-----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, M2NkoGkLfhXOa2FlY8wzvrnCSIKIiQwLJrB8ygyc1RVJqz3xtp7/KQl7t7CjNe8O lSFlkin2vkfH7xyOUauCNg== 0000950005-96-000888.txt : 19961113 0000950005-96-000888.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950005-96-000888 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EROX CORP CENTRAL INDEX KEY: 0000878616 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [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: 96660000 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 September 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 incorporation (I.R.S. employee 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. 10,041,905 shares of Common Stock as of October 31, 1996. Total Pages: 13 EROX CORPORATION INDEX Page ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets (Unaudited) as of September 30, 1996 and December 31, 1995............................................ 2 Condensed Statements of Income (Unaudited) for the Three Months and Nine Months Ended September 30, 1996 and 1995...................................... 3 Statements of Cash Flows (Unaudited) for the Nine Months Ended September 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 6. Exhibits and Reports on Form 8-K................................. 9 SIGNATURES................................................................... 10 PART I FINANCIAL INFORMATION Item 1. Financial Statements EROX CORPORATION Condensed Balance Sheets (Unaudited)
September 30, December 31, 1996 1995 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 982,436 $ 2,186,828 Accounts receivable, net of allowances of $55,934 2,737,225 1,954,508 and $128,324 in 1996 and 1995, respectively Inventory 3,404,318 1,799,728 Other current assets 128,596 168,785 ------------ ------------ Total current assets 7,252,575 6,109,849 Property and equipment, net 75,138 78,214 ------------ ------------ $ 7,327,713 $ 6,188,063 ============ ============ Liabilities and Shareholders' equity Current liabilities: Accounts payable $ 2,328,551 $ 731,777 Loan payable, bank -- 500,000 Other accrued expenses 543,194 1,395,056 ------------ ------------ Total current liabilities 2,871,745 2,626,833 Commitments -- -- Shareholders' equity: Convertible preferred stock, issuable in series, no par value, 10,000,000 shares authorized, no shares issued and outstanding -- -- Common stock, no par value, 40,000,000 shares authorized, 10,041,905 and 9,911,972 shares issued and outstanding at September 30, 1996 and December 31, 1995, respectively 17,324,734 16,823,918 Accumulated deficit (12,868,766) (13,262,688) ------------ ------------ Total shareholders' equity 4,455,968 3,561,230 ------------ ------------ $ 7,327,713 $ 6,188,063 ============ ============ See accompanying notes.
EROX CORPORATION Condensed Statements of Income (Unaudited)
Three months ended September 30, Nine months ended September 30, -------------------------------- ------------------------------- 1996 1995 1996 1995 ----------- ---------- ------------ ----------- Net sales $ 4,472,682 $2,067,835 $ 13,665,684 $ 5,189,795 Cost of goods sold 1,227,048 634,723 3,738,410 1,530,110 ----------- ---------- ------------ ----------- Gross profit 3,245,634 1,433,112 9,927,274 3,659,685 Expenses: Research and development 140,364 67,909 301,670 214,070 Selling, general and administrative 2,875,166 1,727,881 9,247,882 4,780,642 ----------- ---------- ------------ ----------- Total expenses 3,015,530 1,795,790 9,549,552 4,994,712 ----------- ---------- ------------ ----------- Income (loss) from operations 230,104 (362,678) 377,722 (1,335,027) Interest income 11,266 20,963 24,094 100,810 Interest expense 522 -- 2,981 -- Other income 14,193 -- 15,820 -- ----------- ---------- ------------ ----------- Income (loss) before taxes 255,041 (341,715) 414,655 (1,234,217) Income taxes 20,733 -- 20,733 -- ----------- ---------- ------------ ----------- Net income (loss) $ 234,308 $ (341,715) $ 393,922 $(1,234,217) =========== ========== ============ =========== Net income (loss) per share $ 0.02 $ (0.03) $ 0.04 $ (0.13) =========== ========== ============ =========== Shares used in calculation of net income (loss) per share 10,624,096 9,853,439 10,459,904 9,852,467 =========== ========== ============ =========== See accompanying notes.
EROX CORPORATION Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1996 1995 ----------- ---------- Cash Flows from Operating Activities Net income (loss) $ 393,922 $(1,234,217) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 82,296 129,708 Changes in operating assets and liabilities: Accounts receivable (782,717) (1,099,436) Inventory (1,604,590) (894,863) Other current assets 40,189 (1,804) Accounts payable and accrued liabilities 744,912 699,586 ----------- ----------- Net cash used in operating activities (1,125,988) (2,401,026) Cash Flows from Investing Activities Proceeds from maturity of held-to-maturity investments -- 3,461,735 Purchase of property and equipment (79,220) (33,130) ----------- ----------- Net cash provided by (used in) investing activities (79,220) 3,428,605 Cash Flows from Financing Activities Proceeds from issuance of common stock 500,816 40,000 Proceeds from (payments on) bank borrowings (500,000) -- ----------- ----------- Net cash provided by financing activities 816 40,000 Net increase (decrease) in cash and cash equivalents (1,204,392) 1,067,579 Cash and cash equivalents at beginning of the period 2,186,828 520,181 ----------- ----------- Cash and cash equivalents at end of the period $ 982,436 $ 1,587,760 =========== =========== See accompanying notes.
EROX Corporation Notes to Condensed Financial Statements (Unaudited) September 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 nine months ended September 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 September 30, 1996 consists of finished goods inventory valued at $923,551 work in process of $452,160 and raw materials of $2,028,607. 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. 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 September 30, 1996 as compared to the Three Months ended September 30, 1995 Net sales for the third quarter of 1996 were $4,472,682 compared to $2,067,835 for the third quarter of 1995. This increase was due to the Company's continued expansion of its US retail presence and shipments to new international markets. During the third quarter of 1996, the Company opened several new regional chains: Carson Pirie Scott, Gayfers, J.B. White and Kaufmann's. These chains brought the total number of US department store doors to 1,075 and expanded the Company's retail presence to include regions of the United States not serviced by chains such as Dillards, Federated, and Dayton Hudson/Marshall Fields. In addition to these US chains, the Company expanded its presence internationally by opening 31 doors of the Eaton chain in Canada. This total of 1,106 compares to 355 US retail doors in the third quarter of 1995. The comparison of sales for these periods is as follows: - -------------------------------------------------------------------------------- Class of Trade 1996 1995 - -------------------------------------------------------------------------------- North American Department Store/Retail $3,811,993 $1,905,163 US Infomercial 0 33,972 Duty Free and International 643,917 92,798 Direct Marketing 16,772 35,902 --------- ---------- Net Sales $4,472,682 $2,067,835 During the quarter, the Company's Italian distributor continued to market the Company's REALM(R) products through a ten minute infomercial formulated for Italian audiences. The Middle Eastern markets are supplied through two distributors and REALM products are available in fragrance boutiques throughout the Gulf States and Saudi Arabia. REALM products were introduced in the North American duty free markets during the third quarter of 1996. Gross margin was 73% for the third quarter of 1996 compared to 69% in the third quarter of 1995. Overall gross margins have increased as the Company has reduced costs on both in-line and promotional products. The Company has continued to pursue cost reductions by reviewing secondary packaging options, exploring new sourcing opportunities and exploiting 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 third quarter of 1995, reflected the Company's previous overall higher cost of goods structure. Research and Development expenses for the third quarters of 1996 and 1995 were $140,364 and $67,909, respectively. During the third quarter of 1996, the Company increased spending on pheromone research and the development of a new fragrance line for women. During 1995, these costs were principally payments and costs under the Company's contract with Pherin Corporation. Selling and marketing expenses increased to $2,461,254 (55% of sales) in the three months ended September 30, 1996 from $1,340,686 (65% of sales) in the period ended September 30, 1995. This dollar increase was the result of advertising and promotional activities undertaken to support sales in the additional retail doors the Company opened in the current year. Headcount in the third quarter of 1996 expanded to include sales personnel for six regions covering all of the 48 contiguous states. In the same period in 1995, the company was only represented in three geographic regions. Other increased costs in the sales and marketing area were for radio advertising, in-store special events, product sampling, fragrance modeling and training for department store sales personnel. Distribution and general and administrative expenses for the period have remained fairly constant at $413,912 and $387,195 for 1996 and 1995, respectively. Interest income declined to $11,266 in the third quarter of 1996 from $20,963 for the same period in 1995. The decrease in interest income was due to lower cash balances. The Company's effective tax rate for the third quarter of 1996 was 8.1% which brings the effective tax rate for the first nine months of 1996 to 5%. The increase in the third quarter of 1996 is based upon projected profits for the entire year and takes into account utilization of net operating loss carry forwards. Nine Months ended September 30, 1996 as compared to the Nine Months ended September 30, 1995 Net sales for the nine months ended September 30, 1996 were $13,665,684. This was a 163% increase over net sales of $5,189,795 for the same period in 1995. This increase was due to the expansion of the Company's distribution into new geographic areas in the United States and internationally. One of the most significant changes in the Company's retailer base was the addition in 1996 of distribution in California. The launching of 91 doors of Federated Department Store's Macy's West chain was completed in 1996. In 1995, the Company's distribution was primarily located in the Southeast, Northeast and Southwest regions of the country. A total of 13 new retail chains with more than 500 doors have been added during 1996. Additionally, the Company entered into distribution agreements for the Middle East, Latin American and Caribbean duty free markets and launched the Realm product line in 31 doors of Eaton's department stores in Canada. The following table shows a comparison of fthe nine month's net sales by class of trade: - -------------------------------------------------------------------------------- Class of Trade 1996 1995 - -------------------------------------------------------------------------------- North American Department Store/Retail $12,431,975 $3,875,838 US Infomercial 0 947,596 Duty Free and International 1,167,039 237,675 Direct Marketing 66,670 128,686 ----------- ---------- Net Sales $13,665,684 $5,189,795 Gross margin increased to 73% from 70.5% for the first nine months of 1996 compared to the same period in 1995. This increase was the result of reductions 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. 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 while providing a value to the consumer. Research and Development expenses increased 41% to $301,670 in the nine months ended September 30, 1996 as the Company pursued new pheromone research projects and began development on a new line of women's products for launch in 1997. In the same time period in 1995, $214,070 in costs were principally comprised of payments under the Company's contract with Pherin Corporation. As a percentage of sales, selling and marketing expenses decreased to 59% ($8,119,743) from 68% ($3,532,216) in the nine months ended September 30, 1996 and 1995. The Company attributes this decrease to broader distribution of its REALM fragrances. Penetration into additional chains has made it possible for the Company to leverage advertising expenses. The Company continued to use radio as its main method of advertising. Ongoing expenses in the sales and marketing area are employee staffing, commissions, radio advertising and fragrance modeling to support local in-store promotions and to support the REALM brand in general. The Company's general and administrative expenses decreased to $1,128,139 (8% of sales) from $1,248,426 (24% of sales) for 1996 and 1995, respectively, as distribution costs lowered due to efficiencies gained by bringing this function in-house and from shipping large orders to retailers rather than single units to individuals. Interest income was $24,094 and $100,810 for the first three quarters of 1996 and 1995, respectively. The decrease in interest income was due to lower cash balances. In 1996, the Company paid $2,981 in interest expense related to advances under its bank line of credit. During 1995, the Company had no interest expense. The Company's effective tax rate for the first nine months of 1996 was 5%. The increase in the third quarter of 1996 is based upon projected profits for the entire year and takes into account utilization of net opperating loss carry forwards. LIQUIDITY At September 30, 1996, the Company had cash and cash equivalents equal to $982,436 and working capital of $4,380,830. Net cash used in operating activities was $1,125,988 for the nine months ended September 30, 1996. During 1996, the Company received $500,816 in cash from the exercise of stock options issued under the Company's Employee Stock Option Plan.. 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 renewable agreement, which has a one year term, contains certain debt to equity and working capital covenants. The Company has had discussions with its bank about further increasing its line of credit and received indications the bank would entertain such a request if made. There were no borrowings against the line of credit at September 30, 1996. During the third quarter of 1996, the Company was cash positive. Assuming the Company's activities proceed substantially as planned, there is no major change in the payment practices of the Company's major customers and the Company's line of credit is increased if requested, 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 staffing, the purchase of improved distribution/financial software and hardware, product promotion and training and for the supply of inventory and accounts receivable financing related to a new product launch. If the Company fails to achieve targeted revenues from its 1996 marketing efforts or if ongoing business proves to be more capital intensive than planned or if the Company is unable to obtain an increase in its line of credit if requested, 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. While the Company may explore strategic alliances, and other ways to provide additional working capital, no assurances can be given that a strategic alliance would be realized or that additional financing would be available, or if available, could be consummated on terms acceptable to the Company. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 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 September 30, 1996. 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: November 10, 1996 /s/ William P. Horgan ------------------------------------------ William P. Horgan President and Chief Executive Officer Date: November 10, 1996 /s/ Maxine C. Harmatta ------------------------------------------ Maxine C. Harmatta Vice President and Chief Financial Officer EX-11 2 EXHIBIT 11 Exhibit 11 Statement Re: Computation of Per share Earnings (Loss)
Three months ended September 30, Nine months ended September 30, -------------------------------- ------------------------------- 1996 1995 1996 1995 ----------- ---------- ----------- ----------- Primary Average shares outstanding 10,007,454 9,853,439 9,947,653 9,852,467 Net effect of dilutive stock options-based on the treasury stock method using average market price 616,642 -- 512,251 -- ----------- ---------- ----------- ----------- Total 10,624,096 9,853,439 10,459,904 9,852,467 Net income (loss) $ 234,308 $ (341,715) $ 393,922 $(1,234,217) =========== ========== =========== =========== Per share amount $ 0.02 $ (0.03) $ 0.04 $ (0.13) =========== ========== =========== =========== Fully Diluted Average shares outstanding 10,007,454 9,853,439 9,947,653 9,852,467 Net effect of dilutive stock options-based on the treasury stock method using the period-end market price if higher than average market price 616,642 -- 553,377 -- ----------- ---------- ----------- ----------- Total 10,624,096 9,853,439 10,501,030 9,852,467 Net income (loss) $ 234,308 $ (341,715) $ 393,922 $(1,234,217) =========== ========== =========== =========== Per share amount $ 0.02 $ (0.03) $ 0.04 $ (0.13) =========== ========== =========== ===========
EX-27 3 FINANCIAL DATA SCHEDULE
5 The Schedule Contains Summary Financial Information Extracted From Balance Sheets and Statements of Income 0000878616 Erox Corporation 1 US 9-MOS Dec-31-1996 Jan-1-1996 Sep-30-1996 1 982,436 0 2,793,159 (55,934) 3,404,318 7,252,575 688,986 (613,848) 7,327,713 2,871,745 0 17,324,734 0 0 (12,868,766) 7,327,713 13,665,684 13,665,684 3,738,410 3,738,410 301,670 0 (21,113) 414,655 20,733 393,922 0 0 0 393,922 0.04 0.04
-----END PRIVACY-ENHANCED MESSAGE-----