<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
------------------------------------------
FOR THE QUARTERLY PERIOD ENDED MAY 1, 1999
COMMISSION FILE NUMBER 0-19714
PERFUMANIA, INC.
STATE OF FLORIDA I.R.S. NO. 65-0026340
11701 N.W. 101ST ROAD
MIAMI, FLORIDA 33178
TELEPHONE NUMBER: (305) 889-1600
INDICATE BY CHECK MARK WHETHER THE REGISTRANT, (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE (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 NINETY (90) DAYS.
YES [X] NO [ ]
COMMON STOCK $.01 PAR VALUE
OUTSTANDING SHARES AT
MAY 1, 1999 - 7,384,485
<PAGE> 2
TABLE OF CONTENTS
PERFUMANIA, INC.
PART I
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C>
ITEM 1 FINANCIAL STATEMENTS.............................................................. 1
- -----
Consolidated Balance Sheets.................................................. 1
Condensed Consolidated Statements of Operations.............................. 2
Consolidated Statements of Cash Flows........................................ 3
Notes to Condensed Consolidated Financial Statements......................... 4
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
- ----- CONDITION AND RESULTS OF OPERATIONS............................................... 9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS....................... 13
- -----
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS................................................................. 14
- ------
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS......................................... 14
- ------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.................................................. 16
- ------
SIGNATURES .................................................................................. 17
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PERFUMANIA, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION> MAY 1, 1999 JANUARY 30, 1999
------------- ----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 1,420,259 $ 1,745,603
Trade receivables, less allowance for doubtful accounts of
$719,954 and $704,954 as of May 1, 1999 and January 30,
1999, respectively ........................................................ 5,222,998 4,108,847
Advances to suppliers ....................................................... 7,428,843 8,065,301
Inventories, net of reserve of $3,722,924 and $4,163,251 as
of May 1, 1999 and January 30, 1999, respectively ......................... 63,769,253 53,880,132
Prepaid expenses and other current assets ................................... 1,623,824 1,417,187
------------- ------------
Total current assets .................................................... 79,465,177 69,217,070
Property and equipment, net .................................................... 23,109,608 23,180,462
Leased equipment under capital leases, net ..................................... 1,210,314 1,373,878
Other assets ................................................................... 1,357,379 1,357,966
------------- ------------
Total assets ............................................................ $ 105,142,478 $ 95,129,376
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit and current portion of notes payable .................... $ 34,644,318 $ 32,800,627
Accounts payable - non affiliates ........................................... 12,762,162 14,329,013
Accounts payable - affiliates ............................................... 25,827,932 15,812,240
Accrued expenses and other liabilities ...................................... 8,775,309 9,205,316
Advances from customers ..................................................... 2,500,000 --
Income taxes payable ........................................................ 368,263 485,098
Current portion of obligations under capital leases ......................... 317,765 419,487
------------- ------------
Total current liabilities ............................................... 85,195,749 73,051,781
Long-term portion of notes payable ............................................. 1,935,402 2,370,684
Long-term portion of obligations under capital leases .......................... 509,745 562,552
Convertible notes payable ...................................................... 1,996,000 --
Long-term severance payable .................................................... 975,423 1,037,859
------------- ------------
Total liabilities ....................................................... 90,612,319 77,022,876
------------- ------------
Commitments and contingencies .................................................. -- --
Redeemable common equity ....................................................... 470,588 470,588
Stockholders' equity:
Preferred stock, $.01 par value, 1,000,000 shares
authorized, none issued ................................................... -- --
Common stock, $.01 par value, 25,000,000 shares authorized,
8,896,891 and 8,614,491 shares issued, respectively ......................... 88,969 86,145
Capital in excess of par .................................................... 54,963,570 54,440,009
Treasury stock, at cost, 1,512,406 shares as of May 1, 1999
and January 30, 1999 ...................................................... (5,413,002) (5,413,002)
Accumulated deficit ......................................................... (35,026,963) (30,935,097)
Notes and interest receivable from shareholder and officers ................. (553,003) (542,143)
------------- ------------
Total stockholders' equity .............................................. 14,059,571 17,635,912
------------- ------------
Total liabilities and stockholders' equity .............................. $ 105,142,478 $ 95,129,376
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
PERFUMANIA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED MAY 1, ENDED MAY 2,
1999 1998
--------------- --------------
<S> <C> <C>
Net sales - non-affiliated customers ........................................... $ 39,400,964 $ 38,467,975
Cost of goods sold - non-affiliated customers .................................. 24,147,795 23,662,458
------------- ------------
Gross profit ................................................................... 15,253,169 14,805,517
------------- ------------
Operating expenses:
Selling, general and administrative ......................................... 16,630,905 15,337,548
Depreciation and amortization ............................................... 1,165,152 1,082,258
------------- ------------
Total operating expenses ................................................ 17,796,057 16,419,806
------------- ------------
Loss from operations before other expense ...................................... (2,542,888) (1,614,289)
Other expense, net ............................................................. (1,548,978) (1,157,323)
------------- ------------
Net loss ....................................................................... $ (4,091,866) $ (2,771,612)
============= ============
Net loss per common share:
Basic ....................................................................... $ (0.54) $ (0.42)
============= ============
Diluted ..................................................................... $ (0.54) $ (0.42)
============= ============
Weighted average number of common shares outstanding:
Basic ....................................................................... 7,599,778 6,560,354
============= ============
Diluted ..................................................................... 7,599,778 6,560,354
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
PERFUMANIA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED MAY 1, ENDED MAY 2,
1999 1999
----------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................... $ (4,091,866) $ (2,771,612)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Provision for doubtful accounts ........................................... 15,000 30,000
Depreciation and amortization ............................................. 1,165,151 1,082,258
Beneficial conversion feature of convertible notes payable ................ 384,615 --
Change in operating assets and liabilities, (Increase) decrease in:
Trade receivables ....................................................... (1,129,151) 1,034,806
Advance to suppliers .................................................... 636,458 (1,359,268)
Inventories ............................................................. (9,889,121) 2,964,817
Prepaid and other current assets ........................................ (206,637) 220,195
Other assets ............................................................ 417 (77,189)
Increase (decrease) in:
Accounts payable ........................................................ 8,448,841 1,122,047
Advances from customers ................................................. 2,500,000 --
Accrued expenses and other current liabilities .......................... (430,007) (459,768)
Income taxes payable .................................................... (116,835) (117,556)
Long term severance payable ............................................. (62,436) --
------------- ------------
Total adjustments ....................................................... 1,316,295 4,440,342
------------- ------------
Net cash (used in) provided by operating activities ..................... (2,775,571) 1,668,730
------------- ------------
Cash flows from investing activities:
Additions to property and equipment ....................................... (930,563) (2,978,471)
------------- ------------
Net cash used in investing activities ................................... (930,563) (2,978,471)
------------- ------------
Cash flows from financing activities:
Net borrowings and repayments under bank line of credit
and notes payable ....................................................... 1,408,409 2,020,558
Net borrowing and repayment to related parties ............................ -- 30,486
Principal payments under capital lease obligations ........................ (154,529) (331,578)
Net advances to shareholder and officers .................................. (10,860) (115,860)
Issuance of convertible notes payable ..................................... 1,996,000 --
Exercise of stock options ................................................. 141,770 --
Purchases of treasury stock ............................................... -- (564,367)
------------- ------------
Net cash provided by financing activities ............................... 3,380,790 1,039,239
------------- ------------
Decrease in cash and cash equivalents ....................................... (325,344) (270,502)
Cash and cash equivalents at beginning of period ............................ 1,745,603 1,554,117
------------- ------------
Cash and cash equivalents at end of period .................................. $ 1,420,259 $ 1,283,615
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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PERFUMANIA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) OPERATIONS AND BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Perfumania and subsidiaries (the "Company"). All material intercompany balances
and transactions have been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission (the "SEC"). Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to those rules and regulations, although the Company believes that the
disclosures made are adequate to make the information presented not misleading.
The financial information presented herein, which is not necessarily indicative
of results to be expected for the current fiscal year, reflect all normal and
recurring adjustments which, in the opinion of management, are necessary for a
fair presentation of the interim unaudited condensed consolidated financial
statements. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the fiscal year
ended January 30, 1999 filed with the SEC on April 30, 1999.
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in the
condensed consolidated financial statements, the Company incurred a net loss
during the thirteen week period ended May 1, 1999 of approximately $4.1 million
and has a working capital deficit of approximately $5.7 million as of May 1,
1999. In addition, the Company was in violation of certain debt covenants
contained in its bank line of credit at January 30, 1999. On July 14, 1999, the
Company obtained a waiver of default from the bank as of and for the year ended
January 30, 1999 through September 30, 1999.
Management's plan to improve the results of operations include decreasing the
number of store openings in 1999, closing a number of its non-profitable stores,
improving the effectiveness of its sales promotions practices, continuing to
improve the existing merchandise mix and to promote the private label bath, body
and cosmetic line, continuing to liquidate slow moving inventories and reducing
selling, general and administrative expenses.
In order to obtain additional funding, the Company made an initial public
offering of the common stock of perfumania.com, inc., a wholly-owned subsidiary
of the Company. The offering raised approximately $24.5 million. The net
proceeds of the offering will be used for working capital and other general
corporate purposes and also repayment of any outstanding indebtedness to the
Company as well as reduction of the outstanding balance in the Company's line of
credit (See Note 8).
Additionally, in April 1999 and July 1999, the Company issued a total of $4
million of convertible notes to a group of private investors (See Notes 7 and
10) and in July 1999 the Company obtained a $2.5 million short-term unsecured
loan from a wholesale customer (See Note 10).
Although management believes that its borrowing capacity under the current line
of credit facility, or from an alternative line of credit facility, projected
cash flows from operations, anticipated proceeds from the initial public
offering of perfumania.com, inc. and other short term borrowings will be
sufficient to support working capital needs, capital expenditures and debt
service for the next twelve months, there is no assurance, however, that the
Company will be able to improve its results of operations based on management's
plan or obtain such funding on a timely basis.
These factors among others may indicate that the Company will be unable to
continue as a going concern for a reasonable period of time. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
4
<PAGE> 7
2) STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES AND
INTEREST
RECEIVABLE
FROM
CAPITAL IN SHAREHOLDER
COMMON STOCK EXCESS TREASURY STOCK ACCUMULATED AND
SHARES AMOUNT OF PAR SHARES AMOUNT DEFICIT OFFICERS TOTAL
------ ------ ------ ------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January
30, 1999 ........... 8,614,491 $86,145 $54,440,009 1,512,406 $(5,413,002) $(30,935,097) $(542,143) $ 17,635,912
Exercise of Stock
options ............ 282,400 2,824 138,946 -- -- -- 141,770
Beneficial
conversion feature
of notes payable ... -- -- 384,615 -- -- -- 384,615
Net change in notes
and interest
interest
receivable from
shareholder
and officers ....... -- -- -- -- -- -- (10,860) (10,860)
Net loss for the
thirteen weeks
ended May 1,
1999 ............... -- -- -- -- -- (4,091,866) -- (4,091,866)
--------- ------- ----------- --------- ----------- ------------ --------- ------------
Balance at May 1,
1999................ 8,896,891 $88,969 $54,963,570 1,512,406 $(5,413,002) $(35,026,963) $(553,003) $ 14,059,571
========= ======= =========== ========= =========== ============ ========= ============
</TABLE>
3) BANK LINE OF CREDIT
As of January 30, 1999, the Company was in violation of certain financial and
operating covenants and as a result of these violations, the Company is in
default under the line of credit agreement. As a result, the bank can demand
payment of the amounts outstanding under the line of credit agreement. Due to
these violations, the Company incurred the default rate of interest, prime plus
4% (11.75% at May 1, 1999) since December 1998. On July 14, 1999, the Company
obtained a waiver of default from the bank as of and for the year ended January
30, 1999 through September 30, 1999. Future outstanding borrowings will bear
interest at the prime rate plus four percent. The bank agreed to less
restrictive covenants provided that certain events commence prior to September
30, 1999. One such event includes that perfumania.com, inc. (a wholly-owned
subsidiary) is to receive at least $10 million from a contemplated initial
public offering of its shares, of which at least $2 million is to be repaid to
the Company.
4) BASIC AND DILUTED LOSS PER COMMON SHARE
Basic income (loss) per common share is computed by dividing income (loss)
available to common stockholders by the weighted average number of common share
includes the dilutive effect of those stock options where the average market
price of the common shares exceeds the option exercise prices for the respective
years, and the dilutive effect of those convertible notes which are convertible
into common stock.
5) SEGMENT INFORMATION
The Company operates in two industry segments, specialty retail sale and
wholesale distribution of fragrances and related products. Financial information
for these segments is summarized in the following table.
5
<PAGE> 8
<TABLE>
<CAPTION>
THIRTEEN WEEKS THIRTEEN WEEKS
ENDED MAY 1, 1999 ENDED MAY 2, 1998
----------------- -----------------
<S> <C> <C>
Sales to external customers
Wholesale ........................................................ $11,266,754 $13,467,930
Retail ........................................................... 28,134,210 25,000,045
----------- -----------
Total sales to external customers ........................... $39,400,964 $38,467,975
----------- -----------
Intersegment sales
Wholesale ....................................................... $ 2,760,767 $14,484,486
----------- -----------
Total intersegment sales .................................... $ 2,760,767 $14,486,486
----------- -----------
Cost of goods sold
Wholesale ........................................................ $ 9,072,744 $10,280,190
Retail ........................................................... 15,075,051 13,382,268
----------- -----------
Total cost of goods sold .................................... $24,147,795 $23,662,458
----------- -----------
Gross profit
Wholesale ....................................................... $ 2,194,010 $ 3,187,740
Retail .......................................................... 13,059,159 11,617,777
----------- -----------
Total gross profit ......................................... $15,253,169 $14,805,517
----------- -----------
Depreciation and amortization
Retail .......................................................... $ 1,165,152 $ 1,082,258
----------- -----------
Total depreciation and amortization ......................... $ 1,165,152 $ 1,082,258
----------- -----------
Capital expenditures
Retail ......................................................... $ 930,563 $ 2,978,471
----------- -----------
Total capital expenditures ................................ $ 930,563 $ 2,978,471
----------- -----------
Number of stores ..................................................... 288 284
MAY 1, 1999 MAY 2, 1998
----------- -----------
Inventory
Wholesale ......................................................... $11,049,365 $16,500,647
Retail ........................................................... 52,719,888 53,672,378
----------- -----------
$63,769,253 $70,173,025
----------- -----------
</TABLE>
An unaffiliated customer of the wholesale segment accounted for approximately
13% and 23% of the consolidated net sales for the thirteen weeks ended May 1,
1999 and May 2, 1998, respectively, and 0% of the consolidated net trade
accounts receivable balance at May 1, 1999 and January 30, 1999, respectively.
In the thirteen-week periods ending May 1, 1999 and May 2, 1998, the wholesale
segment included foreign sales of approximately $0.1 million and $0.5 million,
respectively.
6) STOCK SUBSCRIPTION
In March 1999, the Company entered into Subscription Agreements for the sale of
235,293 shares of the Company's common stock to a group of private investors at
a price of $8.50 per share. The proceeds of $2 million were received in January
1999. The Subscription Agreements require that the Company file the appropriate
registration statements with the Securities and Exchange Commission within six
months from the date of the agreement to permit the registered resale of the
shares by the investors in open market transactions. If on the effective date
of the
6
<PAGE> 9
registration statement, the market price is less than $8.50 per share, the
Company is obligated to reimburse the investor group the lesser of 1) the
product of the difference between $8.50 and the closing bid price of the
Company's common stock on the effective date of the registration statement
multiplied by the number of shares issued under the Subscription Agreements or
2) the product of $2.00 multiplied by the number of shares issued under the
Subscription Agreements. As of May 1, 1999, the potential redeemable amount of
$470,588 was recorded as redeemable common equity and the remaining $1,529,412
was recorded as capital in excess of par value in the accompanying balance
sheet.
7) CONVERTIBLE NOTES
In April 1999, the Company entered into a Securities Purchase Agreement and
issued an aggregate of $2 million worth of its Series A Convertible Notes, which
are convertible into common stock. The Notes contain a beneficial conversion
feature of approximately $385,000 which represents a non-cash interest charge
and is included in other expense for the thirteen week period ending May 1,
1999. The agreement requires the Company to file a registration statement with
the Securities and Exchange Commission within forty-five days after the date of
issuance of the convertible notes. The conversion price is the lower of (A)
$4.35 per share, subject to adjustment and (B) the floating conversion price
determined by multiplying (1) the average closing bid price of the common stock
for the three trading days immediately preceding the date of determination, by
(2) 80%, subject to adjustment. The conversion price may be adjusted pursuant to
antidilution provisions in the convertible note. If the conversion price
decreases, the Company is obligated to issue additional shares of common stock.
8) PERFUMANIA.COM
In February 1999, the Company, through its wholly-owned subsidiary,
perfumania.com, inc. began operation of an Internet commerce site,
perfumania.com. The Company intends to capitalize on its name recognition and
cross marketing opportunities with its stores to become a top discount retailer
of fragrance and related products on the Internet. All orders placed with the
Internet site are shipped from the Company's existing distribution center in
Miami, Florida.
On September 28, 1999, perfumania.com, inc., a wholly-owned subsidiary of the
Company, made an initial public offering of its common stock representing
approximately 47% of the common stock outstanding following the offering.
perfumania.com, inc. offered 3,500,000 shares of its common stock, which
included 1,000,000 shares held by the Company. The offering raised approximately
$24.5 million. The net proceeds of the offering will be used for working capital
and other general corporate purposes and also repayment of any outstanding
indebtedness to the Company.
9) CONTINGENCIES
In December of 1993, the patent holder and exclusive licensee in the U.S. of
Boucheron filed a compliant against the Company in the Southern District of New
York for infringing upon their exclusive right to sell the Boucheron bottle.
The plaintiff's theory is based on the fact that they have a valid patent for
the bottles and that Perfumania's sales of such bottles cannot in any way
control by resort to an infringement suit the resale of a patented article
which he has sold. The Company filed a motion to dismiss during February 1994.
On March 20, 1995 the Court denied
7
<PAGE> 10
the Company's motion to dismiss and on April 14, 1995, the Company filed its
answer to the compliant. Discovery is in progress.
In the opinion of management and counsel, the ultimate outcome of the
aforementioned litigation will not have a material effect on the accompanying
financial statements.
During 1996 and 1997, the Company made sales to L. Luria & Son, Inc.
("Luria's") in the amounts of $2,473,623 and $1,999,823, respectively. The
Company wrote off in 1997 receivables from Luria's in the approximate amount of
$1,200,000. The Company has been characterized as an insider as defined by the
United States Bankruptcy Code, in the liquidating plan of reorganization filed
on April 6, 1998 by Luria's in the United States Bankruptcy Court, as defined
by the United States Bankruptcy Code, Southern District of Florida. In October
1998, the committee of unsecured creditors in Luria's bankruptcy proceedings
filed a complaint with the United States Bankruptcy Court, Southern District of
Florida to recover substantial funds from the Company. The complaint alleged
that Luria's made preference payments, as defined by the Bankruptcy Court, to
the Company and seeks recovery of said preference payments, as well as
disallowing any and all claims of the Company against Luria's until full
payment of the preference payments have been made. In July 1999, the Company
agreed with the unsecured creditors to settle all claims held by Luria's
against the Company for the sum of $1.2 million, payable over the next nine
months according to a repayment schedule. This settlement is subject to the
approval of the Bankruptcy Court. The full amount of the settlement was accrued
for in the Company's financial statements as of May 1, 1999 and for the year
ending January 30, 1999.
The Company is also involved in various other legal proceedings in the ordinary
course of business.
Management cannot presently predict the outcome of these matters, although
management believes, upon the advice of legal counsel, that the Company would
have meritorious defenses and that the ultimate resolution of these matters
should not have a materially adverse effect on the Company's financial position
or result of operations.
10) SUBSEQUENT EVENTS
In July 1999, the Company entered into a Securities Purchase Agreement and
issued an aggregate $2 million worth of its Series B Convertible Notes, which
are convertible into common stock. The Notes contain a beneficial conversion
feature of approximately $981,000 which will be taken by the Company as a
non-cash interest charge to income in the second quarter of fiscal year 1999.
The agreement requires the Company to file a registration statement with the
Securities and Exchange Commission within forty-five days after the date of
issuance of the convertible notes. The Conversion Price is the lower of (A)
$3.40626 per share, subject to adjustment and (B) the floating conversion price
determined by multiplying (1) the average closing bid price of the common stock
for the three trading days immediately preceding the date of determination, by
(2) 80%, subject to adjustment. The conversion price may be adjusted pursuant
to antidilution provisions in the convertible note.
In July 1999, the Company obtained a $2.5 million unsecured loan from a
wholesale customer bearing an interest rate of 24%. The loan is payable in full
December 1999.
On August 31, 1999, the Company entered into a stock purchase agreement with an
affiliated Company through common ownership. The agreement calls for the
transfer of 1,512,406 shares of the Company's treasury stock to this affiliated
company in consideration for a partial reduction of the Company's outstanding
trade indebtedness balance of approximately $4.5 million. The transfer price was
based on a per share price of $2.98, which approximates 90% of the closing price
on the Company's common stock for the previous 20 business days. Pursuant to
this agreement the parties entered into a registration rights agreement dated
August 31, 1999, which grants the affiliated company demand registration rights.
The Company recorded an extraordinary loss of approximately $314,000 which will
be taken to income in the third quarter of fiscal year 1999.
8
<PAGE> 11
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Perfumania does not provide forecasts of future financial performance.
Forward-looking statements in this Form 10-Q and other Company reports and
press releases are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and, in connection therewith, the
Company wishes to caution readers that the following important factors, among
others, in some cases have affected and in the future could affect the
Company's actual results and could cause such results to differ materially from
those expressed in forward-looking statements made by or on behalf of the
Company.
Seasonality. The Company has historically experienced higher sales in
the third and fourth fiscal quarters than in the first and second fiscal
quarters. Significantly higher fourth fiscal quarter retail sales result from
increased purchases of fragrances as gift items during the Christmas holiday
season. The Company's quarterly results may also vary due to the timing of new
store openings, net sales contributed by new stores and fluctuations in
comparable sales of existing stores. A variety of factors affect the sales
levels of new and existing stores, including the retail sales environment and
the level of competition, the effect of marketing and promotional programs,
acceptance of new product introductions, adverse weather conditions and general
economic conditions.
Lack of Long-Term Agreements With Suppliers. The Company's success
depends to a large degree on its ability to provide an extensive assortment of
brand name and designer fragrances. The Company has no long-term purchase
contracts or other contractual assurance of continued supply, pricing or access
to new products. While the Company believes it has good relationships with its
vendors, the inability to obtain merchandise from one or more key vendors on a
timely basis, or a material change in the Company's ability to obtain necessary
merchandise could have a material adverse effect on its results of operations.
Dependence on Line of Credit. As discussed above, the Company
experiences significant seasonal fluctuations in its sales and operating
results, as is common with many specialty retailers. The Company utilizes its
line of credit to fund inventory purchases and to support new retail store
openings. Any future limitation on the Company's borrowing ability and access
to financing could limit the Company's ability to open new stores and to obtain
merchandise on satisfactory terms. The Company has violated certain debt
covenants contained in its bank line of credit agreement. On July 14, 1999, the
Company obtained a waiver of default from the bank as of and for the year
ending January 30, 1999 through September 30, 1999.
Dependence on Key Personnel. Jerome Falic, the Company's President, is
primarily responsible for the Company's merchandise purchases, and has
developed strong, reliable relationships with suppliers, as well as customers
of the Wholesale division in the United States, Europe, Asia and South America.
The loss of service of his, or any of the Company's other current executive
officers could have a material adverse effect on the Company.
Qualified Accountants' Report. In reporting on the Company's audited
consolidated financial statements as of January 30, 1999 and January 31, 1998
and for each of the three years in the period ended January 30, 1999, the report
of the Company's independent accountants contained an explanatory paragraph
indicating factors which create substantial doubt about the Company's ability to
continue as a going concern. Such factors include recurring net losses in fiscal
1998 and 1997 and the Company's default on its bank line of credit agreement as
a result of its violation of certain debt covenants, which has been waived by
the bank on July 14, 1999, through September 30, 1999 as of and for the year
ending January 30, 1999.
Ability to Manage Growth. While the Company has grown significantly in
the past several years, there is no assurance that the Company will sustain the
growth in the number of retail stores and revenues that it has achieved
historically. The Company's growth is dependent, in large part, upon the
Company's ability to open and operate new retail stores on a profitable basis,
which in turn is subject to, among other things, the Company's ability to
secure suitable stores sites on satisfactory terms, the Company's ability to
hire, train and retain qualified management and other personnel, the
availability of adequate capital resources and the successful integration of
new stores
9
<PAGE> 12
stores into existing operations. There can be no assurance that the Company's
new stores will achieve sales and profitability comparable to existing stores,
or that the opening of new locations will not cannibalize sales at existing
locations.
Litigation. As is often the case in the fragrance and cosmetics
business, some of the merchandise purchased by suppliers such as the Company
may have been manufactured by entities who are not the owners of the trademarks
or copyrights for the merchandise. If the Company were called upon or
challenged by the owner of a particular trademark or copyright to demonstrate
that the specific merchandise was produced and sold with the proper authority
and the Company were unable to do so, the Company could, among other things, be
restricted from reselling the particular merchandise or be subjected to other
liabilities, which could have an adverse effect on the Company's business and
results of operations.
Year 2000 Readiness. The Year 2000 issue is the result of computer and
other business systems being written using two digits rather than four to
represent the year. Many of the time sensitive applications and business
systems of the Company and its business partners may recognize a date using
"00" as the year 1900 rather than the year 2000, which could result in system
failure or disruption of operations. Although the Year 2000 problem will impact
the Company and its business partners, a preliminary assessment of the Year
2000 exposure has been made by the Company and, primarily because the Company's
major management information systems are in the process of being upgraded, the
Company believes it will be able to achieve Year 2000 readiness for its
internal systems by the fourth quarter of 1999. The Company believes that it
will satisfactorily resolve all significant Year 2000 problems and that the
related costs will not be material. However, estimates of Year 2000 related
costs are based on numerous assumptions, including the continued availability
of certain resources, the ability to acquire accurate information regarding
third party suppliers, and the ability to correct all relevant applications and
the third party modification plans. There is no guarantee that the estimates
will be achieved and actual costs could differ materially from those
anticipated. Moreover, the failure of a major vendor's systems to operate
properly with respect to the Year 2000 problem on a timely basis or a Year 2000
conversion that is incompatible with the Company's systems could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is preparing contingency plans which will include the
identification of the most reasonably likely worst case scenarios. Currently,
the most reasonably likely sources of risk to the Company include (a) the
disruption of the Company's internal inventory management system, (b) the
inability of principal suppliers or logistics providers to be Year 2000-ready,
which could result in delays in product deliveries from such suppliers or
logistics providers, and (c) failure of systems and necessary infrastructure
such as electricity supply. The Company is preparing plans to flow inventory
around an assumed period of disruption to the Company's stores, which could
include accelerating distribution of high volume merchandise, and critical
products to reduce the impact of significant failure.
Other. The Company has been characterized as an insider in the
liquidating plan of reorganization filed on April 6, 1998 by L. Luria & Son,
Inc. ("Luria's") in the United States Bankruptcy Court, Southern District of
Florida. In October 1998, the committee of unsecured creditors in Luria's
bankruptcy proceedings filed a complaint with the United States Bankruptcy
Court, Southern District of Florida to recover substantial funds from the
Company. The complaint alleges that Luria's made preference payments, as
defined by the Bankruptcy Court, to the Company and seeks recovery of said
preference payments, as well as disallowing any and all claims of the Company
against Luria's until full payment of the preference payments have been made.
In July 1999, the Company agreed with the unsecured creditors to settle all
claims held by Luria's against the Company for the sum of $1.2 million, payable
over the next nine months according to a repayment schedule. This settlement is
subject to the approval of the Bankruptcy Court. The full amount of the
settlement was accrued for in the Company's financial statements as of May 1,
1999 and for the year ending January 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working
capital needs, to open new stores and to renovate existing stores. For the
first thirteen weeks of fiscal 1999, these capital requirements have generally
been satisfied by short-term borrowings and issuance of convertible notes.
10
<PAGE> 13
At May 1, 1999, the Company had a working capital deficit of
approximately $5.7 million compared to a working capital deficit of
approximately $3.8 million at January 30, 1999. The decrease was primarily due
to a combination of the current period loss as well as an increase in accounts
payable offset by increases in inventories.
Net cash used in operating activities during the current period was
approximately $2.8 million and net cash provided by operating activities was
approximately $1.6 million for the same period in the prior year. The increase
in cash used was principally a result of the net change in the Company's trade
receivables, inventories, accounts payable and advances from customers. Of the
$5.3 million in trade receivables, $0.1 million was due from one customer which
also accounted for 45% of the Company's wholesale sales during the thirteen
weeks ended May 1, 1999. The Company has not experienced any write-offs of
accounts receivable from this customer due to collectibility. Inventories
increased $9.9 million primarily from purchases from affiliate.
Net cash used in investing activities during the current period was
approximately $0.9 million, compared with approximately $3.0 million for the
same period in the prior year. Investment activities represent purchases of
furniture, fixtures and equipment for store openings and the renovation of
existing stores. The decrease in the net cash used in investing activities is
due to less store openings during the current period.
Net cash provided by financing activities during the current period
was approximately $3.4 million compared with approximately $1.0 million for the
same time period in the prior year. The increase was primarily the result of
the issuance of $2 million convertible notes in April 1999.
The Company's $35 million line of credit contains covenants requiring
the maintenance of minimum tangible net worth and book value and the achievement
of specified levels of quarterly results of operations. The line of credit also
contains limitations on additional borrowings, capital expenditures, number of
new store openings and purchases of treasury stock and prohibits distribution of
dividends. As of January 30, 1999, the Company was in violation of some of the
above covenants and, as a result of these violations, was in default under the
line of credit agreement. As a result, the Company incurred the default rate of
interest, prime plus 4% (11.75% at May 1, 1999) beginning December 1998 and the
bank can demand payment of the amounts outstanding under the line of credit
agreement. The violations consist primarily of our failure to maintain the
minimum tangible net worth and net income levels established by the financial
covenants, purchasing treasury stock and exceeding the limit on new store
openings. On July 14, 1999, the Company obtained a waiver of default from the
bank as of and for the year ended January 30, 1999 through September 30, 1999.
Future outstanding borrowings will bear interest at the prime rate plus four
percent. The bank agreed to less restrictive covenants provided that certain
events commence prior to September 30, 1999. One such event includes that
perfumania.com, inc. (a wholly-owned subsidiary) is to receive at least $10
million from a contemplated initial public offering of its shares, of which at
least $2 million is to be repaid to the Company. Management believes that the
conditions included in the waiver will be met by September 30, 1999, however,
there can be no assurance of this. Should the Company be unable to meet these
conditions, the Company may be required to repay outstanding amounts (totaling
approximately $34.8 million as of September 17, 1999) and obtain alternative
sources of financing. The Company could also be required to take other actions
to reduce the Company's reliance on working capital financing and generate
additional working capital, which could include delaying the opening of new
stores, reducing inventory purchases and/or reducing our wholesale and retail
selling prices to generate more cash. Any such actions, or the Company's failure
to obtain additional financing in an amount sufficient to support current and
planned levels of operation, could adversely affect the Company's business and
operating results.
During the thirteen weeks ended May 1, 1999, the Company opened 2
stores and closed 3 underperforming stores. At May 1, 1999, the Company
operated 288 stores.
RESULTS OF OPERATIONS
COMPARISON OF THE THIRTEEN WEEKS ENDED MAY 1, 1999 WITH THE THIRTEEN
WEEKS ENDED MAY 2, 1998.
Net sales increased 2.4% from $38.5 million in the first thirteen
weeks of 1998 to $39.4 million in the first thirteen weeks of 1999. The
increase in net sales was the result of a 12.5% increase in retail sales (from
$25.0 million to $28.1 million) offset by a 16.3% decrease in wholesale sales
(from $13.5 million to $11.3 million). The decrease in wholesale sales was
primarily due to unusually large sales to a wholesale customer during the first
thirteen weeks of 1998. The increase in retail sales was due to the increase in
the number of stores operated during
11
<PAGE> 14
the first thirteen weeks of 1999 compared to the first thirteen weeks of 1998
as well as an increase in comparable store sales of 3%. The Company operated
288 and 284 stores at May 1, 1999 and 1998, respectively. Although we plan to
open only eight retail stores in fiscal year 1999 and to close approximately
ten unprofitable stores, retail sales are expected to increase in fiscal year
1999 compared to fiscal year 1998. This is due to an expected increase in
comparable store sales due to improved merchandising variety and clarity and
reduced promotional sales of lower price points resulting in a higher average
sale per transaction.
Gross profit increased 3.0% from $14.8 million in the first thirteen
weeks of 1998 (38.5% of total net sales) to $15.3 million in the first thirteen
weeks of 1999 (38.7% of total net sales) primarily due to an increase in gross
profit for the retail division.
Gross profit for the wholesale division decreased 31.2% from $3.2
million in the first thirteen weeks of 1998 to $2.2 million in the first
thirteen weeks of 1999. As a percentage of net sales, gross profit for the
wholesale division decreased from 23.7% in the first thirteen weeks of 1998 to
19.5% in the first thirteen weeks of 1999. The decrease in gross profit and
gross profit as a percentage of net wholesale sales was attributable to
decreased sales volume and liquidation of certain slow moving inventory items.
Wholesale sales historically yield a lower gross margin when compared to retail
sales.
Gross profit for the retail division increased 12.4% to $13.1 million
in the first thirteen weeks of 1999 from $11.6 million in the first thirteen
weeks of 1998 as a result of higher retail sales associated with the operation
of more stores during the current period as compared to the thirteen week
period ended May 2, 1998 as well as an increase in comparable store sales of
3%. As a percentage of net retail sales, gross profit for the retail division
decreased slightly from 46.5% in the first thirteen weeks of 1998 to 46.4% in
the first thirteen weeks of 1999. Gross margins are expected to increase
slightly during the remainder of fiscal year 1999 due to improved merchandise
buying costs, a reduction in non-designer fragrance merchandise, and reduced
freight costs.
Operating expenses, which include selling, general and administrative
expenses, as well as depreciation, increased 8.4% from $16.4 million in the
first thirteen weeks of 1998 to $17.8 million in the first thirteen weeks of
1999. As a percentage of net sales, operating expenses increased from 42.7% in
the first thirteen weeks of fiscal 1998 to 45.2% in the first thirteen weeks of
fiscal 1999. The increase was primarily attributable to costs associated with
the operation of an average of 5 additional stores during the current period as
well as expenses of $0.7 million attributable to perfumania.com, the Company's
wholly-owned internet commerce site which began operations in February 1999. We
expect operating expenses to decrease in fiscal year 1999 compared to fiscal
year 1998 as we expect to have a net decrease in the number of stores in
operation, due to fewer openings of new stores and the closing of unprofitable
locations. In addition, we will not incur any severance expenses in fiscal year
1999 and we do not expect to incur any significant expense for disposition for
fixed assets due to store closings, as these expenses were recorded in fiscal
year 1998 in anticipation of 1999 store closings.
Other expenses, which include interest expense, increased by 33.8%
from $1.2 million for the thirteen weeks ended May 2, 1998 to $1.5 million for
the thirteen weeks ended May 1, 1999. The increase is principally due to the
beneficial conversion cost of approximately $385,000 associated with the
issuance of the convertible notes.
As a result of the foregoing, the Company had a net loss of $4,091,866
in the first thirteen weeks of 1999 compared to a net loss of $2,771,612 in the
first thirteen weeks of 1998. Net loss per share for the thirteen week periods
ended May 1, 1999 and May 2, 1998, was $0.56 and $0.42 per share, respectively.
YEAR 2000
The following critical application systems areas are the focus of the
Company's Y2K compliance efforts; (1) Merchandising, (2) Inventory Management
and Distribution, (3) Point-of-sales systems, (4) Human Resources and (5)
Finance and Accounting. The Merchandising and Finance and Accounting systems
are currently being upgraded utilizing vendor software certified as Y2K
compliant. The Inventory Management and Distribution systems as well as the
Point-of-sales and Human Resources systems will be upgraded in the third
quarter of 1999. The Company's hardware and communications network is currently
being inventoried, assessed, and where instances of non-compliance are noted,
upgraded and tested.
12
<PAGE> 15
The Company has established a budget totaling approximately $1.5
million for the acquisition of computer hardware and software that will assist
in the Year 2000 assessment and remediation activities. The Company expects to
complete substantially all of the Year 2000 assessment and remediation
activities no later than the fourth quarter of 1999. The Company's current
systems may contain undetected errors or defects with Year 2000 date functions
that may result in material costs. In addition, the Company utilizes
third-party equipment, software, including non-information technology systems,
such as facilities and distribution equipment that may not be Year 2000
compliant. Failure of third-party equipment, software or content to operate
properly with regard to the Year 2000 issue could require the Company to incur
unanticipated expenses to remedy problems, which could have a material adverse
effect on its business, operating results and financial condition.
The Company is currently assessing whether third parties in its supply
and distribution chain are adequately addressing their Year 2000 compliance
issues. The Company has initiated formal communications with its significant
suppliers and service providers to determine the extent to which its systems
may be vulnerable if such suppliers and providers fail to address and correct
their own Year 2000 issues. The Company cannot guarantee that the systems of
suppliers or other companies on which the Company relies will be Year 2000
compliant.
The Company will track the Year 2000 compliance status of its material
vendors and suppliers via the Company's own internal vendor compliance effort.
Year 2000 correspondence will be sent to critical vendors and suppliers by the
second quarter of 1999, with continued follow up for those who fail to respond.
All vendor responses will be evaluated to assess any possible risk to or effect
on the Company's operations. Prior to mid 1999, the Company expects to
implement additional procedures for assessing the Year 2000 compliance status
of its most critical vendors and will modify its contingency plans accordingly.
The Company is in the process of preparing its contingency plans which
will include the identification of its most reasonably likely worst case
scenarios. Currently, the most reasonably likely sources of risk to the Company
include (1) the disruption of the Company's internal inventory management
system, (2) the inability of principal suppliers or logistics providers to be
Year 2000-ready, which could result in delays in product deliveries from such
suppliers or logistics providers and (3) failure of hardware and software
utilized by transportation vendors as a result of a general failure of systems
and necessary infrastructure such as electricity supply. The Company is
preparing plans to flow inventory around an assumed period of disruption to the
Company's stores, which could include accelerating distribution of high volume
merchandise and critical products to reduce the impact of significant failure.
Based on its current assessment efforts, the Company does not believe
that Year 2000 issues will have a material adverse effect on its financial
condition or results of operations. However, the Company's Year 2000 issues and
any potential business interruptions, costs, damages or losses related thereto,
are dependent, to a significant degree, upon the Year 2000 compliance of third
parties, such as government agencies, vendors and suppliers. Consequently, the
Company is unable to determine at this time whether Year 2000 failures will
materially affect the Company. The Company believes that its compliance efforts
have and will reduce the impact on the Company of any such failures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
During the quarter ended May 1, 1999, there have been no material
changes in the information about the Company's market risks as of January 30,
1999 as set forth in Item 7A of the 1999 Form 10-K.
13
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For a discussion of the legal contingencies associated with the
Luria's and Boucheron cases, see Note 9 of the Notes to Consolidated Financial
Statements in Item 1 of Part I of this report.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In March 1999, the Company entered into a subscription agreement for
the sale of 235,293 shares of the Company's common stock to a group of private
investors at a price of $8.50 per share. The proceeds of $2 million were
received in January 1999. The agreement requires that the Company file the
appropriate registration statements with the Securities and Exchange Commission
within six months from the date of the agreement to permit the registered
resale of the shares by the investors in open market transactions. If on the
effective date of the registration statement, the market price is less than
$8.50 per share, the Company is obligated to reimburse the investor group the
lesser of 1) the product of the difference between $8.50 and the closing bid
price of the Company's common stock on the effective date of the registration
statement multiplied by the number of shares issued under the agreement or 2)
the product of $2.00 multiplied by the number of shares issued under the
agreement. As of May 1, 1999, the potential redeemable amount of $470,588 was
recorded as redeemable common equity and the remaining $1,529,412 was recorded
as capital in excess of par value in the accompanying balance sheets.
In April 1999, we entered into a Securities Purchase Agreement and
issued an aggregate of $2 million worth of our Series A Convertible Notes, which
are convertible into common stock. The agreement requires us to file a
registration statement with the Securities and Exchange Commission within
forty-five days after the date of issuance of the convertible notes. The
conversion price is the lower of (A) $4.35 per share, subject to adjustment and
(B) the floating conversion price determined by multiplying (1) the average
closing bid price of the common stock for the three trading days immediately
preceding the date of determination, by (2) 80%, subject to adjustment. The
conversion price may be adjusted pursuant to antidilution provisions in the
convertible note. If the conversion price decreases, we are obligated to issue
additional shares of common stock.
In July 1999, the Company entered into a Securities Purchase Agreement
and issued an aggregate of $2 million worth of our Series B Convertible Notes,
which are convertible into common stock. The agreement requires the Company to
file a registration statement with the Securities and Exchange Commission
within forty-five days after the date of issuance of the convertible notes. The
Conversion Price is the lower of (A) $3.40625 per share, subject to adjustment
and (B) the floating conversion price determined by multiplying (1) the average
closing bid price of the common stock for three trading days immediately
preceding the date of determination, by (2) 80% subject to adjustment. The
conversion price may be adjusted pursuant to an antidilution provision in the
agreement.
The Company has used the proceeds from the aforementioned stock
subscription and issuance of convertible debentures, net of expenses incurred
in the registration of such shares as prescribed in the respective agreements,
for capital and operating expenditures.
14
<PAGE> 17
The following table provides information regarding to whom the shares
were issued pursuant to the subscription agreement. Additionally, the table
provides information regarding to whom the shares were issued pursuant to the
Notes and assumed conversion of the Notes as of June 8, 1999.
<TABLE>
<CAPTION>
NO. OF SHARES
TO BE PROCEEDS
NAME REGISTERED RECEIVED
----------------------------------------- ------------- -------------
<S> <C> <C>
S. Robert Productions, LLC 165,966(1) $ 800,000
Cranshire Capital, L.P. 331,933(2) 1,600,000
Namax Corp. 165,966(1) 800,000
EP Opportunity Fund, L.L.C 167,857(3) 470,000
EP Opportunity Fund International, LTD 10,714(4) 30,000
JJP Partnership 107,143(5) 300,000
-------- ----------
Total $4,000,000
==========
</TABLE>
(1) Of the shares being registered, 58,823 were issued pursuant to the
Subscription Agreement, dated March 22, 1999, and 214,286 represents
the number of shares of common stock that would have been received if
the $300,000 of convertible notes received under the Securities
Purchase Agreement, dated April 28, 1999, were converted on June 8,
1999.
(2) Of the shares being registered, 117,647 were issued pursuant to the
Subscription Agreement, dated March 22, 1999 and 214,286 represent the
number of shares of common stock that would have been received if the
$600,000 of convertible notes received under the Securities Purchase
Agreement, dated April 28, 1999, were converted on June 8, 1999.
(3) The 167,857 shares represent the number of shares of common stock that
would have been received if the $470,000 of convertible notes received
under the Securities Purchase Agreement, dated April 28, 1999, were
converted on June 8, 1999.
(4) The 10,714 shares represent the number o f shares of common stock that
would have been received if the $30,000 of convertible notes received
under the Securities Purchase Agreement, dated April 28, 1999, were
converted on June 8, 1999.
(5) The 107,143 shares represent the number of shares of common stock that
would have been received if the $300,000 of convertible notes received
under the Securities Purchase Agreement, dated April 28, 1999, were
converted on June 8, 1999.
15
<PAGE> 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
27.1 Financial Data Schedule (1)
</TABLE>
- --------------------
(1) Filed herewith.
(b) The Company did not file any reports on Form 8-K during the
quarter ended May 1, 1999.
16
<PAGE> 19
PERFUMANIA, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Perfumania, Inc.
-----------------------------------
(Registrant)
Date: October 7, 1999 By: /s/ ILIA LEKACH
-----------------------------------
Ilia Lekach
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
By: /s/ DONOVAN CHIN
-----------------------------------
Donovan Chin
Chief Financial Officer,
Treasurer, and Secretary
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-01-1999
<CASH> 1,420,259
<SECURITIES> 0
<RECEIVABLES> 5,222,998
<ALLOWANCES> 0
<INVENTORY> 63,769,253
<CURRENT-ASSETS> 79,465,177
<PP&E> 23,109,608
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,142,478
<CURRENT-LIABILITIES> 85,195,749
<BONDS> 0
0
0
<COMMON> 88,969
<OTHER-SE> 13,970,602
<TOTAL-LIABILITY-AND-EQUITY> 105,142,478
<SALES> 39,400,964
<TOTAL-REVENUES> 39,400,964
<CGS> 24,147,795
<TOTAL-COSTS> 17,796,057
<OTHER-EXPENSES> 1,548,978
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,091,866)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,091,866)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,091,866)
<EPS-BASIC> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
