<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------
FORM 10-Q
( Mark One )
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 ( d ) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1995
------------------
Or
------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ---------------------
Commission file number: 0-15491
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PARLUX FRAGRANCES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter )
DELAWARE 22-2562955
- --------------------------------------------------------------------------------
(State or other jurisdiction of ( IRS employer
incorporation or organization ) identification no. )
650 S.W. 16th Terrace, Pompano Beach, FL 33069
- --------------------------------------------------------------------------------
( Address of principal executive offices ) ( Zip code )
Registrant's telephone number, including area code 954-946-7700
-----------------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report
Indicate with an "X" whether the registrant ( 1 ) has filed all
reports required to be filed by Section 13 or 15( d ) of the Securities
Exchange Act of 1934 during the preceding 12 months ( or for such shorter
period that the registrant was required to file such reports ), and ( 2 ) has
been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate with an "X" whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15( d ) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court. Yes No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of November 10, 1995, 4,409,419 shares of the issuer's common stock
were outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages 8 to 11.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's ( the Company's ) financial
position and operating results during the periods included in the accompanying
financial statements and notes. This discussion and analysis should be read in
conjunction with such financial statements and notes.
RECENT DEVELOPMENTS
On September 21, 1995, the Company entered into an agreement with Revlon
Holdings, Inc., ( Revlon ) to acquire the assets and operations of Alexandra de
Markoff ( AdM ), a prestige cosmetic line currently operated by Revlon, for a
combination of cash and Parlux common stock. AdM's annual sales for the period
ending December 31, 1995 are estimated at approximately $12 million. The
agreement is expected to be consummated on or about December 27, 1995.
On October 5, 1995, the Company entered into a transition and termination
agreement with Francesco Smalto International, one of its licensors, which
provides for the continued use of the Francesco Smalto trademark through
September 30, 1996. The agreement contains certain production restrictions and
requires a fixed amount of royalties during the period, which the Company
anticipates will not exceed 5% of net sales. Sales of Francesco Smalto
products represented approximately 8% of total Company net sales for the year
ended March 31, 1995.
On October 26, 1995, the Company announced a two-for-one stock split in the
form of a dividend to shareholders of record as of November 3, 1995. Date of
distribution will be November 10, 1995.
On November 1, 1995, the Company entered into a non-binding letter of intent to
purchase all of the assets, and assume certain liabilities, of Richard Barrie
Fragrances, Inc. ( RBF ) for a combination of cash and Parlux common stock.
The Company has commenced due diligence. A definitive agreement would be
subject to approval by the boards of both companies, and shareholders and
convertible note holders of RBF. The Company anticipates that, if the
agreement is consummated, closing would take place prior to March 31, 1996.
2
<PAGE> 3
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1995 WITH THE
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1994.
During the quarter ended September 30, 1995, net sales increased 83% to
$13,925,214 as compared to $7,608,808 for the same period for the prior year.
Of these, sales of Parlux "continued brands" were $5,120,470 compared to
$2,793,875 in the prior year, or an increase of 83%, while sales of Fred Hayman
Beverly Hills, Inc. ( FHBH ) products were $3,953,229 in the current period,
compared with sales of $4,294,379 in the prior year, a reduction of 8%. Sales
of Perry Ellis products were $5,588,885 in the current period, compared to no
sales in the prior year since the acquisition of the Perry Ellis license from
Sanofi Beaute was only completed in December 1994.
Sales to unaffiliated parties increased 79% to $7,421,402 in the current period
compared to $4,136,388 in the same period in the prior year. Sales to
affiliated parties increased 87% to $6,503,812 in the current quarter compared
to $3,472,070 in the same period in the prior fiscal year. The increases were
principally a result of Perry Ellis fragrance sales.
In June 1991, the Company entered into a barter arrangement ( the Barter
Agreement ) for which the Company would receive advertising credits in exchange
for inventory of one of its "discontinued brands," Joan Collins. The Company
expects to be able to fully utilize these advertising credits as part of its
normal ongoing advertising expenditures. Advertising credits, less unearned
income, are accounted for as prepaid expenses on the Company's balance sheet at
the time such inventory is bartered. Unearned income equals the amount of
advertising credits minus the cost of goods bartered. As advertising credits
are used by the Company, unearned income is debited and the cost of goods sold
is credited. As a result, as the advertising credits are used, the aggregate
cost of goods sold as a percentage of net sales decreases and gross margin as a
percentage of net sales increases.
Cost of goods sold for the quarter ended September 30, 1995 decreased to 39% of
net sales as compared to 42% of net sales in the same period in the prior year.
The Company utilized advertising credits amounting to $108,000 in the current
quarter ( $258,000 in 1994 ) generating $59,000 of earned income ( $139,000 in
1994 ) which partially offset cost of goods sold during the periods. Without
the effects of the Barter Agreement, cost of goods sold would have been 39% for
the current quarter compared to 44% for the same quarter in the prior year.
The decrease was mainly attributable to the increased sale of FHBH and Perry
Ellis products to unaffiliated parties, which resulted in higher margins.
Operating expenses increased by 86% compared to the prior fiscal year from
$2,964,952 to $5,501,243. As a percentage of sales, operating expenses
remained relatively constant at 40% of net sales. Advertising and promotional
expenses increased 225% to $2,689,702 compared to $827,280 in the prior year
period, reflecting increased print advertising and promotional expenses in
connection with the U.S. domestic department and specialty store business
resulting from the FHBH and Perry Ellis brand activities. Selling and
distribution costs increased by 12% to $1,109,374 in the current fiscal period
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<PAGE> 4
as compared to $987,410 in the same period of the prior fiscal year, but
decreased as a percentage of sales from 13% to 8%. General and administrative
expenses increased by 37% compared to the prior year period from $1,090,999 to
$1,464,444, but decreased as a percentage of net sales from 14% to 11%,
reflecting the economies of scale realized from the FHBH and Perry Ellis
acquisitions. Royalties increased to $237,718 for the current period compared
to $59,263 in the prior year, principally due to the royalties required on the
sale of Perry Ellis brand products.
As a result of the above, the Company had operating income of $2,993,521 or 21%
of net sales for the three-month period ended September 30, 1995, compared to
$1,471,913 or 19% of net sales for the comparable period in the prior year.
Interest expense increased by 64%, with $453,877 being recorded in the current
fiscal year as compared to $276,597 in the same period in the prior year. The
increase was attributable to the increase in debt related to the FHBH and Perry
Ellis acquisitions. Exchange losses were $148,731 in the current year as
compared to $92,251 in the same period in the prior year. Income before taxes
for the current fiscal year was $2,390,913 or 17% of net sales, compared to
$1,103,065 or 14 % of net sales, in the same period in the prior year.
During the fiscal year ended March 31, 1995, the Company utilized all remaining
operating loss carryforwards. Accordingly, the tax provision for the quarter
ended September 30, 1995 reflects an effective tax rate of approximately 37%
compared to 33% in the prior year comparable period. Giving effect to the tax
provision, the Company reported net income of $1,507,879 or 11% of net sales
for the current quarter ended September 30, 1995, as compared to $739,929 or
10% of net sales for the same quarter in the prior fiscal year.
COMPARISON OF THE SIX-MONTH PERIOD ENDED SEPTEMBER 30, 1995 WITH THE SIX-MONTH
PERIOD ENDED SEPTEMBER 30, 1994.
During the six months ended September 30, 1995, net sales increased 71% to
$24,133,983 as compared to $14,101,333 for the same period for the prior year.
Of these, sales of Parlux "continued brands" were $8,484,570 compared to
$5,647,825 in the prior year, or an increase of 50%, while sales of Fred Hayman
Beverly Hills, Inc. ( FHBH ) products were $6,739,188 in the current period,
compared with sales of $7,319,497 in the prior year, a reduction of 8%. Sales
of Perry Ellis products were $8,515,131 in the current period, compared to no
sales in the prior year since the acquisition of the Perry Ellis license from
Sanofi Beaute was only completed in December 1994.
Sales to unaffiliated parties increased 100% to $16,711,841 in the current
period compared to $8,351,988 in the same period in the prior year. Sales to
affiliated parties increased 29% to $7,422,142 in the current period compared
to $5,749,345 in the same period in the prior fiscal year. The increases were
principally a result of Perry Ellis fragrance sales. As a percentage of total
sales, sales to affiliates were 31% in the current period, compared to 41% in
the same period in the prior year.
Cost of goods sold for the six months ended September 30, 1995 decreased to 35%
of net sales as compared to 40% of net sales in the same period in the prior
year. The Company utilized advertising credits amounting to $376,000 in the
current period ( $701,000 in 1994 ) generating $193,000 of earned income
( $378,000 in 1994 ) which partially offset
4
<PAGE> 5
cost of goods sold during the periods. Without the effects of the Barter
Agreement, cost of goods sold would have been 36% for the current period
compared to 43% for the same six months in the prior year. The decrease was
mainly attributable to the increased sale of FHBH and Perry Ellis products to
unaffiliated parties, which resulted in higher margins.
Operating expenses increased by 76% compared to the prior fiscal year from
$5,882,043 to $10,333,984. As a percentage of sales, operating expenses were
46% of net sales in the current fiscal year, as compared to 42% of net sales
for the same period for the prior fiscal year. Advertising and promotional
expenses increased 138% to $5,062,735 compared to $2,122,860 in the prior year
period, reflecting increased print advertising and promotional expenses in
connection with the launch of the Todd Oldham fragrance and U.S. department and
specialty store business resulting from the FHBH and Perry Ellis brand
activities. Selling and distribution costs increased by 24%, to $1,952,907 in
the current fiscal period as compared to $1,572,212 in the same period of the
prior fiscal year, but decreased as a percentage of sales from 11% to 8%.
General and administrative expenses increased by 35% compared to the prior year
period from $2,087,939 to $2,825,521, but decreased as a percentage of net
sales from 15% to 12%, reflecting the economies of scale realized from the FHBH
and Perry Ellis acquisitions. Royalties increased to $492,821 for the current
period compared to $99,032 in the prior year, principally due to the royalties
required on the sale of Perry Ellis brand products.
As a result of the above, the Company had operating income of $5,236,433, or
21% of net sales for the six-month period ended September 30, 1995, compared to
$2,546,721 or 18% of net sales for the comparable period in the prior year.
Interest expense increased by 104%, with $935,090 being recorded in the current
fiscal year as compared to $457,507 in the same period in the prior year. The
increase was attributable to the increase in debt related to the FHBH and Perry
Ellis acquisitions. Exchange losses were $95,240 in the current year as
compared to $47,718 in the same period in the prior year. Income before taxes
for the current fiscal year was $4,206,103 or 17% of net sales, compared to
$2,041,496 or 14 % of net sales, in the same period in the prior year.
During the fiscal year ended March 31, 1995, the Company utilized all remaining
operating loss carryforwards. Accordingly, the tax provision for the six
months ended September 30, 1995 reflects an effective tax rate of approximately
37% compared to 33% in the prior year comparable period. Giving effect to the
tax provision, the Company reported net income of $2,649,845 or 11% of net
sales for the six months ended September 30, 1995, as compared to $1,363,030 or
10% of net sales for the same period in the prior fiscal year.
Liquidity and Capital Resources
Working capital increased to $10,481,000 at September 30, 1995 from $4,842,000
at March 31, 1995. The increase was mainly attributable to: ( i ) During the
six months ended September 30, 1995, certain warrants and employee stock options
totaling 783,925 shares were exercised into common stock, increasing working
capital and stockholders' equity by approximately $2,600,000; ( ii ) In August
1995, 50,000 shares of common stock were
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<PAGE> 6
sold in a private placement increasing working capital and stockholder's equity
by $595,000; and, ( iii ) current period net income.
On September 21, 1995, in connection with the proposed purchase of the AdM
cosmetic line, the Company entered into a $2.4 million loan agreement with
Revlon. The loan is non-interest bearing, secured by Parlux pledged common
stock and is repayable upon closing of the AdM transaction.
In August, 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000 from Distribudora de Perfumes Senderos, Ltda., with
an additional $500,000 available at the option of the Company, to be drawn upon
prior to October 31, 1995. The note bears interest at 12% per annum and is due
on February 23, 1996. In connection with the note, the Company issued warrants
to purchase 20,000 shares of Parlux common stock at a price of $16.75 per
share, which expire on August 21, 1997. Additional warrants would be issued on
a pro-rata basis under the same terms and conditions if the Company utilizes
the additional $500,000 facility. As of October 31, 1995, the Company had
borrowed $693,591 under the agreement.
In June 1995, the Company borrowed, on an unsecured basis, $300,000 from an
individual related to the Company's Chairman of the Board. The note bears
interest at 11% per annum and is due on June 27, 1996. In connection with the
note, the Company issued warrants to purchase 30,000 shares of Parlux common
stock at a price of $13.875 per share, which expire on June 27, 1997.
In December 1994, the Company entered into a Loan and Security Agreement ( the
Credit Agreement ) with Finova Capital Corporation, ( formerly Greyhound
Financial Corporation ) pursuant to which the Company is able to borrow, on a
revolving basis for a three-year period, up to $5,000,000 at an interest rate
of 2% in excess of the Citibank, N.A. "base or prime rate." Finova has taken
a security interest in substantially all of the domestic assets of the Company.
The Credit Agreement contains customary events of default and covenants which
prohibit, among other things, incurring additional indebtedness in excess of a
specified amount, paying dividends, creating liens, and engaging in mergers and
consolidations without the prior consent of Finova. The Credit Agreement also
contains certain financial covenants relating to net worth, interest coverage
and other financial ratios.
Simultaneously with the closing of the Credit Agreement, the Company
restructured a prior loan extended by the National Bank of Kuwait SAK ( NBK )
by paying NBK approximately $2,120,000, including interest, from borrowings
under the Credit Agreement. In exchange for such payment, NBK released Parlux,
and its subsidiaries, from all outstanding liabilities and guarantees owed to
NBK except for those obligations relating to a new $560,000 term loan, and a
$1,000,000 letter of credit made available to support the Finova loan. The
combined $1,560,000 facility is fully cash collateralized by certain
shareholders' deposits. In addition, these shareholders have signed a
subordination agreement in connection with the Credit Agreement.
The Company has been provided with a temporary increase in the Credit Agreement
to $5.5 million, and is currently pursuing additional facilities, including an
increase in the Credit Agreement, to finance future growth. There can be no
assurance that such
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<PAGE> 7
financing facilities will become available, or, if available, that they will be
on terms satisfactory to the Company.
Impact of Currency Exchange
The Company's sales and purchases are virtually all in U.S. dollars or French
francs. Since approximately 20% of the Company's sales are currently
manufactured in France, a strengthening of the French franc vis-a-vis the U.S.
dollar results in exchange rate losses for the Company. Conversely, a weakening
of the French franc vis-a-vis the U.S. dollar results in exchange rate gains
for the Company.
The Company monitors exchange rates on a daily basis and regularly seeks to
evaluate long-term expectations for the French franc in order to minimize its
exchange rate risk. To date, the Company has not elected to engage in currency
hedging transactions, but may pursue this alternative.
The Company is in the process of centralizing manufacturing in the United
States which will minimize the currency exchange impact on intercompany
transactions for the future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings of any significance.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
( a ) Exhibit No. Description
----------- -----------
<S> <C>
10.38 Transition and termination agreement dated as of
August 31, 1995 between the Company and Francesco
Smalto International.
27 Financial Data Schedule (for SEC use only).
</TABLE>
( b ) There were no filings on Form 8-K during the period.
7
<PAGE> 8
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
- -------------------------------------------- September 30, March 31,
1995 1995
-------------- -------------
CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 118,708 $ 575,700
Receivables, net of allowance for
doubtful accounts, sales returns and
allowances of approximately $1,788,000 and $2,055,000
at September 30, 1995 and March 31, 1995, respectively 6,074,212 4,888,250
Due from affiliates 6,187,372 4,893,710
Inventories 23,267,158 16,963,006
Prepaid expenses and other current assets 6,154,363 4,908,321
----------- -----------
TOTAL CURRENT ASSETS 41,801,813 32,228,987
Equipment and leasehold improvements, net 1,871,800 2,043,758
Trademarks, licenses and goodwill, net 11,288,318 11,380,201
Other 146,515 97,107
----------- -----------
TOTAL ASSETS $55,108,446 $45,750,053
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $14,643,145 $13,785,878
Accounts payable 11,806,554 7,337,910
Accrued expenses 4,756,640 3,811,850
Advances from customers 114,562 2,451,059
----------- -----------
TOTAL CURRENT LIABILITIES 31,320,901 27,386,697
Long-term borrowings 4,898,484 5,280,689
----------- -----------
TOTAL LIABILITIES 36,219,385 32,667,386
----------- -----------
COMMITMENTS - -
----------- -----------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 0 issued and outstanding - -
Common stock, $0.01 par value, 20,000,000
shares authorized, 4,324,139 and 3,490,214
shares issued at September 30, 1995 and March 31, 1995, respectively 43,241 34,902
Additional paid-in capital 14,744,336 11,563,537
Retained earnings 3,921,792 1,271,947
Cumulative translation adjustment 313,164 345,753
----------- -----------
19,022,533 13,216,139
Less - 19,500 shares of common stock in treasury, at cost (133,472) (133,472)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 18,889,061 13,082,667
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $55,108,446 $45,750,053
=========== ===========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 9
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended September 30, Six months ended September 30,
-------------------------------- ------------------------------
1995 1994 1995 1994
--------------- -------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales:
Unaffiliated customers $ 7,421,402 $ 4,136,388 $16,711,841 $ 8,351,988
Affiliates 6,503,812 3,472,420 7,422,142 5,749,345
----------- ----------- ----------- -----------
13,925,214 7,608,808 24,133,983 14,101,333
Cost of goods sold 5,430,450 3,171,943 8,563,566 5,672,569
----------- ----------- ----------- -----------
Gross margin 8,494,764 4,436,865 15,570,417 8,428,764
----------- ----------- ----------- -----------
Operating expenses:
Advertising and promotional 2,689,702 827,280 5,062,735 2,122,860
Selling and distribution 1,109,379 987,410 1,952,907 1,572,212
General and administrative 1,464,444 1,090,999 2,825,521 2,087,939
Royalties 237,718 59,263 492,821 99,032
----------- ----------- ----------- -----------
Total operating expenses 5,501,243 2,964,952 10,333,984 5,882,043
----------- ----------- ----------- -----------
Operating income 2,993,521 1,471,913 5,236,433 2,546,721
Interest expense and bank charges 453,877 276,597 935,090 457,507
Exchange losses 148,731 92,251 95,240 47,718
----------- ----------- ----------- -----------
Income before income taxes 2,390,913 1,103,065 4,206,103 2,041,496
Income taxes 883,034 363,136 1,556,258 678,466
----------- ----------- ----------- -----------
Net income $ 1,507,879 $ 739,929 $ 2,649,845 $ 1,363,030
=========== =========== =========== ===========
Earnings per share:
Primary $ 0.30 $ 0.17 $ 0.56 $ 0.34
=========== =========== =========== ===========
Fully diluted $ 0.30 $ 0.17 $ 0.55 $ 0.34
=========== =========== =========== ===========
Weighted average shares 5,065,446 4,530,410 4,756,960 4,322,500
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
9
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PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------------- ADDITIONAL EARNINGS
NUMBER PAR PAID-IN (ACCUMULATED
ISSUED VALUE CAPITAL DEFICIT)
---------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE at April 1, 1993 2,812,642 $28,127 $ 8,712,669 ($4,321,470)
Net income - - - 1,362,206
Issuance of common stock upon exercise of:
Employee stock options 36,547 365 111,445 -
Warrants 12,000 120 44,880 -
Foreign currency translation adjustment - - - -
--------- ------- ----------- -----------
BALANCE at March 31, 1994 2,861,189 28,612 8,868,994 (2,959,264)
Net income - - - 4,231,211
Issuance of common stock in connection with:
Exercise of employee stock options 19,025 190 61,020 -
Sale of stock in private placement 110,000 1,100 493,900 -
Acquisition of assets 500,000 5,000 2,195,000 -
Costs in connection with the
registration of common stock,
options and warrants - - (55,377) -
Foreign currency translation adjustment - - - -
Purchase of 19,500 shares of treasury stock, at cost - - - -
--------- ------- ----------- -----------
BALANCE at March 31, 1995 3,490,214 34,902 11,563,537 1,271,947
Net income - - - 2,649,845
Issuance of common stock upon exercise of:
Employee stock options 9,925 99 28,454 -
Warrants 774,000 7,740 2,557,845 -
Sale of stock in private placement 50,000 500 594,500 -
Foreign currency translation adjustment - - - -
--------- ------- ----------- -----------
BALANCE at September 30, 1995 (Unaudited) 4,324,139 $43,241 $14,744,336 $ 3,921,792
========= ======= =========== ===========
<CAPTION>
CUMULATIVE
TRANSLATION TREASURY
ADJUSTMENT STOCK TOTAL
---------- -------- ------
<S> <C> <C> <C>
BALANCE at April 1, 1993 $169,243 $ - $ 4,588,569
Net income - - 1,362,206
Issuance of common stock upon exercise of:
Employee stock options - - 111,810
Warrants - - 45,000
Foreign currency translation adjustment (39,985) - (39,985)
-------- ---------- -----------
BALANCE at March 31, 1994 129,258 - 6,067,600
Net income - - 4,231,211
Issuance of common stock in connection with:
Exercise of employee stock options - - 61,210
Sale of stock in private placement - - 495,000
Acquisition of assets - - 2,200,000
Costs in connection with the
registration of common stock,
options and warrants - - (55,377)
Foreign currency translation adjustment 216,495 - 216,495
Purchase of 19,500 shares of treasury stock, at cost - (133,472) (133,472)
-------- ---------- -----------
BALANCE at March 31, 1995 345,753 (133,472) 13,082,667
Net income - - 2,649,845
Issuance of common stock upon exercise of:
Employee stock options - - 28,553
Warrants - - 2,565,585
Sale of stock in private placement - - 595,000
Foreign currency translation adjustment (32,589) - (32,589)
-------- ---------- -----------
BALANCE at September 30, 1995 (Unaudited) $313,164 ($133,472) $18,889,061
======== ========= ===========
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 11
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended September 30,
------------------------------
(Unaudited)
1995 1994
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $2,649,845 $1,363,030
---------- ----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 691,474 287,928
Provision for losses on accounts receivable (367,866) (153,148)
Changes in assets and liabilities net of effect of acquisitions:
(Increase) decrease in receivables - customers (918,091) 1,216,871
(Increase) decrease in receivables - affiliates (1,293,662) 352,501
(Increase) decrease in inventories (6,304,152) 279,740
(Increase) decrease in prepaid expenses and other current assets (1,246,042) 698,332
Increase in other non-current assets (49,408) (2,840)
Increase (decrease) in accounts payable 4,468,644 (1,632,723)
Increase in accrued expenses 1,123,540 817,598
(Decrease) increase in advances from customers (2,336,497) 335,652
---------- ----------
Total adjustments (6,232,060) 2,199,911
---------- ----------
Net cash (used by) provided by operating activities (3,582,215) 3,562,941
---------- ----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (301,291) (37,886)
Purchases of trademarks (37,520) (32,791)
Cash paid in acquisition of Fred Hayman Beverly Hills - (2,000,000)
---------- ----------
Net cash used in investing activities (338,811) (2,070,677)
---------- ----------
Cash flows from financing activities:
Proceeds (payments) - overdraft facilities 23,481 (191,145)
Proceeds - receivable financing facilities 95,969 150,801
Proceeds - notes payable 3,374,722 266,048
Proceeds - note payable to Finova Capital Corp. 810,254 -
Payments - note payable to National Bank of Kuwait (200,000) -
Proceeds - note payable Eagle Bank 165,000 -
Payments - note payable to Sanofi Beaute, Inc. (3,421,628) -
Payments - note payable to Fred Hayman Beverly Hills (12,445) (2,273,632)
Proceeds from issuance of common stock 2,660,390 527,820
---------- ----------
Net cash provided by (used in) financing activities 3,495,743 (1,520,108)
---------- ----------
Effect of exchange rate changes on cash (31,709) 59,472
---------- ----------
Net (decrease) increase in cash and cash equivalents (456,992) 31,628
Cash and cash equivalents, beginning of year 575,700 38,692
---------- ----------
Cash and cash equivalents, end of period $ 118,708 $ 70,320
========== ==========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 12
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The Consolidated Balance Sheet as of September 30, 1995, the
Consolidated Statements of Income for the three-month and six-month periods
ended September 30, 1995 and 1994, and the Consolidated Statements of Cash
Flows for the six-month periods ended September 30, 1995 and 1994, have been
prepared without audit. In the opinion of management, the statements reflect
all adjustments consisting of normal recurring adjustments necessary to present
fairly the financial position of Parlux Fragrances, Inc., and subsidiaries at
September 30, 1995 and the results of their operations and their cash flows for
the three-month and six month periods ended September 30, 1995 and 1994.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and notes
thereto included in the Company's March 31, 1995 Form 10-K as filed with the
Securities and Exchange Commission on June 28, 1995.
Certain reclassifications were made to the September 30, 1994 financial
statements to conform with the presentation of the September 30, 1995 financial
statements.
B. INVENTORIES
Inventories are stated at the lower of cost ( first-in, first-out method ) or
market. The components of inventories are as follows:
<TABLE>
<CAPTION>
September 30, 1995 March 31, 1995
------------------ --------------
<S> <C> <C>
Raw Material, Packaging and Components $17,875,060 $10,380,904
Finished Products 5,392,098 6,582,102
----------- -----------
$23,267,158 $16,963,006
=========== ===========
</TABLE>
C. ACQUISITIONS
On September 21, 1995, the Company entered into an agreement with Revlon
Holdings, Inc., ( Revlon ) to acquire the assets and operations of Alexandra de
Markoff ( AdM ), a prestige cosmetic line currently operated by Revlon, for a
combination of cash and Parlux common stock. AdM's annual sales for the period
ending December 31, 1995 are estimated at approximately $12 million. The
agreement is expected to be consummated on or about December 27, 1995.
In December 1994, the Company consummated the acquisition of the license for
the worldwide manufacturing and distribution rights and for the use of the
trademarks associated with the Perry Ellis International, Inc. ( Perry Ellis )
line of fragrances and beauty products pursuant to an Asset Purchase Agreement
entered into in October 1994
12
<PAGE> 13
between the Company and Sanofi Beaute, Inc., the prior holder of the Perry
Ellis fragrances license. In addition to the acquisition of the license, which
is renewable every two years if the Company meets certain average sales levels,
Parlux acquired from Sanofi: a) the assets, licensed rights, claims and
contracts relating to the brands Perry Ellis for Men and 360(degree) Perry
Ellis(R) (the Brands ); b) certain inventories relating to the Brands; c)
certain fixed assets relating to the Brands; and d) the licensed rights in
certain trademarks relating to the Brands. At closing, Parlux provided as
consideration $7,500,000 in cash and $6,535,660 in the form of a one-year
promissory note, bearing interest at 7% and secured by the assets acquired
under the Purchase Agreement.
The estimated fair value of the assets acquired is summarized as follows:
<TABLE>
<S> <C>
License and Trademarks $ 7,500,000
Inventories 4,528,925
Promotional supplies 1,073,135
Molds and other fixed assets 933,600
-----------
Total fair value of assets acquired $14,035,660
===========
</TABLE>
On June 15, 1994, the Company entered into an Asset Purchase Agreement with
Fred Hayman Beverly Hills, Inc. ( FHBH ) pursuant to which the Company
purchased substantially all of the assets and liabilities of the FHBH fragrance
division, including inventory, accounts receivable ( excluding those backed by
non-cancelable letters of credit issued prior to June 2, 1994 ), molds, and
assignable contracts. In addition, FHBH granted Parlux an exclusive 55-year,
royalty free license to use FHBH's United States Class 3 trademarks for "Fred
Hayman", "273", "Touch", "With Love", and "Fred Hayman Personal Selections" and
the corresponding international registrations.
In consideration for the purchased assets, the Company provided the following
to the seller: ( i ) payment of $2,000,000 in cash; ( ii ) issuance of 500,000
shares of the Company's common stock; ( iii ) delivery of a short-term
non-interest bearing note in the amount of $2,544,942; and ( iv ) delivery of a
10-year, 7.25% note in the amount of $5,950,774. In addition, the Company
granted FHBH an option to purchase 100,000 shares of the Company's common
stock, for a ten-year period, at an exercise price of $4.50 per share. The
acquisition was accounted for as a purchase by the Company. The cost of the
net assets acquired is summarized as follows:
<TABLE>
<S> <C>
Accounts receivable, net $ 2,252,796
Inventories 6,461,236
Prepaid promotional supplies and expense 1,407,897
Molds 477,894
Goodwill 2,655,719
-----------
13,255,542
Accounts payable and accrued expenses (559,827)
-----------
Net assets acquired $12,695,715
===========
</TABLE>
Goodwill, licenses and trademarks recorded in connection with both acquisitions
are being amortized over 25 years.
13
<PAGE> 14
D. BORROWINGS - BANKS AND OTHERS
The composition of debt is as follows:
<TABLE>
<CAPTION>
September 30, 1995 March 31, 1995
------------------ --------------
<S> <C> <C>
Note payable to Sanofi Beaute, Inc.,
secured by the acquired inventory and
license agreement with Perry Ellis
International, Inc., interest at 7%,
payable in equal monthly installments of $2,166,697 $5,588,325
$565,509 through December 31, 1995
Note payable to FHBH, secured by the
acquired licensed trademarks, interest at
7.25%, payable in equal monthly
installments of $69,863 through June 2004 5,363,244 5,725,689
Revolving credit facility payable to Finova
Capital Corporation, interest at Citibank
N.A. prime (9% at September 30, 1995) plus
2%, payable on December 27, 1997 5,099,570 4,289,316
Note payable to Revlon Holdings, Inc.,
secured by Parlux pledged common stock,
non-interest bearing, due upon closing of 2,400,000 --
the AdM acquisition
Note payable to Distribudora de Perfumes
Senderos, Ltda., unsecured, interest at
12%, due February 23, 1996 693,591 --
Loan payable to NBK, interest at the bank's
prime rate plus 1.5%, secured by
shareholders' deposits, payable in varying
installments through November 30, 1995 360,000 560,000
Unsecured $500,000 line of credit payable
to Eagle National Bank, interest at the
bank's prime rate plus 2%, due August 1, 246,014 81,014
1996
Overdraft facilities, interest from 9.45%
to 10.95%, payable on demand (1) 524,399 500,918
Receivable financing facilities, interest
at 9.20% to 10.45%, payable on demand (1) 1,438,114 1,342,145
Note payable to stockholder, interest at
10%, payable on demand (l) 550,000 560,291
Related party notes payable, interest at
11%, due December 27, 1995 and June 28, 700,000 400,000
1996
Other notes payable 18,869 18,869
----------- -----------
18,304,446 19,066,567
Less: long-term borrowings 4,898,484 (5,280,689)
----------- -----------
Short-term borrowings $14,643,145 $13,785,878
=========== ===========
</TABLE>
(l) Denominated in French francs
14
<PAGE> 15
In December 1994, the Company entered into a Loan and Security Agreement ( the
Credit Agreement ) with Finova Capital Corporation ( Finova ), ( formerly
Greyhound Financial Corporation ) pursuant to which the Company is able to
borrow, depending on the availability of a borrowing base, as defined in the
Credit Agreement, on a revolving basis for a three-year period, up to
$5,000,000, at an interest rate of 2% in excess of Citibank, N.A. "base or
prime rate." Finova has taken a security interest in substantially all of the
domestic assets of the Company. The Credit Agreement contains customary events
of default and covenants which prohibit, among other things, incurring
additional indebtedness in excess of a specified amount, paying dividends,
creating liens, and engaging in mergers and consolidation without the prior
consent of Finova. The Credit Agreement also contains certain financial
covenants relating to net worth, interest coverage and other financial ratios.
Simultaneously with the closing of the Credit Agreement, the Company
restructured a prior loan extended by the National Bank of Kuwait SAK ( NBK )
by paying NBK approximately $2,120,015, including interest, from borrowings
under the Credit Agreement. In exchange for such payment, NBK released Parlux,
and all of its subsidiaries, from all outstanding liabilities and guarantees
owed to NBK, except for those obligations relating to a new $560,000 term loan,
and a $1,000,000 letter of credit made available to support the Finova loan.
The combined $1,560,000 facility is fully cash collateralized by certain
shareholders' deposits. In addition, the shareholders have signed a
subordination agreement in connection with the Credit Agreement.
The Company has overdraft and trade financing facilities aggregating 10,600,000
French francs ( approximately $2,160,000 as of September 30, 1995 ). These
credit facilities are renewed annually.
On September 21, 1995, in connection with the proposed purchase of the AdM
cosmetic line, the Company entered into a $2.4 million loan agreement with
Revlon. The loan is non-interest bearing, secured by Parlux pledged common
stock and is repayable upon closing of the AdM transaction.
In August, 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000 from Distribudora de Perfumes Senderos, Ltda., with
an additional $500,000 available at the option of the Company, to be drawn upon
prior to October 31, 1995. The note bears interest at 12% per annum and is due
on February 23, 1996. As of October 31, 1995, the Company had borrowed
$693,591 under the agreement.
In June 1995, the Company borrowed $300,000 from an individual related to the
Company's Chairman of the Board. The unsecured note bears interest at 11% per
annum, and is due on June 28, 1996.
The Company has been provided with a temporary increase in the Credit Agreement
to $5.5 million, and is currently pursuing additional facilities, including an
increase in the Credit Agreement, to finance future growth. There can be no
assurance that such financing facilities will become available, or, if
available, that they will be on terms satisfactory to the Company.
15
<PAGE> 16
E. TRANSACTIONS WITH AFFILIATES
Sales to Perfumania, Inc., a public company affiliated with the Company's
Chairman of the Board, amounted to $7,422,142 or 31% of net sales for the
six-month period ended September 30, 1995, as compared to $5,749,345 or 41% of
net sales in the same period for the prior fiscal year.
Amounts due from Perfumania amounted to $6,187,372 and $4,893,710 at September
30, 1995 and March 31, 1995, respectively.
F. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share have been computed based upon
the weighted average number of shares of common stock outstanding of 5,065,446
and 4,756,960 for the three-month and six-month periods ended September 30,
1995, respectively ( 4,530,410 and 4,322,500, respectively, for 1994 ). The
modified treasury stock method was used to determine the dilutive effect of the
options and warrants, since the number of shares of common stock issuable upon
their exercise exceeds 20% of the outstanding common shares.
G. CASH FLOW INFORMATION
The Company considers temporary investments with an original maturity of three
months or less to be cash equivalents. Supplemental disclosures of cash flow
information are as follows:
<TABLE>
<CAPTION>
Six-months ended September 30,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Cash paid for:
Interest $902,204 $384,376
Income taxes $377,643 $ 43,013
</TABLE>
In addition to the FHBH and Perry Ellis acquisitions discussed in Note C, which
were partially funded through the issuance of common stock and notes, the
Company used barter credits totaling $376,000 ( $701,000 in 1994 ) in payment
of advertising expenses.
Additionally, during 1995, notes payable and accrued interest in the amount of
$350,000 and $178,750, respectively, were repaid through the issuance of common
stock in connection with the exercise of certain warrants and options.
H. INCOME TAXES
As of March 31, 1995 , the Company had utilized its remaining U.S. net
operating loss carryovers. Accordingly, the tax provision for the period ended
September 30, 1995 reflects an effective tax rate of approximately 37%.
The provision for income taxes for the period ended September 30, 1994 was
calculated based upon the estimated income tax rate for the full fiscal year
ended March 31, 1995, including the utilization of the U.S. net operating loss
carryovers on a pro-rata basis.
16
<PAGE> 17
I. LICENSE AND DISTRIBUTION AGREEMENTS
PERRY ELLIS: As discussed in Note C, the Company acquired the Perry Ellis
license from Sanofi Beaute. The Perry Ellis license is entering its eleventh
year, and is renewable every two years if the average annual sales in the
completed period exceed 75% of the average sales of the previous four years.
All minimum sales levels have been met by the previous licensee, and the
Company believes that this will continue. The license requires the payment of
royalties, which decline as a percentage of net sales as net sales volume
increases, and the spending of certain minimum amounts for advertising based
upon net sales levels achieved in the prior year.
VICKY TIEL: In September 1992, the Company entered into an exclusive
worldwide license agreement with VICKY TIEL S.A. in which the Company secured
the rights to manufacture and distribute fragrances and beauty care products
using the VICKY TIEL trademark for an initial five-year period, renewable for a
subsequent five-year period upon achieving specified sales or minimum royalty
levels. Under this agreement, the Company is obligated to pay royalties
calculated as a percentage of net sales, which decline as net sales volume
increases. The Company is also obligated to spend certain minimum amounts for
advertising based upon the annual net sales of the products.
TODD OLDHAM: In December 1992, the Company entered into an exclusive
worldwide licensing agreement with L-7 Designs, Inc. in which the Company
secured the rights to manufacture and distribute fragrances and beauty care
products using the TODD OLDHAM trademark for an initial period of three-years,
renewable for subsequent three-year and four-year periods upon achieving
specified sales or minimum royalty levels. The license requires the payment of
royalties, which decline as a percentage of net sales as net sales volume
increases, and the spending of certain minimum amounts for advertising based
upon net sales levels. The Company launched a TODD OLDHAM women's fragrance
line in March 1995.
PHANTOM OF THE OPERA: In April 1993, the Company entered into an exclusive
worldwide agreement with Creative Fragrances, Inc., for the worldwide
distribution rights to PHANTOM OF THE OPERA covering men's and women's
fragrances and beauty related products. The agreement expires in April 1998.
Royalties are payable at 7% of net sales, and there are no minimum royalty
requirements, nor are there minimum requirements for sales or advertising.
FRANCESCO SMALTO: In May 1995, the Company terminated its license agreement
with FRANCESCO SMALTO INTERNATIONAL ( SMALTO )for breach of contract. On
October 5, 1995, the Company entered into a transition and termination
agreement with SMALTO which provides for the continued use of the Francesco
Smalto trademark through September 30, 1996. The agreement contains certain
production restrictions and requires a fixed amount of royalties during the
period, which the Company anticipates will not exceed 5% of net sales. Sales
of Francesco Smalto products represented approximately 8% of total Company net
sales for the year ended March 31, 1995.
17
<PAGE> 18
J. SUBSEQUENT EVENTS
On November 1, 1995, the Company entered into a non-binding letter of intent to
purchase all of the assets, and assume certain liabilities, of Richard Barrie
Fragrances, Inc.( RBF ) for a combination of cash and Parlux common stock. The
Company has commenced due diligence. A definitive agreement would be subject
to approval by the boards of both companies, and shareholders and convertible
note holders of RBF. The Company anticipates that, if the agreement is
consummated, closing would take place prior to March 31, 1996.
On October 26, 1995, the Company announced a two-for-one stock split in the
form of a dividend to shareholders of record as of November 3, 1995. Date of
distribution will be November 10, 1995.
* * * * * * * * * *
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARLUX FRAGRANCES, INC.
/s/ Ilia Lekach
- ---------------
Ilia Lekach, Chairman and Chief Executive Officer
/s/ Frank A. Buttacavoli
- ------------------------
Frank A. Buttacavoli, Vice President, Chief Financial Officer and Director
Date: November 10, 1995
19
<PAGE> 1
EXHIBIT 10:38
PARLUX FRAGRANCES, INC.
August 31, 1995
Mr. Oliver Roux
Francesco Smalto International
29 rue Marbeuf
75008 Paris
France
Transition and Termination Agreement
Dear Mr. Roux,
Following up on our meeting in Paris on July 12 and our
subsequent telephone conversations, this will confirm our agreement
regarding the transition and termination of the license agreement
between Parlux Fragrances, Inc. (Parlux) and Francesco Smalto
International (Smalto) as follows:
1. As agreed, an 18 month "sell off" period under this transition and
termination agreement will start as of April 1, 1995, and extend
through September 30, 1996.
During that period, Parlux shall continue to balance and manufacture
existing inventories, and in addition, shall be entitled to produce a
maximum of $1,500,000 (at standard cost of goods) of "new" production
of the following products only:
<TABLE>
<S> <C> <C> <C>
073435 100 ml Francesco Smalto spray ASL
272610 30 ml Francesco Smalto spray EDT
072619 50 ml Francesco Smalto spray EDT
072635 100 ml Francesco Smalto spray EDT
237138 30 ml Molto Smalto spray EDT
039143 50 ml Molto Smalto spray EDT
039163 100 ml Molto Smalto spray EDT
039241 50 ml Molto Smalto spray ASL
</TABLE>
It is understood that the above $1,500,000 limit is global for the
above 8 product lines and that it shall apply as of June 8 and June
13, 1995, the dates of the inventory listings Parlux SA sent you on
June 20.
At the end of the "sell off" period, Parlux shall immediately destroy
all remaining inventories and Smalto shall have no purchasing
obligation with respect thereto.
Smalto, however, shall have the option of purchasing all or part of
such inventories at Parlux' standard cost, and be entitled to make
payment by way of offset with any amount due to it by Parlux under
this transition and termination agreement.
2. During the 18 month "sell off" period, Parlux shall attempt to
concentrate sales in traditional retail channels. It shall be
entitled, however, to continue to sell products to Perfumania. Parlux
shall not sell to other discounters.
3. Parlux shall pay Smalto the minimum royalty for the fiscal year ended
March 31, 1995, referred to in our letter of May 19, 1995,
specifically $203,104 (with all previous interest charges not yet paid
being waived). Due to the installment schedule below, payment of this
sum shall be made by check in four installments of $52,300 ($203,104/4
+ 3%) on:
<PAGE> 2
August 31, 1995
January 1, 1996
April 30, 1996
July 31, 1996
There shall be no interest charges on these payments - which
represents the balance owed by Parlux to Smalto for the fiscal year
ended March 31, 1995 - provided Parlux pays on a timely basis. Should
Parlux be late in making payment, interest shall be charged at the
rate of 1.5% per month.
A check representing the first of these payments is enclosed herewith.
4. During the 18 month "sell off" period Parlux shall pay Smalto total
royalties of $337,500. Payment shall be made by check in six equal
installments of $56,250 each on:
August 31, 1995
November 30, 1995
February 29, 1996
May 31, 1996
August 31, 1996
November 30, 1996
Late payments shall attract interest as outlined in (3) above.
Four checks representing the first of these payments are enclosed herewith.
If Parlux were to be in arrears by more that $50,000 at February 1, 1996 on any
amount due by it to Smalto, including on amounts in (3) above and on interest,
Smalto shall have the right to cancel and terminate forthwith this transition
and termination agreement, and Parlux shall cease manufacturing, producing and
selling licensed products immediately. Smalto shall not be required to
purchase any remaining inventories, and they shall be destroyed, unless Smalto
elects to purchase all or part of such inventories as mentioned under the
conditions set forth in the last sentence of (1).
Any such cancellation and termination shall not release Parlux from paying all
amounts due to Smalto under (3) and (4), including interest through full and
final payment. All such amounts will become due immediately. In addition, a
liquidated damage penalty of 10% of all amounts due to Smalto shall be payable
by Parlux. As a protection for Smalto, we are enclosing a "chain" of
promissory notes for each of the payments listed above in (3) - other than
those covered by the checks enclosed herewith -, i.e., a series of 8 notes.
5. During the 18 month "sell off" period, Parlux shall have no
obligations on minimum advertising expenditures.
Parlux, however, shall have to represent Smalto (fragrance products
only) at the Cannes Tax Free Show in October, 1995.
6. As of September 30, 1996, or earlier in the event of a cancellation
and termination of this agreement before that date, all rights to the
package, design, bottles, fragrance formulae, etc., to the Smalto
product lines handled by Parlux shall belong to Smalto. See (9) below
for further details.
7. Parlux acknowledges that it has no right to use Smalto trademarks
other than through the original license or this transition and
termination agreement and agrees to waive all claims to all Smalto
trademarks as of September 30, 1996, or earlier in the event of a
cancellation and termination of this agreement before that date.
8. At the end of the 18 month "sell off" period, or earlier in the event
of a cancellation and termination of this agreement before that date,
all PWP and GWP items still in inventory bearing
<PAGE> 3
the Francesco Smalto name or initials will be destroyed. Items
without specific identification may be recycled by Parlux.
9. Smalto shall have the right to accelerate the "sell off" period with
six months advance notice in the event that it secures a new fragrance
licensee.
In the event of such an acceleration, Parlux shall cooperate fully, and Smalto
shall acquire directly or cause the new licensee to acquire all Parlux
inventories as defined in (1) at standard cost. Smalto shall have the right to
acquire the cap/bottle molds, except that the cost will be 20% of the mold cost
of FF 1,368,000 (see attached detail), unless Smalto elects to have the molds
involved destroyed as discussed below. Royalties payments under (4) shall be
reduced on a pro-rata basis at the conclusion of the six month period (e.g., if
notice would start on September 1, 1995, then the new license would commence on
April 1, 1996 and Parlux would be liable for only 12 months royalty, of
$225,000). Any agreed royalties under (3) and any interest and other charges
referred to in this letter, however, will remain payable in full.
In the event that Smalto wants to acquire (or destroy) the cap/bottle molds at
the end of the "sell off" period, or earlier in the event of a cancellation and
termination of this agreement before that date, Parlux shall receive a credit
of FF 50,000 against the royalty payment payable on November 30, 1996 under
(4), or any acceleration date of that payment.
Smalto shall also have the right to decide that the molds may be kept by Parlux
subject to its not making use of them for 5 years and then to utilize them only
for a new label not existing at that time. In the event Smalto makes such a
decision, this will trigger no charges for either Smalto or Parlux.
I believe the above reflects the totality of our discussion. If this is so, I
request that a duplicate copy of this letter agreement be returned to me after
having been accepted by Mr. Francesco Smalto. As a last point, I confirm our
agreement that any dispute concerning this agreement be dealt within the French
Courts (Tribunal de Commerce de Paris) and that French law govern.
Sincerely,
---------------------------
/s/ Ilia Lekach
Chairman of the Board
Parlux Fragrances, Inc.
Enclosures (5 checks + 8 notes + mold details)
P.S.: As is customary, I expect that each of the enclosed promissory notes,
as they get paid, will be returned to us marked accordingly.
Accepted
- ------------------------
/s/ Francesco Smalto
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND INCOME STATEMENT OF PARLUX FRAGRANCES, INC. AND
IS QUALIFIED IN ITS ENTIRETY BY REFRENCE TO SUCH FORM 10-Q QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 118,708
<SECURITIES> 0
<RECEIVABLES> 7,862,212
<ALLOWANCES> 1,788,000
<INVENTORY> 23,267,158
<CURRENT-ASSETS> 41,801,813
<PP&E> 4,573,166
<DEPRECIATION> 2,701,366
<TOTAL-ASSETS> 55,108,446
<CURRENT-LIABILITIES> 31,320,901
<BONDS> 0
<COMMON> 43,241
0
0
<OTHER-SE> 18,845,820
<TOTAL-LIABILITY-AND-EQUITY> 55,108,446
<SALES> 24,133,983
<TOTAL-REVENUES> 24,133,983
<CGS> 8,563,566
<TOTAL-COSTS> 10,291,984
<OTHER-EXPENSES> 95,240
<LOSS-PROVISION> 42,000
<INTEREST-EXPENSE> 935,090
<INCOME-PRETAX> 4,206,103
<INCOME-TAX> 1,556,258
<INCOME-CONTINUING> 2,649,845
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,649,845
<EPS-PRIMARY> 0.56
<EPS-DILUTED> 0.55
</TABLE>
