<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: June 30, 1996
Or______
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15( d ) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to _____________________
Commission file number: 0-15491
PARLUX FRAGRANCES, INC.
( Exact name of registrant as specified in its charter )
DELAWARE 22-2562955
( State or other jurisdiction of (IRS employer identification no. )
incorporation or organization )
3725 S.W. 30th Avenue, Ft. Lauderdale, FL 33312
( Address of principal executive offices ) ( Zip code )
Registrant's telephone number, including area code 954-316-9008
------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report
Indicate with an "X" whether the registrant ( 1 ) has filed all
reports required to be filed by Section 13 or 15( d ) of the Securities
Exchange Act of 1934 during the preceding 12 months ( or for such shorter
period that the registrant was required to file such reports ), and ( 2 ) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate with an "X" whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15( d ) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of August 12, 1996, 13,694,711 shares of the issuer's common stock
were outstanding.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
See pages 6 to 9.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's ( the Company's ) financial
position and operating results during the periods included in the accompanying
financial statements and notes. This discussion and analysis should be read in
conjunction with such financial statements and notes.
RECENT DEVELOPMENTS
On June 28, 1996, the Company consummated the acquisition of substantially all
of the assets and assumption of certain liabilities of Richard Barrie
Fragrances, Inc. ( RBF ) for a combination of cash and Parlux common stock,
pursuant to an asset purchase agreement entered into on January 31, 1996. See
Note C to the accompanying consolidated financial statements for further
discussion.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIOD ENDED JUNE 30, 1996 WITH THE THREE-MONTH
PERIOD ENDED JUNE 30, 1995.
During the quarter ended June 30, 1996, net sales increased 84% to $18,739,627
as compared to $10,208,769 for the same period for the prior year. Of these,
net sales of Parlux continued brands ( brands which the Company owned or held
licenses at March 31, 1995) were $15,453,685, an increase of 51% from the prior
year. Net sales of Alexandra de Markoff ( AdM ) brand cosmetics totaled
$3,285,942 in the current period. The AdM brand was acquired on December 27,
1995, and accordingly, there were no sales of AdM in the prior year period.
Sales to unaffiliated parties increased 55% to $14,385,864 in the current
period compared to $9,290,439 in the same period in the prior year. Sales to
affiliated parties increased 374% to $4,353,763 in the current quarter compared
to $918,330 in the same period in the prior fiscal year.
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
2
<PAGE> 3
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 June 30, 1996 increased to 34% of net
sales as compared to 31% of net sales in the same period in the prior year.
During the quarter ended June 30, 1995, the Company utilized advertising
credits amounting to $268,000 generating $134,000 of earned income which
partially offset cost of goods sold during the period. Without the effects of
the Barter Agreement, cost of goods sold would have been 34% for the current
quarter compared to 32% for the same quarter in the prior year. The increase
was mainly attributable to the increased sales to affiliated parties which
result in lower margins, offset by the reduction in costs of certain components
utilized in production.
Operating expenses increased by 84% compared to the prior fiscal year from
$4,832,741 to $8,872,194, but remained relatively constant at 47% of net sales.
Advertising and promotional expenses increased 105% to $4,873,164 compared to
$2,373,033 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 mainly from Perry Ellis and AdM brand
activities. Selling and distribution costs increased by 119% to $1,851,608 in
the current fiscal period as compared to $843,528 in the same period of the
prior fiscal year, increasing as a percentage of net sales from 8% to 10%. This
increase was mainly attributable to the hiring of its own domestic in-house
sales force during the current quarter in lieu of using commissioned
manufacturers representatives, and increased warehousing and space rental
costs. These costs were incurred to position the Company for future growth.
General and administrative expenses increased by 25% compared to the prior year
period from $1,361,077 to $1,700,060 but decreased as a percentage of net sales
from 13% to 9%, further reflecting the economies of scale realized from the
FHBH, Perry Ellis and AdM acquisitions. Royalties increased to $447,362 for
the current period compared to $255,103 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 $3,581,939 or 19%
of net sales for the three-month period ended June 30, 1996, compared to
$2,242,912 or 22% of net sales for the comparable period in the prior year.
Interest expense remained relatively constant at $487,873 in the current fiscal
year as compared to $481,213 in the same period in the prior year, reflecting
lower interest rates on convertible debentures outstanding during the period.
Exchange gains were $25,792 in the current year as compared to $53,491 in the
same period in the prior year. Income before taxes for the current fiscal year
was $3,119,858 or 17% of net sales, compared to $1,815,190 or 18% of net sales,
in the same period in the prior year.
Giving effect to the tax provision, the Company reported net income of
$1,934,075 or 10% of net sales for the current quarter ended June 30, 1996, as
compared to $1,141,966 or 11% of net sales for the same quarter in the prior
fiscal year.
3
<PAGE> 4
Liquidity and Capital Resources
Working capital increased to $47,502,998 at June 30, 1996 from $30,800,351 at
March 31, 1996. The increase during the three-month period was mainly
attributable to: ( i ) During May 1996, the Company issued $10,000,000 of 5%
convertible debentures, due May 1, 1998, in private placements pursuant to
Regulation D. The net proceeds were used to repay current liabilities; (ii)
During April 1996, the Company issued $3,000,000 of 5% convertible debentures
in private placements pursuant to Regulation S. In June 1996, the debentures,
plus accrued interest of $20,411, were converted into 308,727 shares of common
stock, increasing working capital and stockholders' equity by approximately
$2,950,000, net of placement costs; ( iii ) In connection with the RBF
acquisition, the Company issued 370,000 shares of common stock to RBF, which
increased stockholders' equity by $3,746,250, and, ( iv ) current period net
income.
On July 2, 1996, the Company issued an additional $10,000,000 of 5% convertible
debentures, due June 1, 1997, in private placements pursuant to Regulation D.
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 was
originally due on February 23, 1996, but was subsequently extended through
September 30, 1996. In connection with the note, the Company issued warrants
to purchase 53,978 shares of Parlux common stock at a price of $8.11 per share,
which expire on August 21, 1997. The Company borrowed a total of $674,722
under the agreement. In May 1996, the Company paid $500,000 of this amount,
leaving a balance of $174,722. This remaining balance was paid in full during
August 1996.
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 was due on June 27, 1997. In connection with the
note, the Company issued warrants to purchase 60,000 shares of Parlux common
stock at a price of $6.94 per share, which expire on June 27, 1997. On July
15, 1996, these warrants were exercised, effectively converting the loan to
equity.
In December 1994, the Company entered into a Loan and Security Agreement ( the
Credit Agreement ) with Finova Capital 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.
In May 1996, the Credit Agreement was amended to provide for a temporary
increase in the line up to $6,000,000 until August 29, 1996.
4
<PAGE> 5
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 was fully cash collateralized by certain
shareholders' deposits. In addition, these shareholders have signed a
subordination agreement in connection with the Credit Agreement. The term loan
was repaid during February 1996.
The Company 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.
Impact of Currency Exchange
The Company's sales and purchases are virtually all in U.S. dollars or French
francs. Since approximately 5% 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.
The Company continues to centralize 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.
5
<PAGE> 6
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, March 31,
1996 1996
----------- -----------
CURRENT ASSETS: (Unaudited)
<S> <C> <C>
Cash and cash equivalents $848,927 $339,423
Receivables, net of allowance for
doubtful accounts, sales returns and
allowances of approximately $3,895,000 and $2,121,000
at June 30, 1996 and March 31, 1996, respectively 14,282,004 10,892,347
Trade receivables from affiliates 15,883,430 13,482,423
Inventories, net 42,891,277 35,762,570
Prepaid expenses and other current assets 9,416,339 7,189,213
------------- -------------
TOTAL CURRENT ASSETS 83,321,977 67,665,976
Equipment and leasehold improvements, net 3,198,342 2,475,919
Trademarks, licenses and goodwill, net 27,226,179 24,623,417
Other 394,725 473,611
------------- -------------
TOTAL ASSETS $114,141,223 $95,238,923
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings, current portion $12,517,695 $11,564,917
Convertible debentures - 250,000
Accounts payable 14,086,284 18,739,117
Accrued expenses 3,136,090 1,543,591
Income taxes payable 6,078,910 4,768,000
Advances from customers - -
------------- -------------
TOTAL CURRENT LIABILITIES 35,818,979 36,865,625
Borrowings, less current portion 4,617,036 4,694,239
Convertible debentures 10,250,000 11,450,000
Deferred tax liability 183,864 183,864
------------- -------------
TOTAL LIABILITIES 50,869,879 53,193,728
------------- -------------
COMMITMENTS - -
------------- -------------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 0 issued and outstanding - -
Common stock, $0.01 par value, 15,000,000
shares authorized, 13,638,546 and 11,456,426
shares issued at June 30, 1996 and March 31, 1996, respectively 136,385 114,564
Additional paid-in capital 52,194,839 32,881,207
Retained earnings 10,934,724 9,000,649
Cumulative translation adjustment 138,868 182,247
------------- -------------
63,404,816 42,178,667
Less - 39,000 shares of common stock in treasury, at cost (133,472) (133,472)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 63,271,344 42,045,195
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $114,141,223 $95,238,923
============= =============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended June 30,
--------------------------
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
Net sales:
Unaffiliated customers $14,385,864 $9,290,439
Affiliates 4,353,763 918,330
----------- ------------
18,739,627 10,208,769
Cost of goods sold 6,285,494 3,133,116
----------- ------------
Gross margin 12,454,133 7,075,653
----------- ------------
Operating expenses:
Advertising and promotional 4,873,164 2,373,033
Selling and distribution 1,851,608 843,528
General and administrative 1,700,060 1,361,077
Royalties 447,362 255,103
----------- ------------
Total operating expenses 8,872,194 4,832,741
----------- ------------
Operating income 3,581,939 2,242,912
Interest expense and bank charges 487,873 481,213
Exchange gains (25,792) (53,491)
----------- ------------
Income before income taxes 3,119,858 1,815,190
Income taxes 1,185,783 673,224
----------- ------------
Net income $1,934,075 $1,141,966
=========== ============
Earnings per common and common
equivalent share $0.13 $0.12
=========== ============
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
--------------------- ADDITIONAL EARNINGS CUMULATIVE
NUMBER PAR PAID-IN (ACCUMULATED TRANSLATION TREASURY
ISSUED VALUE CAPITAL DEFICIT) ADJUSTMENT STOCK TOTAL
-------- ---------- --------- ------------ ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE at April 1, 1994 2,861,189 $28,612 $8,868,994 ($2,959,264) $129,258 - $6,067,600
Net income - - - 4,231,211 - - 4,231,211
Issuance of common stock in connection
with:
Exercise of employee stock options 19,025 190 61,020 - - - 61,210
Sale of stock in private placement 110,000 1,100 438,523 - - - 439,623
Acquisition of assets 500,000 5,000 2,195,000 - - - 2,200,000
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 3,490,214 34,902 11,563,537 1,271,947 345,753 (133,472) 13,082,667
Net income - - - 7,772,691 - - 7,772,691
Issuance of common stock upon
exercise of:
Employee stock options 11,175 112 33,910 - - - 34,022
Warrants 1,056,916 10,569 3,006,022 - - - 3,016,591
Sale of stock in private placements 1,001,514 10,015 7,605,570 - - - 7,615,585
Stock issued in connection with the
acquisition of assets 424,000 4,240 3,739,760 - - - 3,744,000
Conversion of debentures, net of 1,073,688 10,737 6,932,408 - - - 6,943,145
unamortized debt issuance costs
Adjustment for stock split 4,398,919 43,989 - (43,989) - - -
Foreign currency translation
adjustment - - - - (163,506) - (163,506)
---------- ---------- ----------- ----------- ----------- ----------- -----------
BALANCE at March 31, 1996 11,456,426 114,564 32,881,207 9,000,649 182,247 (133,472) 42,045,195
Net income - - - 1,934,075 - - 1,934,075
Issuance of common stock upon
exercise of:
Employee stock options 9,500 95 9,320 - - - 9,415
Options 176,000 1,760 1,406,240 - - - 1,408,000
Stock issued in connection with the
acquisition of assets 370,000 3,700 3,742,550 - - - 3,746,250
Conversion of debentures, net of - - -
unamortized debt issuance costs 1,626,620 16,266 14,155,522 14,171,788
Foreign currency translation
adjustment - - - - (43,379) - (43,379)
---------- ---------- ----------- ----------- ----------- ----------- -----------
BALANCE at June 30, 1996 (Unaudited) 13,638,546 $136,385 $52,194,839 $10,934,724 $138,868 ($133,472) $63,271,344
========== ========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 9
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------------
(Unaudited)
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,934,075 $1,141,966
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 514,283 343,928
Changes in assets and liabilities net of effect of acquisitions:
Increase in trade receivables - customers (3,323,698) (1,108,588)
(Increase) decrease in trade receivables - affiliates (2,401,007) 1,316,171
Increase in inventories (5,344,233) (1,970,023)
Increase in prepaid expenses and other current assets (2,227,126) (955,705)
Decrease (increase) in other non-current assets 154,445 (16,710)
(Decrease) increase in accounts payable (5,808,387) 255,012
Increase in accrued expenses 1,592,498 370,771
Increase in income taxes payable 1,310,910 634,247
Decrease in advances from customers - (1,792,156)
----------- -----------
Total adjustments (15,532,315) (2,923,053)
----------- -----------
Net cash used by operating activities (13,598,240) (1,781,087)
----------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (107,482) (114,084)
Purchases of trademarks (6,173) (27,999)
Cash received in acquisition of Richard Barrie Fragrances, Inc. 55,293 -
----------- -----------
Net cash used in investing activities (58,362) (142,083)
----------- -----------
Cash flows from financing activities:
Payments - receivable financing and overdraft facilities (563,468) (160,439)
(Payments) proceeds - note payable (2,850) 300,000
Proceeds - note payable to Finova Capital Corp. 1,952,812 679,867
Payments - note payable to National Bank of Kuwait - (150,000)
Proceeds - note payable Eagle Bank 12,608 165,000
Payments - note payable to Sanofi Beaute, Inc. - (1,243,076)
Payments - note payable to Fred Hayman Beverly Hills (116,057) -
Payments - note payable to Parfums Jean Desprez (508,925) -
Payments - note payable to Distr. de Perfumes Senderos (500,000) -
Payments - note payable to stockholder (148,545) -
Proceeds - 5% convertible debentures, net 12,691,500 -
Proceeds from issuance of common stock 1,417,415 1,824,366
----------- -----------
Net cash provided by financing activities 14,234,490 1,415,718
----------- -----------
Effect of exchange rate changes on cash (68,384) (8,665)
----------- -----------
Net increase (decrease) in cash and cash equivalents 509,504 (516,117)
Cash and cash equivalents, beginning of period 339,423 575,700
----------- -----------
Cash and cash equivalents, end of period $848,927 $59,583
=========== ===========
</TABLE>
See notes to consolidated financial statements.
9
<PAGE> 10
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. The Consolidated Balance Sheet as of June 30, 1996, the Consolidated
Statements of Income for the three-month period ended June 30, 1996 and 1995,
and the Consolidated Statements of Cash Flows for the three-month period ended
June 30, 1996 and 1995, have been prepared without audit. In the opinion of
management, the statements reflect all adjustments consisting of normal
recurring adjustments necessary to present fairly the financial position of
Parlux Fragrances, Inc., and subsidiaries at June 30, 1996 and the results of
their operations and their cash flows for the three-month period ended June 30,
1996 and 1995.
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, 1996 Form 10-K as filed with the
Securities and Exchange Commission on June 28, 1996.
Certain reclassifications were made to the June 30, 1995 financial statements
to conform with the presentation of the June 30, 1996 financial statements.
All comparable share information has been restated to reflect the two-for-one
stock split consummated in November 1995.
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>
June 30, 1996 March 31, 1996
------------- --------------
<S> <C> <C>
Raw Material, Packaging and Components $24,225,773 $22,285,515
Finished Products 18,665,504 13,477,055
---------- ------------
$42,891,277 $35,762,570
========== ============
</TABLE>
The above amounts are net of reserves for potential inventory obsolescence of
approximately $1,871,000 and $1,200,000 at June 30, 1996 and March 31, 1996,
respectively.
C. ACQUISITIONS
On June 28, 1996, the Company consummated the acquisition of substantially all
of the assets and assumption of certain liabilities of Richard Barrie
Fragrances, Inc. (RBF), pursuant to an asset purchase agreement entered into on
January 31, 1996.
10
<PAGE> 11
Parlux acquired from RBF certain inventories, fixed assets and licenses relating
to the brands Baryshnikov and Melrose Place, as well as fixed assets located in
RBF's office and distribution center in Orange, Connecticut.
Parlux provided as consideration $750,000 in cash which was paid on July 1,
1996, and 370,000 shares of common stock valued at $3,746,250.
The estimated fair value of the net assets acquired is summarized as follows:
<TABLE>
<S> <C>
Molds and other fixed assets $ 893,856
Inventories, net 1,784,474
Other assets 141,518
Goodwill and licenses 2,831,957
Accounts payable and other liabilities (1,155,555)
---------
Fair value of net assets acquired $4,496,250
==========
</TABLE>
On March 19, 1996, the Company consummated the acquisition of the trademarks
and certain inventory for the Bal a Versailles (BAV) fragrance and beauty
products brand name from Parfums Jean Desprez, S.A., pursuant to a letter of
intent entered into on January 11, 1996.
At closing, the Company provided as consideration $1,697,500 in cash and
$2,553,360 in the form of non-interest bearing promissory notes due in varying
installments through August 1996.
The estimated fair value of the assets acquired is summarized as follows:
<TABLE>
<S> <C>
Goodwill, licenses and trademarks $2,772,500
Inventories 978,360
Covenant-not-to-compete 300,000
Molds and other fixed assets 200,000
----------
Fair value of assets acquired $4,250,860
==========
</TABLE>
On December 27, 1995, the Company consummated the acquisition of substantially
all of the assets of Alexandra de Markoff (AdM), a prestige cosmetic line,
pursuant to an asset purchase agreement entered into on September 21, 1995
between the Company and Revlon Holdings, Inc. (Revlon).
Parlux acquired from Revlon certain inventories and fixed assets and the rights
in certain trademarks relating to AdM. Parlux provided as consideration
$8,608,000 in cash, 424,000 shares of common stock valued at $3,392,000 and
agreed to accept returns and allowances in excess of $100,000 related to sales
of AdM products by Revlon prior to December 27, 1995. In addition, the Company
granted Revlon an option to purchase 176,000 shares of the Company's common
stock, until June 30, 1996, at an exercise price of $8.00 per share, which was
exercised in May 1996.
11
<PAGE> 12
The estimated fair value of the net assets acquired is summarized as follows:
<TABLE>
<S> <C>
Goodwill, licenses and trademarks $10,267,000
Advances for future inventory purchases 4,000,000
Molds and other fixed assets 85,000
Reserve for sales returns and allowances (2,000,000)
----------
Fair value of net assets acquired $12,352,000
===========
</TABLE>
D. BORROWINGS - BANKS AND OTHERS
The composition of debt is as follows:
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- --------------
<S> <C> <C>
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 $5,057,152 $5,173,209
Revolving credit facility payable to Finova
Capital Corporation, interest at Citibank
N.A. prime (8.25% at June 30, 1996) plus
1 3/4%, payable on December 27, 1997 5,841,190 3,888,378
Notes payable to Parfums Jean Desprez, non-
interest bearing, payable in installments
through November 1996 2,044,435 2,553,360
Note payable to RBF, non-interest bearing, 750,000 ---
paid on July 2, 1996
Unsecured $500,000 line of credit payable
to Eagle National Bank, interest at the
bank's prime rate plus 2%, due August 1, 495,000 482,392
1996
Note payable to Distribudora de Perfumes
Senderos, Ltda., unsecured, interest at 12%
due September 30, 1996 174,722 674,722
Receivable financing and overdraft
facilities, interest at 9.20% to 10.45%, 2,004,776 2,568,244
payable on demand (1)
Note payable to stockholder, interest at
10%, repaid in May 1996 --- 148,544
Unsecured notes payable to related parties,
interest at 11%, due September 30, 1996 700,000 700,000
Other notes payable 67,456 70,307
----------- -----------
17,134,731 16,259,156
Less: long-term borrowings (4,617,036) (4,694,239)
----------- -----------
Short-term borrowings $12,517,695 $11,564,917
=========== ===========
(l) Denominated in French francs
</TABLE>
12
<PAGE> 13
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.
In May 1996, the Credit Agreement was amended to provide for a temporary
increase in the line up to $6,000,000 until August 29, 1996.
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 was fully cash collateralized by certain
shareholders' deposits. In addition, the shareholders have signed a
subordination agreement in connection with the Credit Agreement. The term loan
was repaid during February 1996.
The Company has overdraft and trade financing facilities aggregating 15,950,000
French francs (approximately $3,098,000 as of June 30, 1996). These credit
facilities are reviewed annually.
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. The Company borrowed a total of $674,722 under the
agreement. In May 1996, the Company paid $500,000, leaving a balance due of
$174,722, which was subsequently paid in full during August 1996.
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 was due on June 27, 1997. In connection with the
note, the Company issued warrants to purchase 60,000 shares of Parlux common
stock at a price of $6.94 per share, which expire on June 27, 1997. On July
15, 1996, these warrants were exercised effectively converting the loan to
equity.
The Company 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.
13
<PAGE> 14
E. CONVERTIBLE DEBENTURES
During the period November 2, 1995 through March 31, 1996, the Company issued
$3,700,000 of 7% convertible debentures and $15,000,000 of 5% convertible
debentures (the Debentures), pursuant to Regulation S with maturities between
one and two years. The Debentures were convertible into shares of the
Company's common stock at 85% of the average closing price of the stock over a
five-day period prior to conversion.
As of March 31, 1996, $7,000,000 of the Debentures, plus accrued interest of
$48,146, had been converted into 1,073,688 shares of common stock and
$10,000,000 of the 5% Debentures and $1,700,000 of the 7% Debentures were
outstanding. During the period April 1, 1996 through June 30, 1996, an
additional $11,450,000 have been converted into 1,317,893 shares of common
stock. Accordingly, these $11,450,000 of Debentures were classified as
long-term in the accompanying consolidated balance sheet at March 31, 1996.
During April and May 1996, the Company issued an additional $13,000,000
($3,000,000 and $10,000,000 pursuant to Regulation S and Regulation D,
respectively) in 5% Debentures with the same conversion features and terms as
those issued above, of which $3,000,000, plus accrued interest of $20,411, have
been converted into 308,727 shares of common stock during June 1996. The
remaining $10,000,000 may convert, at the option of the holder, during the
period August 12, 1996 through May 1, 1998 (the maturity date of the
debenture).
On July 2, 1996, the Company issued an additional $10,000,000 of 5% Debentures,
due June 1, 1997, in private placements pursuant to Regulation D, with the same
conversion features and terms as those issued above, except that the conversion
rate is 86%.
F. TRANSACTIONS WITH AFFILIATES
Sales to Perfumania, Inc., a public company affiliated with the Company's
Chairman of the Board, amounted to $4,353,763 or 23% of net sales for the
three-month period ended June 30, 1996, as compared to $918,330 or 9% of net
sales in the same period for the prior fiscal year.
Amounts due from Perfumania amounted to $15,883,430 and $13,482,423 at June 30,
1996 and March 31, 1996, respectively.
G. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
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. The
following share and per share data have been retroactively adjusted to reflect
the transaction.
Fully diluted earnings per common and common equivalent share have been
computed based upon the weighted average number of shares of common stock
outstanding of
14
<PAGE> 15
15,351,469 and 9,722,738 for the three-month periods ended June 30, 1996 and
1995, respectively.
H. CASH FLOW INFORMATION
The Company considers temporary investments with an original maturity of three
months or less to be cash equivalents. Supplemental disclosures of cash flow
information are as follows:
<TABLE>
<CAPTION>
Three-months ended June 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
Cash paid for:
Interest $482,102 $386,198
Income taxes $243,201 $ 38,813
</TABLE>
In addition to the RBF, BAV and AdM acquisitions discussed in Note C, which
were partially funded through the issuance of common stock and notes, the
Company used barter credits totaling $18,200 ($684,000 in 1995) 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.
I. INCOME TAXES
As of March 31, 1995, the Company had utilized its remaining U.S. net operating
loss carryovers. The provision for income taxes for the periods ended June 30,
1995 and 1996 reflects an effective tax rate of approximately 38%.
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
15
<PAGE> 16
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 of SMALTO
fragrances. Sales of Francesco Smalto products represented approximately 7% of
total Company net sales for the year ended March 31, 1996, and less than 1% in
the three-month period ended June 30, 1996.
J. SUBSEQUENT EVENTS
On July 12, 1996, a proxy statement was distributed to shareholders of record
as of June 28, 1996, requesting a special shareholders' meeting to vote on a
proposed increase in the authorized shares of common stock from 15,000,000 to
30,000,000 shares. On August 12, 1996, the shareholders approved the proposal.
On July 18, 1996, the Company filed a Form S-3 registration statement with the
Securities and Exchange Commission to register 460,000 shares of previously
issued and outstanding common stock, and 1,617,646 shares of common stock
underlying the $10,000,000 of 5% convertible debentures issued during May 1996.
* * * * * * * * * *
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARLUX FRAGRANCES, INC.
/s/ Ilia Lekach
Ilia Lekach, Chairman and Chief Executive Officer
/s/ Frank A. Buttacavoli
Frank A. Buttacavoli, Executive Vice President, Chief Financial Officer and
Director
Date: August 13, 1996
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PARLUX FRAGRANCES, INC. FOR THE THREE MONTHS ENDED JUNE
30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 848,927
<SECURITIES> 0
<RECEIVABLES> 34,060,434
<ALLOWANCES> (3,895,000)
<INVENTORY> 42,891,277
<CURRENT-ASSETS> 83,321,977
<PP&E> 6,565,628
<DEPRECIATION> (3,367,286)
<TOTAL-ASSETS> 114,141,223
<CURRENT-LIABILITIES> 35,818,979
<BONDS> 0
0
0
<COMMON> 136,385
<OTHER-SE> 63,134,959
<TOTAL-LIABILITY-AND-EQUITY> 114,141,223
<SALES> 18,739,627
<TOTAL-REVENUES> 18,739,627
<CGS> 6,285,494
<TOTAL-COSTS> 8,831,402
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 487,873
<INCOME-PRETAX> 3,119,858
<INCOME-TAX> 1,185,783
<INCOME-CONTINUING> 1,934,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,934,075
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
