-----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, QX3352/lL0o7lRVv9NWFzLi16o3hKy7bIU92WaAuE70rMORgcYLx0uAUe287zrTN Fd+ZMuwLNW4D8a7DHlHolg== 0001144204-04-021657.txt : 20041214 0001144204-04-021657.hdr.sgml : 20041214 20041214144615 ACCESSION NUMBER: 0001144204-04-021657 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20041030 FILED AS OF DATE: 20041214 DATE AS OF CHANGE: 20041214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: E COM VENTURES INC CENTRAL INDEX KEY: 0000880460 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 650026340 STATE OF INCORPORATION: FL FISCAL YEAR END: 0205 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19714 FILM NUMBER: 041201243 BUSINESS ADDRESS: STREET 1: 251 INTERNATIONAL PARKWAY CITY: SUNRISE STATE: FL ZIP: 33325 BUSINESS PHONE: 3058891600 MAIL ADDRESS: STREET 1: 251 INTERNATIONAL PARKWAY CITY: SUNRISE STATE: FL ZIP: 33325 FORMER COMPANY: FORMER CONFORMED NAME: PERFUMANIA INC DATE OF NAME CHANGE: 19930328 10-Q 1 v09824.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 -------------------------------------- For the Quarterly Period Ended October 30, 2004 Commission File Number 0-19714 E COM VENTURES, INC. State of Florida I.R.S. No. 65-0977964 251 International Parkway Sunrise, Florida 33325 Telephone Number: (954) 335-9100 Indicate by check mark 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 |_| Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES |_| NO |X| As of December 10, 2004, the registrant had 2,916,849 shares of its common stock, $0.01 par value, outstanding. TABLE OF CONTENTS E COM VENTURES, INC. AND SUBSIDIARIES PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (unaudited).......................................................3 Consolidated Condensed Balance Sheets..................................................3 Consolidated Condensed Statements of Operations........................................4 Consolidated Condensed Statements of Cash Flows........................................5 Notes to Consolidated Condensed Financial Statements...................................6 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................................10 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS..........................................................................12 ITEM 4 CONTROLS AND PROCEDURES...............................................................13 PART II OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS.....................................................................13 ITEM 2 CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES.....................................................................13 ITEM 3 DEFAULTS UPON SENIOR SECURITIES.......................................................13 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................13 ITEM 5 OTHER INFORMATION.....................................................................13 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K......................................................13 SIGNATURES .............................................................................................14 CERTIFICATIONS..........................................................................................15
-2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS E COM VENTURES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
ASSETS: October 30, 2004 January 31, 2004 ------------- ------------- Current assets: Cash and cash equivalents $ 1,528,723 $ 1,961,310 Trade receivables, net 1,304,982 777,186 Advances to suppliers 14,569 114,041 Inventories 91,499,504 60,877,451 Prepaid expenses and other current assets 1,231,250 1,347,452 Notes and interest receivable from shareholder and officer -- 327,311 ------------- ------------- Total current assets 95,579,028 65,404,751 Property and equipment, net 23,934,715 24,414,624 Goodwill 1,904,448 1,904,448 Other assets, net 938,663 739,575 ------------- ------------- Total assets $ 122,356,854 $ 92,463,398 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY: Current liabilities: Bank line of credit $ 44,382,172 $ 30,472,027 Accounts payable, non-affiliates 22,342,632 16,459,786 Accounts payable, affiliates 29,130,695 17,440,492 Accrued expenses and other liabilities 5,720,445 9,614,287 Subordinated note payable, affiliate -- 250,000 Current portion of obligations under capital leases 258,328 258,700 ------------- ------------- Total current liabilities 101,834,272 74,495,292 Convertible note payable, affiliate 5,000,000 -- Long-term portion of obligations under capital leases 8,012,891 7,746,262 ------------- ------------- Total liabilities 114,847,163 82,241,554 ------------- ------------- Commitments and contingencies (see Note 6) Shareholders' equity: Preferred stock, $.10 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $.01 par value, 6,250,000 shares authorized; 3,799,098 and 3,285,758 shares issued in fiscal years 2004 and 2003, respectively 37,991 32,858 Additional paid-in capital 75,219,595 73,666,193 Treasury stock, at cost, 898,249 shares (8,576,944) (8,576,944) Accumulated deficit (59,170,951) (54,900,263) ------------- ------------- Total shareholders' equity 7,509,691 10,221,844 ------------- ------------- Total liabilities and shareholders' equity $ 122,356,854 $ 92,463,398 ============= =============
See accompanying notes to consolidated condensed financial statements. -3- E COM VENTURES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
Thirteen Weeks Thirteen Weeks Thirty-Nine Weeks Thirty-Nine Weeks Ended Ended Ended Ended October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003 ---------------- ---------------- ---------------- ---------------- Net sales $ 50,802,593 $ 48,057,940 $ 142,844,790 $ 135,693,738 Cost of goods sold 31,062,890 30,078,345 84,732,397 80,325,921 ---------------- ---------------- ---------------- ---------------- Gross profit 19,739,703 17,979,595 58,112,393 55,367,817 ---------------- ---------------- ---------------- ---------------- Operating expenses: Selling, general and administrative 18,496,051 19,444,364 55,538,277 56,902,115 Depreciation and amortization 1,441,835 1,586,774 4,474,732 4,510,912 ---------------- ---------------- ---------------- ---------------- Total operating expenses 19,937,886 21,031,138 60,013,009 61,413,027 ---------------- ---------------- ---------------- ---------------- Loss from operations (198,183) (3,105,375) (1,900,616) (6,099,042) Interest expense, net (905,292) (619,736) (2,370,072) (1,480,056) ---------------- ---------------- ---------------- ---------------- Net loss $ (1,103,475) $ (3,725,111) $ (4,270,688) $ (7,579,098) ================ ================ ================ ================ Net loss per common share: Basic $ (0.38) $ (1.51) $ (1.52) $ (3.07) ================ ================ ================ ================ Diluted $ (0.38) $ (1.51) $ (1.52) $ (3.07) ================ ================ ================ ================ Weighted average number of common shares outstanding: Basic 2,893,092 2,468,336 2,803,263 2,469,547 ================ ================ ================ ================ Diluted 2,893,092 2,468,336 2,803,263 2,469,547 ================ ================ ================ ================
See accompanying notes to consolidated condensed financial statements. -4- E COM VENTURES, INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
Thirty-Nine Weeks Ended Thirty-Nine Weeks Ended October 30, 2004 November 1, 2003 ------------------ ------------------ Cash flows from operating activities: Net loss $ (4,270,688) $ (7,579,098) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Provision for impairment of assets and store closing 141,479 364,930 Realized loss on investment -- 53,832 Depreciation and amortization 4,474,732 4,510,912 Change in operating assets and liabilities: Trade receivables (527,796) (165,180) Advances to suppliers 99,472 529,876 Inventories (30,622,053) (8,062,662) Prepaid expenses and other current assets 116,202 (245,177) Other assets (373,251) 183,936 Accounts payable, non-affiliates 5,882,846 1,963,428 Accounts payable, affiliates 11,440,203 12,408,640 Accrued expenses and other liabilities (3,893,842) (17,000) ------------------ ------------------ Net cash (used in) provided by operating activities (17,532,696) 3,946,437 ------------------ ------------------ Cash flows from investing activities: Additions to property and equipment (3,498,614) (4,850,652) Proceeds from sale of investments -- 60,618 ------------------ ------------------ Net cash used in investing activities (3,498,614) (4,790,034) ------------------ ------------------ Cash flows from financing activities: Net borrowings under bank line of credit 13,910,145 3,419,453 Repayment of notes payable -- (31,860) Repayment of subordinated notes -- (1,100,000) Principal payments under capital lease obligations (197,268) (1,059,237) Proceeds from notes and interest receivable, shareholder and officer 327,311 -- Proceeds from convertible note payable, affiliate 5,000,000 -- Repayment of convertible notes payable -- (1,458,259) Exercise of stock options 1,558,535 182,086 Purchases of treasury stock -- (516,599) ------------------ ------------------ Net cash provided by (used in) financing activities 20,598,723 (564,416) ------------------ ------------------ Decrease in cash and cash equivalents (432,587) (1,408,013) Cash and cash equivalents at beginning of period 1,961,310 2,964,645 ------------------ ------------------ Cash and cash equivalents at end of period $ 1,528,723 $ 1,556,632 ================== ================== Cash paid during the period for: Interest $ 2,214,482 $ 1,493,101
See accompanying notes to consolidated condensed financial statements. -5- E COM VENTURES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION E Com Ventures, Inc., a Florida corporation ("ECOMV"), performs all its operations through two wholly-owned subsidiaries, Perfumania, Inc. ("Perfumania"), a Florida corporation, which is a specialty retailer and wholesaler of fragrances and related products, and perfumania.com, Inc., ("perfumania.com"), a Florida corporation, which is an Internet retailer of fragrances and other related specialty items. Perfumania is a leading specialty retailer and wholesale distributor of a wide range of brand name and designer fragrances. Perfumania sells fragrances at discounted prices up to 75% below the manufacturers' suggested retail prices. Perfumania's wholesale division distributes fragrances and related products to other wholesale distributors throughout North America and overseas. Perfumania.com offers a selection of its more popular products for sale over the Internet and serves as an alternative shopping experience to the Perfumania shopping experience. The number of retail stores in operation at October 30, 2004, and November 1, 2003, was 236 and 234, respectively. The consolidated condensed financial statements include the accounts of ECOMV and subsidiaries (collectively, the "Company"). All material intercompany balances and transactions have been eliminated in consolidation. Effective January 30, 2004, Ilia Lekach, the Company's then Chairman of the Board and Chief Executive Officer, and several other parties controlled by Mr. Lekach and his wife Deborah Lekach (collectively, "Lekach"), entered into the Nussdorf Option Agreement, with Stephen Nussdorf and Glenn Nussdorf (the "Nussdorfs"), pursuant to which the Nussdorfs were granted options to acquire up to an aggregate 720,954 shares of the Company's common stock beneficially owned by Lekach, for a purchase price of $12.70 per share, with the acquisition price to be paid in specified installments. As of May 10, 2004, Mr. Lekach had exercised his options from the Company to acquire 443,750 shares and the Nussdorfs had acquired all 720,954 shares pursuant to the Nussdorf Option Agreement. In accordance with the Nussdorf Option Agreement, the Nussdorfs own an aggregate of 1,128,144 shares of the Company's common stock or approximately 39% of the total number of shares of the Company's common stock outstanding. As of October 30, 2004, the Company has a seasonal working capital deficiency of approximately $6.3 million, cash balances of approximately $1.5 million and additional borrowing capacity of $8.4 million under its bank line of credit. Management believes that the cash balances, the available borrowing capacity under its three-year line of credit (see Note 3), and the projected future operating results will generate sufficient liquidity to support the Company's needs for the next twelve months; however, there can be no assurance that management's plans will be successful. Management is currently discussing the possible conversion of the outstanding $5 million subordinated note payable, affiliate to a long-term note with the holders of the note. If the Company is unable to generate sufficient cash flows from operations in the future to service its obligations, the Company could face liquidity and working capital constraints, which could adversely impact future operations and growth. The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with 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 accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to those rules and regulations. The financial information presented herein, which is not necessarily indicative of results to be expected for the current fiscal year, reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the interim unaudited consolidated condensed financial statements. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended January 31, 2004, filed with the SEC on May 17, 2004, and as amended on May 18, 2004 and June 1, 2004. -6- NOTE 2 - ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and provides proforma disclosure of net income (loss) and earnings (loss) per share as if the fair value based method prescribed by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," ("SFAS 123") as amended, had been applied in measuring compensation expense for options granted to employees and directors. In accordance with APB 25, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee or director must pay to acquire the stock. Had compensation cost for options granted been determined in accordance with the fair value provisions of SFAS No. 123, the Company's net loss and net loss per share would have been increased to the proforma amounts presented below.
Thirteen Weeks Thirteen Weeks Thirty-Nine Weeks Thirty-Nine Weeks ended ended ended ended October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003 --------------- --------------- --------------- --------------- Net loss as reported $ (1,103,475) $ (3,725,111) $ (4,270,688) $ (7,579,098) Add: Total fair value of stock based employee compensation expense not included in reported net loss, net (6,358) (58,138) (24,887) (232,048) --------------- --------------- --------------- --------------- Proforma net loss $ (1,109,833) $ (3,783,249) $ (4,295,575) $ (7,811,146) =============== =============== =============== =============== Proforma net loss per share: Basic $ (0.38) $ (1.53) $ (1.53) $ (3.16) =============== =============== =============== =============== Diluted $ (0.38) $ (1.53) $ (1.53) $ (3.16) =============== =============== =============== ===============
NOTE 3 - BANK LINE OF CREDIT On May 12, 2004, the Company entered into a three-year amended and restated senior secured revolving credit facility with GMAC Commercial Finance LLC and Congress Financial Corporation which provides for borrowings of up to $60 million and supports normal working capital requirements and other general corporate needs. Advances under the line of credit are based on a formula of eligible inventories and bear interest depending on the Company's financial ratios ranging from (a) prime to prime plus 1.25% or (b) LIBOR plus 2.50% to 3.75%. Borrowings are secured by a first lien on all assets of Perfumania. The credit facility contains limitations on additional borrowings, capital expenditures and other items, and contains various covenants and certain key ratios as defined by the lender. As of October 30, 2004, Perfumania was in compliance with its covenant requirements. Approximately $8.4 million was available under the credit facility as of October 30, 2004. On March 9, 2004, Glen and Stephen Nussdorf ("Nussdorfs") made a $5,000,000 subordinated secured demand loan to Perfumania. The demand loan bears interest at the prime rate plus 1%, requires quarterly interest payments and is secured by a security interest in Perfumania's assets pursuant to a Security Agreement, by and among Perfumania and the Nussdorfs. There are no prepayment penalties and the loan is subordinate to all bank related indebtedness. -7- On December 9, 2004, the Company issued a Subordinated Convertible Note (the "Convertible Note") in exchange for the $5,000,000 subordinated secured demand loan. The Convertible Note bears interest at the prime rate plus 1%, requires quarterly interest payments and is secured by a security interest in the Company's assets pursuant to a Security Agreement, by and among the Company and the Nussdorfs. There are no prepayment penalties and the Convertible Note is subordinate to all bank related indebtedness. The Convertible Note is payable in January 2007 and allows the Nussdorfs to convert the Convertible Note into shares of the Company's common stock at a conversion price of $11.25. NOTE 4 - BASIC AND DILUTED LOSS PER COMMON SHARE Basic loss per common share has been computed by dividing net loss by the weighted average number of common shares outstanding during the period. For all periods presented in the accompanying consolidated condensed statements of operations, incremental shares attributed to outstanding stock options and convertible notes were not included because the results would be anti-dilutive. NOTE 5 - COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) represents all non-owner changes in shareholders' equity and consists of the following:
Thirteen Weeks Thirteen Weeks Thirty-Nine Weeks Thirty-Nine Weeks Ended Ended Ended Ended October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003 ------------------- ------------------- ------------------- ------------------- Net loss $ (1,103,475) $ (3,725,111) $ (4,270,688) $ (7,579,098) Other comprehensive income (loss) - net unrealized gain on investments -- 6,759 -- 25,503 ------------------- ------------------- ------------------- ------------------- Total comprehensive loss $ (1,103,475) $ (3,718,352) $ (4,270,688) $ (7,553,595) =================== =================== =================== ===================
NOTE 6 - CONTINGENCIES The Company is involved in legal proceedings in the ordinary course of business. Management believes that the Company has meritorious defenses and that the ultimate resolution of these matters should not have a material adverse effect on the Company's financial position or results of operations; however, management cannot presently predict the outcome of these matters. NOTE 7 - RELATED PARTY TRANSACTIONS Parlux Fragrances, Inc. ("Parlux") owns 378,102 shares, or approximately 13%, of the Company's outstanding common stock. The Nussdorfs own approximately 39% of the Company's outstanding common stock and they are officers and principals of Quality King Distributors, Inc. ("Quality King"). Purchases of product from these related parties were approximately $59.6 million and $32.6 million for the first thirty-nine weeks of fiscal years 2004 and 2003, representing approximately 52% and 37% of the Company's total purchases, respectively. The amount due to these related parties at October 30, 2004 and January 31, 2004, was approximately $29.1 million and $17.4 million, respectively, and is included in accounts payable, affiliates in the accompanying consolidated condensed balance sheets. -8- Sales of wholesale merchandise to Quality King were approximately $18.1 million and $8.7 million for the first thirty-nine weeks of fiscal years 2004 and 2003, respectively. Amounts due from Quality King at October 30, 2004, are approximately $0.3 million and are included in trade receivables, net in the accompanying consolidated condensed balance sheets. NOTE 8 - NON CASH TRANSACTIONS Supplemental disclosures of non-cash investing and financing activities are as follows:
For the Thirty-Nine Weeks Ended ------------------------------------------- October 30, 2004 November 1, 2003 ------------------------------------------- Building under capital lease adjustments $ 463,525 $ 414,630 Decrease in accounts payable in exchange for subordinated notes payable - affiliate -- 5,000,000 Unrealized loss on investments available for sale -- 25,503
NOTE 9 - SEGMENT INFORMATION The Company operates in two industry segments, specialty retail sales and wholesale distribution of fragrances and related products. Financial information for these segments is summarized in the following table.
Thirteen Weeks Thirteen Weeks Thirty-Nine Weeks Thirty-Nine Weeks Ended Ended Ended Ended October 30, 2004 November 1, 2003 October 30, 2004 November 1, 2003 ------------------- ------------------- ------------------- ------------------- Net sales to customers: Retail $ 41,647,493 $ 41,910,440 $ 124,730,582 $ 124,254,871 Wholesale 9,155,100 6,147,500 18,114,208 11,438,867 ------------------- ------------------- ------------------- ------------------- $ 50,802,593 $ 48,057,940 $ 142,844,790 $ 135,693,738 =================== =================== =================== =================== Gross profit: Retail $ 19,334,925 $ 17,394,333 $ 57,159,070 $ 54,144,300 Wholesale 404,778 585,262 953,323 1,223,517 ------------------- ------------------- ------------------- ------------------- $ 19,739,703 $ 17,979,595 $ 58,112,393 $ 55,367,817 =================== =================== =================== ===================
-9- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Comparison of the Thirteen weeks Ended October 30, 2004 with the Thirteen weeks Ended November 1, 2003. Net sales increased 6% from $48.1 million in the thirteen weeks ended November 1, 2003 to $50.8 million in the thirteen weeks ended October 30, 2004. The increase in sales was primarily due to an increase in Perfumania's wholesale sales from $6.1 million in the thirteen weeks ended November 1, 2003 to $9.2 million in the thirteen weeks ended October 30, 2004. However, there was a decrease in Perfumania's retail sales due to less customer transactions resulting from an increase in retail sales prices. Retail sales prices were increased in order to improve retail gross margins. Perfumania's comparable store sales increased 1% in the thirteen weeks ended October 30, 2004 versus the comparable period in 2003. Comparable store sales measure sales from stores that have been open for one year or more. During both the thirteen weeks ended October 30, 2004, and November 1, 2003, the average number of stores operated was 234. All wholesale sales during the third quarter of fiscal 2004 were made to Quality King. Gross profit increased from $18.0 million in the thirteen weeks ended November 1, 2003 (37% of total net sales) to $19.7 million in the thirteen weeks ended October 30, 2004 (39% of total net sales). The 10% increase in gross profit was due to higher sales prices on retail products and an increase in wholesale sales. Selling, general and administrative expenses decreased from $19.4 million in the thirteen weeks ended November 1, 2003 to $18.5 million in the thirteen weeks ended October 30, 2004. The 5% decrease was attributable to lower store payroll and employee related costs and improved expense control compared with 2003. Depreciation and amortization was approximately $1.4 million and $1.6 million, respectively in the thirteen weeks ended October 30, 2004 and November 1, 2003. As a result of the foregoing, our loss from operations during this period was $0.2 million compared to a loss from operations of $3.1 for the corresponding period of 2003. Interest expense, net was approximately $0.6 million for the thirteen weeks ended November 1, 2003 compared with $0.9 million for the thirteen weeks ended October 30, 2004. The increase in interest expense was due to higher interest rates and higher average borrowings for the thirteen weeks ended October 30, 2004 versus the comparable period of 2003. As a result of the foregoing, our net loss was $3.7 million in the thirteen weeks ended November 1, 2003 compared to a net loss of $1.1 million in the thirteen weeks ended October 30, 2004. Net loss per share for the thirteen weeks ended in November 1, 2003 and October 30, 2004 was $1.51 and $0.38, respectively. COMPARISON OF THE THIRTY-NINE WEEKS ENDED OCTOBER 30, 2004 WITH THE THIRTY-NINE WEEKS ENDED NOVEMBER 1, 2003. Net sales increased 5% from $135.7 million in the thirty-nine weeks ended November 1, 2003 to $142.8 million in the thirty-nine weeks ended October 30, 2004. The increase in sales was due to a 58% increase in Perfumania's wholesale sales while retail sales were materially unchanged. Perfumania's comparable store sales increased by 1% in the first thirty-nine weeks of fiscal 2004, compared to the first thirty-nine weeks of 2003. Comparable store sales measure sales from stores that have been open for a year or more. During the thirty-nine weeks ended October 30, 2004, the average number of stores operated was 232 versus 236 in the prior year's comparable period. Gross profit increased 5% from $55.4 million in the thirty-nine weeks ended November 1, 2003 (41% of total net sales) to $58.1 million in the thirty-nine weeks ended October 30, 2004 (41% of total net sales). As a percentage of net sales, gross profit for retail sales increased from 44% to 46% over the comparable thirty-nine week period of the prior year, due to higher -10- selling prices and lower cost of goods sold. The Company, during the current period has been able to obtain certain merchandise at better prices and quantities from Quality King. Selling, general and administrative expenses decreased 2% from $56.9 million in the thirty-nine weeks ended November 1, 2003 to $55.5 million in the thirty-nine weeks ended October 30, 2004. The decrease was attributable to lower store payroll and employee related costs and improved expense control compared with 2003. Depreciation and amortization was approximately $4.5 million in both the thirty-nine weeks ended October 30, 2004 and November 1, 2003. Interest expense, net was approximately $1.5 million for the thirty-nine weeks ended November 1, 2003 compared with $2.4 million in the same period of 2004. The increase in interest expense was due to interest incurred on the capital lease of our corporate office and distribution center to which we relocated during the second quarter of fiscal 2003, in addition to higher interest rates and higher average borrowings for the thirty-nine weeks ended October 30, 2004 versus the comparable period of 2003. As a result of the foregoing, our net loss decreased from $7.6 million in the thirty-nine weeks ended November 1, 2003, to a net loss of $4.3 million in the thirty-nine weeks ended October 30, 2004. Net loss per share for the thirty-nine weeks ended November 1, 2003 and October 30, 2004 was $3.07 and $1.52, respectively. LIQUIDITY AND CAPITAL RESOURCES Our principal capital requirements are to fund Perfumania's inventory purchases, renovate existing stores, and selectively open new stores. For the first thirty-nine weeks of fiscal 2004, these capital requirements generally were satisfied through borrowings under our credit facility. At October 30, 2004, we had a working capital deficiency of approximately $6.3 million compared to a working capital deficiency of approximately $9.1 million at January 31, 2004. The decrease was primarily due to the convertible note payable issued to the Nussdorfs offset by the net loss during the current period. Net cash used in operating activities during the thirty-nine weeks ended October 30, 2004 was approximately $17.5 million compared with approximately $3.9 million provided by operating activities for the same period in the prior year. The increase in cash used in operating activities was primarily due to a $30.6 million increase in inventories resulting from our decision to increase the levels and assortment of product offerings in Perfumania's retail stores. In addition, there was a decrease in accrued expenses of $3.9 million resulting from payments made in connection with a change in management control, offset by a $17.6 million increase in accounts payable as a result of the increased inventory purchases. With respect to purchases of inventory from related parties, we believe that those purchases are at prices and/or on terms generally better than would otherwise be available from unrelated third parties. Net cash used in investing activities was approximately $3.5 million in the thirty-nine weeks ended October 30, 2004, compared to $4.8 million in the thirty-nine weeks ended November 1, 2003. Investing activities represent spending for the renovation of existing stores and new store openings. Approximately $1.1 million of the amount used in investing activities in the thirty-nine weeks ended November 1, 2003 was attributable to the relocation of the Company's corporate office and distribution center to Sunrise, Florida in the second quarter of the fiscal year 2003. During the thirty-nine weeks ended October 30, 2004, Perfumania closed 7 stores and opened 12 new stores, versus 11 closures and 7 new stores in the comparative period of 2003. At October 30, 2004, Perfumania operated 236 stores compared to 234 stores as of November 1, 2003. Management's focus is on improving the profitability of existing stores and plans to open 4 additional stores and close 10 stores for the remainder of fiscal year 2004. Net cash provided by financing activities during the current period was approximately $20.6 million compared with approximately $0.6 million used for the same period in the prior year. The increase was due primarily to borrowings under our bank line of credit to fund inventory purchases and $5 million in proceeds from a subordinated note payable to an affiliate. Perfumania's senior secured credit facility, with GMAC Commercial Credit LLC and Congress Financial Corporation, provides for borrowings of up to $60 million, of which approximately $8.4 million was available at October 30, 2004, and supports normal working capital requirements and other general corporate purposes. Advances under the line of credit are based on a formula of eligible inventories and bears interest depending on the Company's financial ratios ranging from (a) prime to prime plus 1.25% or (b) LIBOR plus 2.50% to 3.75%. -11- Borrowings are secured by a first lien on all assets of Perfumania. The credit facility contains limitations on additional borrowings, capital expenditures and other items, and contains various covenants and certain key ratios, as defined by the lender. As of October 30, 2004, Perfumania was in compliance with its covenant requirements. On December 9, 2004, we issued a subordinated convertible note (the "Convertible Note") to the Nussdorfs in exchange for the $5 million subordinated secured demand note payable, affiliate, that they currently hold. The Convertible Note bears interest at the prime rate plus 1%, requires quarterly interest payments and is secured by a security interest in the Company's assets. There are no prepayment penalties and the Convertible Note is subordinate to all bank related indebtedness. The Convertible Note is payable in January 2007 and allows the Nussdorfs to convert the Convertible Note into shares of our common stock at a conversion price of $11.25. We believe our cash balances, our available borrowing capacity and our projected future operating results will generate sufficient liquidity to support our working capital and capital expenditures needs for the next twelve months; however, there can be no assurance that our plans and expectations will be successful. If we are unable to generate sufficient cash flows from operations in the future to service our obligations and/or refinance our existing debt, we could face liquidity and working capital constraints, which could adversely impact future operations and growth. CRITICAL ACCOUNTING POLICIES Our consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim information. Presentation of these statements requires management to make judgments and estimates. As such, some accounting policies have a significant impact on amounts reported in these financial statements. The judgments and estimates made can significantly affect results. Materially different amounts would be reported under different conditions or by using different assumptions. A summary of those critical accounting policies can be found in our 2003 Annual Report on Form 10-K. FORWARD LOOKING STATEMENTS Some of the statements in this quarterly report, including those that contain the words "anticipate," "believe," "plan," "estimate," "expect," "should," "intend" and other similar expressions, are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Those forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements or those of our industry to be materially different from any future results, performance or achievements expressed or implied by those forward-looking statements. Among the factors that could cause actual results, performance or achievement to differ materially from those described or implied in the forward-looking statements are general economic conditions, competition, potential technology changes, changes in or the lack of anticipated changes in the regulatory environment in various countries, the ability to secure partnership or joint-venture relationships with other entities, the ability to raise additional capital to finance expansion, the risks inherent in new product and service introductions and the entry into new geographic markets and other factors included in our filings with the Securities and Exchange Commission (the "SEC'), including the Risk Factors included in our 2003 Annual Report on Form 10-K which are incorporated herein by this reference to them. Copies of our SEC filings are available from the SEC or may be obtained upon request from us. We do not undertake any obligation to update the information contained herein, which speaks only as of this date. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS During the quarter ended October 30, 2004, there have been no material changes in the information about our market risks as of January 31, 2004 as set forth in Item 7A of the 2003 Form 10-K. -12- ITEM 4. CONTROLS AND PROCEDURES Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures and have concluded that, as of October 30, 2004, our disclosure controls and procedures are effective for gathering, analyzing and disclosing the information we are required to disclose in our reports filed under the Securities Exchange Act of 1934. There have been no changes in our internal control over financial reporting during the quarter ended October 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Not applicable. ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Index to Exhibits Exhibit No. Description of Exhibit ----------- ---------------------- 31.1 Certification by Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification by Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. -13- E COM VENTURES, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the report to be signed on its behalf by the undersigned, thereunto duly authorized. E COM VENTURES, INC. --------------------------------------------- (Registrant) Date: December 10, 2004 By: /s/ Michael W. Katz --------------------------------------------- Michael W. Katz Chief Executive Officer and President By: /s/ A. Mark Young --------------------------------------------- A. Mark Young Chief Financial Officer (Principal Financial and Accounting Officer) -14- EX-31.1 2 v09824_ex31-1.txt Exhibit 31.1 CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Michael W. Katz, certify that: (1) I have reviewed this quarterly report on Form 10-Q of E Com Ventures, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. (4) The registrant's other certifying officer and I (herein the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's Certifying Officers have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 10, 2004 By: /s/ Michael W. Katz - ------------------------------------- Michael W. Katz Chief Executive Officer and President -15- EX-31.2 3 v09824_ex31-2.txt Exhibit 31.2 CERTIFICATIONS Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, A. Mark Young, certify that: (1) I have reviewed this quarterly report on Form 10-Q of E Com Ventures, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. (4) The registrant's other certifying officer and I (herein the "Certifying Officers") are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: (a) designed such disclosure controls and procedures, or caused such disclosure and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and (5) The registrant's Certifying Officers have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: December 10, 2004 By: /s/ A. Mark Young - ----------------------- A. Mark Young Chief Financial Officer -16- EX-32.1 4 v09824_ex32-1.txt Exhibit 32.1 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Michael W. Katz, certify that: (1) I have reviewed this quarterly report on Form 10-Q of E Com Ventures, Inc.; (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: December 10, 2004 /s/ Michael W. Katz - ------------------------------------- Michael W. Katz Chief Executive Officer and President -17- EX-32.2 5 v09824_ex32-2.txt Exhibit 32.2 CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, A. Mark Young, certify that: (1) I have reviewed this quarterly report on Form 10-Q of E Com Ventures, Inc. (2) Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and (3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Date: December 10, 2004 /s/ A. Mark Young - ----------------------- A. Mark Young Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----