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the calendar year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 1995. INVENTORY Inventories are stated at the lower of cost (first in - first out method) or market. The inventory at June 30, 1996 consists of finished goods inventory valued at $1,509,934, work in process of $289,100 and raw materials of $1,133,618. At December 31, 1995, these balances were $352,313, $279,177 and $1,168,238, respectively. NET INCOME (LOSS) PER SHARE Net income per share is computed using the weighted average number of shares of common stock outstanding and common equivalent shares from stock options. The latter are excluded from the computation of net loss per share as their effect is antidilutive. 5 Item 2. Management's Discussion and Analysis This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Except for the historical information contained in this discussion and analysis of financial condition and results of operations, the matters discussed herein are forward looking statements. These forward looking statements include but are not limited to the Company's plans for sales growth and expansion into new channels of trade, expectations of gross margin, expenses, new product introduction, and the Company's liquidity and capital needs. These matters involve risks and uncertainties which include but are not limited to the acceptance of new products, the credit risk associated with consolidation in the retail trade, the costs of components and advertising associated with product retail roll-out and new product introductions, supply constraints or difficulties, the impact of competitive pricing or government regulation and the risk of diverted goods in a slow retail environment. These and other factors may cause actual results to differ materially from those anticipated in forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Three Months ended June 30, 1996 as compared to the Three Months ended June 30, 1995 Net sales for the second quarter of 1996 were $5,142,144 compared to $2,009,363 for the second quarter of 1995. This increase was due to the Company's continued expansion of its US retail introduction and shipments to new overseas markets. During the second quarter of 1996, the Company opened several new regional stores: Castner Knott, Elder Beerman, Mc Rae's, Parisian's, Profitt's, Von Maur, and Younkers. The Company also doubled its presence in the California market by opening an additional 45 doors of the Macy's West division of Federated Department Stores. Opening orders were also shipped to two distributors in the Middle East. At the end of the second quarter of 1996, the Company had expanded distribution to include 948 doors in the US and distributor relationships for Italy, the Middle East and the Caribbean. This compares to shipments to 241 US retail doors and one foreign distributor, in Italy, in the second quarter of 1995. The comparison of sales for these periods is as follows: ---------------------------------------------------------------------- Class of Trade 1996 1995 ---------------------------------------------------------------------- US Department Store/Retail $ 4,674,278 $ 1,573,186 US Infomercial 0 320,867 Duty Free and International 447,121 72,848 Direct Marketing 20,745 42,462 ---------- ----------- Net Sales $ 5,142,144 $ 2,009,363 During the quarter, the Company's Italian distributor introduced on local Italian television a ten minute infomercial formulated for Italian audiences. The infomercial was developed and aired by the Company's distributor as a cost effective way to drive demand for REALM(R) products in the Italian market which has very fragmented retail distribution. The Middle Eastern markets are being supplied through two distributors and REALM products are available in fragrance boutiques throughout the Gulf States and Saudi Arabia. Demand for REALM products remained strong in the Caribbean. Gross margin was 72% for the second quarter of 1996 compared to 70% in the second quarter of 1995. Overall gross margins have increased as the Company has reduced costs on both in-line and promotional products. The Company has affected major reductions in its cost of goods structure due to changes in secondary packaging, new sourcing and manufacturing cost efficiencies. Future quarters may have a different gross margin depending on the demand for promotional products and the percentage of higher margin department store sales in comparison to sales through third party distributors. Gross margin in the second quarter of 1995 reflected the Company's previous overall higher cost of goods structure. Research and Development expenses for the second quarters of 1996 and 1995 were $78,269 and $83,461, respectively. These costs principally reflect payments and costs under the Company's contract with Pherin Corporation. 6 Selling and marketing expenses increased to $3,171,093 (62% of sales) in the three months ended June 30, 1996 from $1,267,520 (63% of sales) in the period ended June 30, 1995. This dollar increase is the result of advertising and promotional activities to support sales in the additional retail doors the Company opened over the past periods. At the end of the second quarter of 1995, the Company had opened 241 retail doors in Bloomingdale's, Rich's/Lazarus and several divisions of Dillard's Department Stores. This compares to 948 doors at the end of the second quarter of 1996. The Company increased headcount in the sales and marketing area as the geographical scope of its distribution expanded. Increased costs in the sales and marketing area have been for radio advertising, in-store special events, product sampling, fragrance modeling and training for department store sales personnel. During the second quarter of 1996, the Company's distribution costs decreased. This is attributable to the fact that the Company brought this function in-house during 1996 and to the economies of scale in filling large department store orders as opposed to individual infomercial orders. During 1995, the Company was still selling through the infomercial and out-sourcing the fulfillment and distribution of these products. General and Administrative expenses have remained fairly flat between the two periods. The Company expects distribution and general and administrative expenses to increase over the next quarters due to expenses related to upgrading the Company's MIS resources, additional equipment and leasehold improvements required in the warehouse due to increased volume sales. The Company is currently involved in an ongoing project to convert all of its retail customer's order processing to Electronic Data Interface ("EDI"). This project will create additional costs for computer consultants and software, but the Company hopes to be able to access retail sales information from its customers to more timely and accurately determine consumer trends and buying patterns. Interest income was $206 and $36,469 for the second quarters of 1996 and 1995, respectively. The decrease in interest income was due to lower cash balances. The Company paid $1,023 in interest expense in the second quarter of 1996 on balances on its revolving bank line of credit. This compares to $0 interest expense in the second quarter of 1995. Six Months ended June 30, 1996 as compared to the Six Months ended June 30, 1995 Net sales for the six months ended June 30, 1996 were $9,193,002. This was a 194% increase over net sales of $3,121,960 for the first half of 1995. The Company attributes this increase to the expansion of its retail department and specialty store business in the US. During the first quarter of 1996, the Company opened the California market by introducing its REALM products in Macy's West. Two additional regional retailers, Burdines and Famous Barr, were also opened during this time period. Outside the US, the Company entered into distribution agreements for the Middle East and Mexican and Latin American duty free markets. The following table shows a comparison of first half net sales by Class of Trade: ---------------------------------------------------------------------- Class of Trade 1996 1995 ---------------------------------------------------------------------- US Department Store/Retail $ 8,619,982 $ 1,970,677 US Infomercial 0 913,624 Duty Free and International 523,123 144,876 Direct Marketing 49,897 92,783 ------------ ------------ Net Sales $ 9,193,002 $ 3,121,960 Gross margin for the second half of 1996 was 73% compared to 71% for the same period in 1995. This increase is the result of decreases in the Company's cost of goods structure. The Company has aggressively sought new suppliers and manufacturing processes in order to decrease the cost of its distinctive primary packaging. These changes have resulted in more competitively costed products. The Company has also created gift and promotional sets using cosmetic modifications of its signature bottles. The lower cost of these sets has allowed the Company to achieve targeted gross margins at the same time as providing a perceived value to the consumer. Research and Development expenses for the second half of 1996 and 1995 were $161,306 and $146,161, respectively and are principally comprised of payments under the Company's contract with Pherin Corporation. 7 Selling and marketing expenses increased to $5,658,489 (62% of sales) in the six months ended June 30, 1996 from $2,191,530 (70% of sales) in the period ended June 30, 1995. Selling and marketing expenses have decreased as a percentage of sales as the Company's business shifted into repeat orders from existing retail partners. In 1995 the Company was mainly in a launch mode. On going expenses in the sales and marketing area are radio advertising and fragrance modeling to support local in-store promotions and to support the REALM brand in general, headcount and commissions. The Company's general and administrative expenses have remained fairly constant for the two periods, and distribution costs have decreased due to efficiencies gained from shipping large orders to retailers rather than single units to individuals. Interest income was $12,828 and $79,847 for the first half of 1996 and 1995, respectively. The decrease in interest income was due to lower cash balances. In 1996, the Company paid $2,459 in interest expense related to advances under its bank line of credit. During 1995, the Company had no interest expense. LIQUIDITY At June 30, 1996, the Company had cash and cash equivalents equal to $747,373 and working capital of $3,792,467. Net cash used in operating activities was $1,023,468 for the six months ended June 30, 1996. On January 2, 1996, the Company repaid $500,000 of borrowings against its $2,000,000 line of credit. On March 13, 1996, the Company renegotiated its Business Loan Agreement with Mid-Peninsula Bank of Palo Alto, California. The Company may borrow up to $3,500,000 at an interest rate equal to the bank's prime rate plus .5% with borrowings primarily secured by the Company's trade receivables and inventory. The agreement, which has a one year term, contains certain debt to equity and working capital covenants. There were no borrowings against the line of credit at June 30, 1996. Assuming the Company's activities proceed substantially as planned and if there are no new brand introductions, the Company's current cash, line of credit and anticipated revenues from product sales should be adequate to meet its working capital needs over the next twelve months. Working capital requirements will primarily be for the supply of inventory, staffing, the purchase of improved distribution/financial software and hardware, product promotion and training and accounts receivable financing. If the Company fails to achieve significant revenues from its 1996 marketing efforts or if ongoing business proves to be more capital intensive than planned or if the Company elects to develop and launch a new brand, additional funding may be required. Furthermore, additional working capital may be required should the Company experience a greater than planned success with its retail distribution and new product development. In such instance, funds would be needed for inventory build, accounts receivable financing and staffing purposes. 8 PART II OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders Registrant held its annual meeting of shareholders ( the "Annual Meeting") on May 15, 1996. At the Annual Meeting, the shareholders elected six directors, Bernard I. Grosser, MD, Claude Guilbaud, William P. Horgan, Helen C. Leong, Robert Marx and Michael V. Stern to serve until the next annual meeting and their successors are elected. The number of votes cast for, against or withheld, as well as the number of abstention and broker non-votes as to each director are set forth below: Broker For Against Abstained Non-Votes --- ------- --------- --------- Bernard I. Grosser, MD 8,462,015 14,200 0 0 Claude Guilbaud 8,462,015 14,200 0 0 William P. Horgan 8,462,015 14,200 0 0 Helen C. Leong 8,462,015 14,200 0 0 Robert Marx 8,457,015 19,200 0 0 Michael V. Stern 8,462,015 14,200 0 0 Item 6. Exhibits and Reports on Form 8-K (a) 11 Statement Re: Computation of Per share Earnings (Loss) (b) The Company did not file any reports on Form 8-K during the three months ended June 30, 1996. 9 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this Report to be signed on behalf by the undersigned thereunto duly authorized. EROX CORPORATION Registrant Date: August 12, 1996 /s/ William P. Horgan --------------------------------------- William P. Horgan President and Chief Executive Officer Date: August 12, 1996 /s/ Maxine C. Harmatta --------------------------------------- Maxine C. Harmatta Vice President, Finance and Operations 10 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this Report to be signed on behalf by the undersigned thereunto duly authorized. Date: August 12, 1996 /s/ William P. Horgan --------------------------------------- William P. Horgan President and Chief Executive Officer Date: August 12, 1996 /s/ Maxine C. Harmatta --------------------------------------- Maxine C. Harmatta Vice President, Finance and Operations EX-11 2 EXHIBIT 11 Exhibit 11 Statement Re: Computation of Per Share Earnings (Loss)
Three months ended June 30, Six months ended June 30, -------------------------------- ----------------------------- 1996 1995 1996 1995 ----------- ----------- ----------- ----------- Primary Average shares outstanding 9,923,53 9,851,972 9,915,840 9,851,972 Net effect of dilutive stock options-based on the treasury stock method using average market price 575,498 -- 460,056 -- ----------- ---------- ----------- ---------- Total 10,499,030 9,851,972 10,375,896 9,851,972 Net income (loss) $ 99,603 $ (338,418) $ 159,614 $ (892,502) =========== ========== =========== =========== Per share amount $ 0.01 $ (0.03) $ 0.02 $ (0.09) =========== ========== =========== =========== Fully Diluted Average shares outstanding 9,923,532 9,851,972 9,915,840 9,851,972 Net effect of dilutive stock options-based on the treasury stock method using the period-end market price if higher than average market price 698,875 -- 521,744 -- ----------- ---------- ----------- ----------- Total 10,622,407 9,851,972 10,437,584 9,851,972 Net income (loss) $ 99,603 $ (338,418) $ 159,614 $ (892,502) =========== =========== =========== ============ Per share amount $ 0.01 $ (0.03) $ 0.02 $ (0.0 =========== =========== =========== ============
11 EX-27 3 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 The Schedule Contains Summary Financial Information Extracted From Balance Sheets and Statements of Income 0000878616 Erox Corporation 1 US 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 747,373 0 2,944,923 (55,934) 2,932,652 6,617,051 660,719 (597,376) 6,680,394 2,824,584 0 16,958,884 0 0 (13,103,074) 6,680,394 9,193,002 9,193,002 2,511,362 2,511,362 6,534,022 0 2,459 159,614 0 159,614 0 0 0 159,614 0.02 0.02
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