<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, 1997
-------------
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 (IRS employer
of incorporation or organization) identification no.)
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, 1997, 16,707,823 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
In January 1997, the Company completed the first phase of its common stock
buy-back program involving 350,000 shares, and the Board of Directors authorized
a second phase of 500,000 additional shares. As of August 12, 1997, the Company
has repurchased a total of 700,655 shares at a cost of $2,480,924 (594,055
shares at a cost of $2,256,104 as of June 30, 1997).
On May 23, 1997, the Company entered into an agreement with General Electric
Capital Corporation for a $25 million senior secured revolving credit facility.
See "Liquidity and Capital Resources" for further discussion.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIOD ENDED JUNE 30, 1997 WITH THE THREE-MONTH
PERIOD ENDED JUNE 30, 1996.
During the quarter ended June 30, 1997, net sales decreased 29% to $13,297,312
as compared to $18,739,627 for the same period for the prior year. The decrease
was primarily due to the decrease in Perry Ellis "America" brand fragrance and
Perry Ellis brand cosmetics gross sales of approximately $4,163,617, as these
brands were launched during the quarter ended June 30, 1996. In addition, gross
sales of Alexandra de Markoff (AdM) brand cosmetics decreased 45% to $1,997,891,
as compared to $3,651,046 in the prior year, due to out-of-stock situations
relating to the transition of manufacturing from Revlon, from whom the Company
purchased the AdM brand, to third party manufacturers. The Company believes that
production will be substantially in line by August 31, 1997. Gross sales of all
brands other than those noted above increased by 1% from $10,377,022 in the
prior year to $10,515,173 in the current year.
Sales to unrelated customers, which were directly affected by the out-of-stock
situation discussed above, decreased 36% to $9,174,121 in the current period
compared to $14,385,864 in the same period in the prior year. Sales to related
parties decreased 5% to
2
<PAGE> 3
$4,123,191 in the current quarter compared to $4,353,763 in the same period in
the prior fiscal year.
Cost of goods sold increased as a percentage of net sales from 34% for the
quarter ended June 30, 1996 to 37% for the current quarter. The increase was
mainly attributable to the increase in the percentage of net sales to related
parties as compared to total net sales. Cost of goods sold on sales to unrelated
customers and related parties approximated 32% and 50%, respectively, during the
quarter ended June 30, 1997.
Operating expenses decreased by 10% compared to the prior fiscal year from
$8,872,194 to $8,005,285, but increased as a percentage of net sales from 47% to
60%. Advertising and promotional expenses decreased 19% to $3,963,291 compared
to $4,873,164 in the prior year period, reflecting a reduction in 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. The prior year period included increased promotional
activity related to the launch of the Perry Ellis "America" brand fragrances.
Selling and distribution costs decreased by 5% to $1,757,166 in the current
fiscal period as compared to $1,851,608 in the same period of the prior fiscal
year, increasing as a percentage of net sales from 10% to 13%. This increase was
mainly attributable to the out-of-stock situation previously discussed, which
resulted in a lower sales base to absorb these fixed costs. General and
administrative expenses increased by 18% compared to the prior year period from
$1,700,060 to $2,000,280, increasing as a percentage of net sales from 9% to
15%, reflecting the full period's effect of staff additions during the first
quarter of fiscal 1997 and increased support required for the AdM cosmetic line.
Royalties decreased to $284,548 for the current period compared to $447,362 in
the prior year, but remained relatively constant at 2% of net sales.
As a result of the above, the Company had operating income of $335,985 or 3% of
net sales for the three-month period ended June 30, 1997, compared to $3,581,939
or 19% of net sales for the comparable period in the prior year. Interest
expense decreased to $415,058 in the current fiscal year as compared to $487,873
in the same period in the prior year, remaining relatively constant at 3% of net
sales. Exchange gains were $104,013 in the current year as compared to $25,792
in the same period in the prior year. Income before taxes for the current fiscal
year was $24,940 compared to $3,119,858 or 17% of net sales, in the same period
in the prior year.
Giving effect to the tax provision, the Company reported net income of $15,507
for the current quarter ended June 30, 1997, as compared to $1,934,075 for the
same quarter in the prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital remained relatively constant at $49,168,064 as of June 30, 1997,
compared to $49,320,272 at March 31, 1997.
On July 24, 1996, the Board of Directors authorized the repurchase of up to
350,000 shares of the Company's common stock. This phase of the repurchase was
completed during January 1997, at which time the Board of Directors authorized
the repurchase of
3
<PAGE> 4
an additional 500,000 shares. As of August 12, 1997, the Company has repurchased
a total of 700,655 shares at a cost of $2,480,924 (594,055 shares at a cost of
$2,256,104 as of June 30, 1997).
The Company has overdraft and trade financing facilities aggregating 16,100,000
French francs (approximately $2,738,000 as of June 30, 1997). These credit
facilities are reviewed annually.
In May 1997, the Company entered into a three-year loan and Security Agreement
(the Credit Agreement) with General Electric Capital Corporation (GECC). Under
the Credit Agreement, the Company is able to borrow, depending on the
availability of a borrowing base, on a revolving basis, up to $25,000,000 at an
interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal
prime rate, at the Company's option. Proceeds from the Credit Agreement were
used, in part, to repay the Company's previous $10,000,000 credit facility with
Finova Capital Corporation and Merrill Lynch Financial Services, Inc.
GECC 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 acquisitions without the prior consent of GECC. The Credit
Agreement also contains certain financial covenants relating to net worth,
interest coverage and other financial ratios. Due mainly to the out-of-stock
situation previously discussed which resulted in lost revenues and profits, the
Company is not in compliance with certain of these financial covenants.
Management is currently negotiating a waiver of this non-compliance with GECC
and a modification of the covenants for future periods.
Management believes that, based on current circumstances, it will be able to
restructure the financial covenants with GECC, and the new Credit Agreement will
be sufficient to fund the Company's operating needs.
IMPACT OF CURRENCY EXCHANGE
The Company's sales and purchases are virtually all in U.S. dollars or French
francs. 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.
The Company has completed the centralization of manufacturing in the United
States which will minimize the currency exchange impact on intercompany
transactions for the future.
4
<PAGE> 5
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
(a) Exhibits -
Exhibit 27.......Financial Data Schedule (for S.E.C. use only).
(b) There were no filings on Form 8-K during the period.
5
<PAGE> 6
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
- ---------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 584,848 $ 191,486
Receivables, net of allowance for
doubtful accounts, sales returns and
allowances of approximately $2,674,000 and
$2,494,000 at June 30, 1997 and
March 31, 1997, respectively 10,201,704 14,289,841
Trade receivables from related parties 23,414,281 22,862,335
Inventories, net 35,553,672 35,595,323
Prepaid expenses and other current assets 7,976,393 8,266,126
------------- -------------
TOTAL CURRENT ASSETS 77,730,898 81,205,111
Equipment and leasehold improvements, net 2,912,832 3,253,800
Trademarks, licenses and goodwill, net 26,431,608 26,783,807
Other 134,802 142,526
------------- -------------
TOTAL ASSETS $ 107,210,140 $ 111,385,244
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------
CURRENT LIABILITIES:
Borrowings, current portion $ 20,931,456 $ 12,665,065
Accounts payable 5,022,668 11,904,808
Accrued expenses 1,102,710 1,622,966
Income taxes payable 1,506,000 5,692,000
Advances from customers -- --
------------- -------------
TOTAL CURRENT LIABILITIES 28,562,834 31,884,839
Borrowings, less current portion 4,698,621 4,949,230
Deferred tax liability 432,440 432,440
------------- -------------
TOTAL LIABILITIES 33,693,895 37,266,509
------------- -------------
COMMITMENTS -- --
------------- -------------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 0 shares issued and outstanding -- --
Common stock, $0.01 par value, 30,000,000
shares authorized, 17,447,478 shares issued 174,475 174,475
Additional paid-in capital 66,753,596 66,753,596
Retained earnings 9,192,379 9,176,872
Cumulative translation adjustment (214,628) (103,562)
------------- -------------
75,905,822 76,001,381
Less - 633,055 and 420,055 shares of common
stock in treasury, at cost, at June 30, 1997
and March 31, 1997, respectively (2,389,577) (1,882,646)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 73,516,245 74,118,735
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 107,210,140 $ 111,385,244
============= =============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three months ended June 30,
-------------------------------
1997 1996
------------ ------------
(Unaudited)
Net sales:
Unrelated customers $ 9,174,121 $ 14,385,864
Related parties 4,123,191 4,353,763
------------ ------------
13,297,312 18,739,627
Cost of goods sold 4,956,042 6,285,494
------------ ------------
Gross margin 8,341,270 12,454,133
------------ ------------
Operating expenses:
Advertising and promotional 3,963,291 4,873,164
Selling and distribution 1,757,166 1,851,608
General and administrative 2,000,280 1,700,060
Royalties 284,548 447,362
------------ ------------
Total operating expenses 8,005,285 8,872,194
------------ ------------
Operating income 335,985 3,581,939
Interest expense and bank charges 415,058 487,873
Exchange gains (104,013) (25,792)
------------ ------------
Income before income taxes 24,940 3,119,858
Income taxes 9,433 1,185,783
------------ ------------
Net income $ 15,507 $ 1,934,075
============ ============
Earnings per common and common
equivalent share $ 0.00 $ 0.13
============ ============
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
---------------------------- ADDITIONAL
NUMBER PAR PAID-IN RETAINED
ISSUED VALUE CAPITAL EARNINGS
---------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE at April 1, 1995 3,490,214 $ 34,902 $ 11,563,537 $ 1,271,947
Net income -- -- -- 7,772,691
Issuance of common stock upon exercise of:
Employee stock options 11,175 112 33,910 --
Warrants 1,056,916 10,569 3,006,022 --
Sale of stock in private placements 1,001,514 10,015 7,605,570 --
Stock issued in connection with the
acquisition of assets 424,000 4,240 3,739,760 --
Conversion of debentures, net of
unamortized debt issuance costs 1,073,688 10,737 6,932,408 --
Adjustment for stock split 4,398,919 43,989 -- (43,989)
Foreign currency translation adjustment -- -- -- --
---------- ------------ ------------ ------------
BALANCE at March 31, 1996 11,456,426 114,564 32,881,207 9,000,649
Net income -- -- -- 176,223
Issuance of common stock upon exercise of:
Employee stock options 14,500 145 18,448 --
Options issued in connection with
the acquisition of assets 176,000 1,760 1,406,240 --
Warrants 60,000 600 415,650 --
Stock issued in connection with the
acquisition of assets 370,000 3,700 3,002,550 --
Conversion of debentures, net of
unamortized debt issuance costs 5,370,552 53,706 29,029,501 --
Foreign currency translation adjustment -- -- -- --
Purchase of 381,055 shares of treasury
stock, at cost -- -- -- --
---------- ------------ ------------ ------------
BALANCE at March 31, 1997 17,447,478 174,475 66,753,596 9,176,872
Net income -- -- -- 15,507
Foreign currency translation adjustment -- -- -- --
Purchase of 213,000 shares of treasury
stock, at cost -- -- -- --
---------- ------------ ------------ ------------
BALANCE at June 30, 1997 (Unaudited) 17,447,478 $ 174,475 $ 66,753,596 $ 9,192,379
========== ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE
TRANSLATION TREASURY
ADJUSTMENT STOCK TOTAL
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE at April 31, 1995 $ 345,753 $ (133,472) $ 13,082,667
Net income -- -- 7,772,691
Issuance of common stock upon exercise of:
Employee stock options -- -- 34,022
Warrants -- -- 3,016,591
Sale of stock in private placements -- -- 7,615,585
Stock issued in connection with the
acquisition of assets -- -- 3,744,000
Conversion of debentures, net of
unamortized debt issuance costs -- -- 6,943,145
Adjustment for stock split -- -- --
Foreign currency translation adjustment (163,506) -- (163,506)
------------ ------------ ------------
BALANCE at March 31, 1996 182,247 (133,472) 42,045,195
Net income -- -- 176,223
Issuance of common stock upon exercise of:
Employee stock options -- -- 18,593
Options issued in connection with
the acquisition of assets -- -- 1,408,000
Warrants -- -- 416,250
Stock issued in connection with the
acquisition of assets -- -- 3,006,250
Conversion of debentures, net of
unamortized debt issuance costs -- -- 29,083,207
Foreign currency translation adjustment (285,809) -- (285,809)
Purchase of 381,055 shares of treasury
stock, at cost -- (1,749,174) (1,749,174)
------------ ------------ ------------
BALANCE at March 31, 1997 (103,562) (1,882,646) 74,118,735
Net income -- -- 15,507
Foreign currency translation adjustment (111,066) -- (111,066)
Purchase of 213,000 shares of treasury
stock, at cost -- (506,931) (506,931)
------------ ------------ ------------
BALANCE at June 30, 1997 (Unaudited) $ (214,628) $ (2,389,577) $ 73,516,245
============ ============ ============
</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)
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,507 $ 1,934,075
------------ ------------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 689,205 514,283
Changes in assets and liabilities net of
effect of acquisitions:
Decrease (increase) in trade receivables - customers 4,088,137 (3,323,698)
Increase in trade receivables - related parties (551,946) (2,401,007)
Decrease (increase) in inventories 41,651 (5,344,233)
Decrease (increase) in prepaid expenses and
other current assets 289,733 (2,227,126)
Decrease in other non-current assets 7,724 154,445
Decrease in accounts payable (6,882,140) (5,808,387)
(Decrease) increase in accrued expenses (520,256) 1,592,498
(Decrease) increase in income taxes payable (4,186,000) 1,310,910
------------ ------------
Total adjustments (7,023,892) (15,532,315)
------------ ------------
Net cash used by operating activities (7,008,385) (13,598,240)
------------ ------------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (19,679) (107,482)
Sale (purchase) of trademarks 23,641 (6,173)
Cash received in acquisition of Richard Barrie Fragrances, Inc. -- 55,293
------------ ------------
Net cash provided (used) by investing activities 3,962 (58,362)
------------ ------------
Cash flows from financing activities:
Payments - receivable financing and overdraft facilities (912,921) (563,468)
Payments - note payable (18,309) (2,850)
(Payments) proceeds - note payable to Finova Capital Corp. (7,878,091) 1,952,812
Proceeds - note payable to GE Capital Corp. 16,818,175 --
Proceeds - note payable Eagle Bank -- 12,608
Payments - note payable to Lyon Credit Corp. (206,823) --
Proceeds - note payable to Popular Bank 149,000 --
Payments - note payable to Fred Hayman Beverly Hills (125,249) (116,057)
Proceeds - note payable to International Finance Bank 190,000 --
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
Purchases of treasury stock (506,931) --
Proceeds from issuance of common stock -- 1,417,415
------------ ------------
Net cash provided by financing activities 7,508,851 14,234,490
------------ ------------
Effect of exchange rate changes on cash (111,066) (68,384)
------------ ------------
Net increase in cash and cash equivalents 393,362 509,504
Cash and cash equivalents, beginning of period 191,486 339,423
------------ ------------
Cash and cash equivalents, end of period $ 584,848 $ 848,927
============ ============
</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, 1997, the Consolidated
Statements of Income for the three-month period ended June 30, 1997 and 1996,
and the Consolidated Statements of Cash Flows for the three-month period ended
June 30, 1997 and 1996, 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, 1997 and the results of
their operations and their cash flows for the three-month period ended June 30,
1997 and 1996.
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, 1997 Form 10-K as filed with the Securities and
Exchange Commission on June 28, 1997.
Certain reclassifications were made to the June 30, 1996 financial statements to
conform with the presentation of the June 30, 1997 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:
JUNE 30, 1997 MARCH 31, 1997
------------ --------------
Finished products $13,369,893 $16,075,376
Components and packaging material 16,519,849 14,944,196
Raw material 5,663,930 4,575,751
----------- -----------
$35,553,672 $35,595,323
=========== ===========
The above amounts are net of reserves for potential inventory obsolescence of
approximately $2,790,000 and $2,833,000 at June 30, 1997 and March 31, 1997,
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.
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.
10
<PAGE> 11
Parlux provided as consideration $750,000 in cash which was paid on July 1,
1996, and 370,000 shares of common stock. The common stock was valued at
$3,006,250, the average price of the shares on January 30, 1996, the date of the
original asset purchase agreement, which in management's opinion, better
reflected the acquisition price, since the average price of the common stock at
the date of closing was affected by matters unrelated to the acquisition or the
regular operations of the Company.
The estimated fair value of the net assets acquired is summarized as follows:
Molds and other fixed assets $ 893,856
Inventories, net 1,784,474
Other assets 141,518
Goodwill and licenses 2,417,957
Accounts payable and other liabilities (1,481,555)
-----------
Fair value of net assets acquired $ 3,756,250
===========
D. BORROWINGS - BANKS AND OTHERS
The composition of debt is as follows:
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
------------- --------------
<S> <C> <C>
Revolving credit facility payable to
General Electric Capital Corporation,
interest at LIBOR plus 2.50% or prime
(8.25% at June 30, 1997) plus .75%, at the
Company's option, net
of restricted cash of $627,245 $16,818,176 $ --
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 4,569,448 4,694,699
Revolving credit facility payable to Finova
Capital Corporation, interest at
Citibank N.A. prime (8.25% at March 31, 1997)
plus 1 3/4 %, repaid in May 1997,
net of restricted cash of $884,464 -- 7,878,090
Note payable to Lyon Credit Corporation,
secured by certain equipment, interest
at 11%, payable in equal monthly installments of
$19,142, including interest, through September 2001 778,034 984,858
Unsecured $1,000,000 line of credit payable to
International Finance Bank, interest at the bank's
prime rate plus 2%, due January 1, 1998 943,125 753,125
Letter of credit refinancing facility of
$500,000 payable to Popular Bank of Florida,
interest at the bank's prime rate plus 2%, due 149,000 --
April 1998
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C> <C>
Receivable financing and overdraft
facilities, interest at 8.75% to 10.75%, 2,197,845 3,110,766
payable on demand (1)
Other notes payable 174,449 192,757
------------ ------------
25,360,077 17,614,295
Less: long-term borrowings (4,698,621) (4,949,230)
------------ ------------
Short-term borrowings $ 20,931,456 $ 12,665,065
============ ============
(l) Denominated in French francs
</TABLE>
In May 1997, the Company entered into a Loan and Security Agreement (the Credit
Agreement) with General Electric Capital Corporation (GECC), pursuant to which
the Company is able to borrow, depending on the availability of a borrowing
base, on a revolving basis for a three-year period, up to $25,000,000 at an
interest rate of LIBOR plus 2.50% or .75% in excess of the Wall Street Journal
prime rate, at the Company's option. GECC has taken a security interest in
substantially all of the domestic assets of the Company. Proceeds from the
Credit Agreement were used, in part, to repay the Company's previous $10,000,000
credit facility with Finova Capital Corporation and Merrill Lynch Financial
Services, Inc.
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
acquisitions without the prior consent of GECC. The Credit Agreement also
contains certain financial covenants relating to net worth, interest coverage
and other financial ratios. Due mainly to the out-of-stock situation previously
discussed which resulted in lost revenues and profits, the Company is not in
compliance with certain of these financial covenants. Management is currently
negotiating a waiver of this non-compliance with GECC and a modification of the
covenants for future periods.
The Company has overdraft and trade financing facilities aggregating 16,100,000
French francs (approximately $2,738,000 as of June 30, 1997). These credit
facilities are reviewed annually.
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. The Debentures were
convertible into shares of the Company's common stock at 85% of the closing
price of the stock as listed on NASDAQ over specific time frames. 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. Subsequent to March 31,
1996, the remaining $11,700,000 were converted into 1,348,058 shares of common
stock.
During April and May 1996, the Company issued an additional $13,000,000 of 5%
convertible debentures, $3,000,000 pursuant to Regulation S and $10,000,000
pursuant to Regulation D with the same conversion features and terms as those
issued above, of
12
<PAGE> 13
which $9,355,324, plus accrued interest of $130,916, were converted into
1,868,272 shares of common stock.
On July 2, 1996, the Company issued an additional $10,000,000 of 5% Debentures,
pursuant to Regulation D, with the same conversion features and terms as those
issued above, except that the conversion rate was 86%. During October 1996,
$8,412,236 of the debentures, plus accrued interest of $72,466, were converted
into 2,154,222 shares of common stock.
During October 1996, the Company entered into agreements to redeem $5,232,440 of
the May and July Debentures which had not been converted, plus $105,638 of
accrued interest thereon, by issuing $6,239,726 of 10% bonds which were repaid
in accordance with their terms in December 1996. The redemption resulted in a
one-time charge to net income of $901,648 during the quarter ended December 31,
1996, which was not deductible for income tax purposes.
F. TRANSACTIONS WITH RELATED PARTIES
The Company had net sales of $4,123,191 and $4,353,763 during the three-month
periods ended June 30, 1997 and June 30, 1996, respectively, to Perfumania, Inc.
(Perfumania), and no sales during the same periods to L.Luria & Son, Inc.
(Luria), companies affiliated with the Company's Chairman and Chief Executive
Officer. Net amounts due from Perfumania totaled $22,718,847 and $22,136,106 at
June 30, 1997 and March 31, 1997, respectively. Amounts due from Luria totaled
$695,434 and $726,229 at June 30, 1997 and March 31, 1997, respectively. Amounts
due from related parties are non-interest bearing and are realizable in less
than one year.
G. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share and the weighted average number
of shares of common stock outstanding used in the computations, are summarized
as follows:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED JUNE 30,
--------------------------------------------------------------
1997 1996
--------------------------- ----------------------------
FULLY FULLY
PRIMARY DILUTED PRIMARY DILUTED
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Net income $ 15,507 (1) $ 1,934,075 (1)
Add-reduction of interest expense -- 91,326(2)
----------- -----------
Adjusted for per share computation $ 15,507 $ 2,025,401
=========== ===========
Number of shares:
Weighted average shares outstanding 16,898,357 12,355,367
Add-net additional shares issuable (3) 167,435 2,999,389
----------- -----------
weighted average shares used in the per 17,065,792 15,354,756
=========== ===========
share computation
Earnings per common and common
equivalent share $0.00 $0.13
===== =====
</TABLE>
(1) The calculation of fully diluted earnings per share was not required, since
it would be antidilutive.
13
<PAGE> 14
(2) Reduction of interest expense assumes that the Debentures were converted
into shares of common stock on the date of their issuance. Accordingly, no
interest expense on the convertible debentures would have been incurred.
(3) Assumes exercise or conversion of outstanding common stock equivalents
(options, warrants and convertible debentures) at the beginning of the
period, or at the date of issuance if issued during the period , net of the
assumed repurchase of common stock from exercise proceeds. The assumed
repurchase of common stock is based on the average price of the Company's
common stock during the period for primary and, when dilutive, the end of
period price for fully diluted.
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:
THREE-MONTHS ENDED JUNE 30,
---------------------------
1997 1996
------------ ---------
Cash paid for:
Interest $ 475,386 $482,102
Income taxes $4,297,948 $243,201
In addition to the RBF acquisition discussed in Note C, which was partially
funded through the issuance of common stock and notes, during the quarter ended
June 30, 1996, the Company used barter credits totaling $18,200 in payment of
advertising expenses.
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,
1997 and 1996 reflects an effective tax rate of approximately 38%.
I. LICENSE AND DISTRIBUTION AGREEMENTS
PERRY ELLIS: The Company acquired the Perry Ellis license from Sanofi Beaute in
December 1994. The Perry Ellis license is entering its twelfth 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.
FRED HAYMAN: In June 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. In addition, FHBH granted to Parlux an exclusive royalty free 55-year
license to use FHBH's United States Class 3 trademarks Fred Hayman(R), 273(R),
Touch(R), With
14
<PAGE> 15
Love(R) and Fred Hayman Personal Selections(R) and the corresponding
international registrations. There are no minimum sales or advertising
requirements.
BARYSHNIKOV: The Company assumed the Baryshnikov license as part of the RBF
acquisition, pursuant to which the Company has the exclusive right to
manufacture and distribute fragrances and personal care products using the
Baryshnikov trademark. The initial term of the license expires on December 31,
1997, renewable for subsequent three and four-year periods upon achieving
specified sales or minimum royalty levels. The license requires the payment of
royalties, and the spending of certain minimum amounts for advertising based
upon the annual net sales of the products.
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.
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. See Note J for further discussion.
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 initial three-year period expired March 31, 1997, and the Company has
informed the Licensor that it will not renew the agreement. In accordance with
the licensing agreement, the Company may produce and sell the Todd Oldham
trademarked products until March 31, 1998, with no sales or advertising
minimums. Sales of Todd Oldham products represented less than 1% and 3% of total
Company net sales for the three-month periods ended June 30, 1997 and 1996,
respectively.
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 provided for the continued use of the Francesco Smalto trademark
through September 30, 1996. The agreement contained certain production
15
<PAGE> 16
restrictions and required a fixed amount of royalties during the period. Sales
of Francesco Smalto products represented less than 1% of total Company net sales
for the three-month period ended June 30, 1996.
J. SUBSEQUENT EVENT
On August 8, 1997, the Company consummated the sale of certain assets relating
to the Vicky Tiel brands to Five Star Fragrances Company, Inc. ("FSF") for
approximately $680,000, which closely approximates the net book value of assets
sold.
The Company sold to FSF all inventories, fixed assets and licenses related to
the brands, and FSF assumed certain liabilities for purchase orders issued prior
to August 8, 1997.
* * * * * * * * * *
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, 1997
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 584,848
<SECURITIES> 0
<RECEIVABLES> 12,875,782
<ALLOWANCES> (2,674,078)
<INVENTORY> 35,553,672
<CURRENT-ASSETS> 77,730,898
<PP&E> 7,564,881
<DEPRECIATION> (4,652,049)
<TOTAL-ASSETS> 107,210,410
<CURRENT-LIABILITIES> 28,562,834
<BONDS> 0
0
0
<COMMON> 174,475
<OTHER-SE> 73,341,770
<TOTAL-LIABILITY-AND-EQUITY> 107,210,140
<SALES> 13,297,312
<TOTAL-REVENUES> 13,297,312
<CGS> 4,956,042
<TOTAL-COSTS> 4,956,042
<OTHER-EXPENSES> 7,861,272
<LOSS-PROVISION> 40,000
<INTEREST-EXPENSE> 415,058
<INCOME-PRETAX> 29,940
<INCOME-TAX> 9,433
<INCOME-CONTINUING> 15,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,507
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
