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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 2001 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER 0-19714
E COM VENTURES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA (State or other jurisdiction of incorporation or organization)
65-0977964 (I.R.S. Employer Identification Number)
11701 NW 101 ST. ROAD, MIAMI, FL (Address of principal executive offices)
33178 (Zip Code)
(305) 889-1600 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [ ].
As of April 20, 2001, the number of shares of the registrant's Common Stock
outstanding was 10,082,503. The aggregate market value of the Common Stock held
by non affiliates of the registrant as of April 20, 2001 was approximately
$3,959,321, based on the closing price of the Common Stock ($0.90) as reported
by the NASDAQ National Market on such date. For purposes of the foregoing
computation, all executive officers, directors and 5 percent beneficial owners
of the registrant are deemed to be affiliates. Such determination should not be
deemed to be an admission that such executive officers, directors or 5 percent
beneficial owners are, in fact, affiliates of the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information called for by Part III is incorporated to the Proxy
Statement for the Annual Meeting of Shareholders of the company, which will be
filed no later than 120 days after the close of the fiscal year end.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business 3
2. Properties 8
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
7A. Quantitative and Qualitative Disclosures About Market Risks 19
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 41
PART III
10. Directors and Executive Officers of the Registrant 42
11. Executive Compensation 42
12. Security Ownership of Certain Beneficial Owners and Management 42
13. Certain Relationships and Related Transactions 42
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 43
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FORWARD-LOOKING STATEMENTS
Certain statements within this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All forward-looking statements are based on current expectations
regarding important risk factors. Accordingly, actual results may differ
materially from those expressed in the forward-looking statements, and the
making of such statements should not be regarded as a representation by the
Company or any other person that the results expressed in the statements will be
achieved. See "Risk Factors That May Affect Future Results" in Item 7.
PART I.
ITEM 1. BUSINESS
GENERAL
E Com Ventures, Inc. (the "Company") previously operated under the name
Perfumania, Inc. ("Perfumania"). In order to provide greater flexibility for
expansion, broaden the alternatives available for future financing and generally
provide for greater administrative and operational flexibility, on February 1,
2000, we reorganized into a holding company structure with the Company as the
holding company and Perfumania as a wholly owned subsidiary.
BUSINESS STRATEGY
We are a holding company that owns and operates Perfumania retail stores,
the Internet site, perfumania.com and a wholesale fragrance business. We also
provide Internet fulfillment and other services to various other companies. We
expect to continue developing and refining the products and services of our
businesses, with the goal of increasing revenue as new products and services are
commercially introduced.
Perfumania is a leading specialty retailer and wholesale distributor of a
wide range of brand name and designer fragrances. As of February 3, 2001,
Perfumania operated a chain of 257 retail stores specializing in the sale of
fragrances at discounted prices up to 75% below the manufacturer's suggested
retail prices. Perfumania's wholesale division distributes approximately 500
stock keeping units (SKUs) of fragrances and related products to approximately
13 customers, including national and regional chains and other wholesale
distributors throughout North America and overseas. In May 2000, the Company
acquired its E-commerce site, WWW.PERFUMANIA.COM. The site offers our more
popular products for sale and serves as an extension of the Perfumania shopping
experience.
Perfumania and perfumania.com, Inc., are the sole operating subsidiaries
of the Company. Perfumania operates its wholesale business as an unincorporated
division. Its retail business is managed and owned by Magnifique Parfumes and
Cosmetics, Inc. ("Magnifique"), a wholly owned subsidiary of Perfumania. For
ease of reference in this Form 10-K, our retail and wholesale business are
referred to as segments, and our Internet sales are included with those of our
retail business. See Item 6 for Selected Financial Data by segment.
RETAIL SEGMENT
MARKETING AND MERCHANDISING. Each of Perfumania's retail stores generally
offers approximately 175 different brands of fragrances for women and men at
prices up to 75% below the manufacturer's suggested retail prices. Stores stock
brand name and designer brands such as Estee Lauder(R), Fendi(R), Yves Saint
Laurent(R), Fred Hayman(R), Calvin Klein(R), Giorgio Armani(R), Gucci(R), Ralph
Lauren/Polo(R), Perry Ellis(R), Liz Claiborne(R), Giorgio(R), Hugo Boss(R),
Halston(R), Christian Dior(R), Chanel(R) and Cartier(R). Perfumania also carries
a private label line of bath & body treatment products under the name Jerome
Privee(R), and a private label line of cosmetics, treatment and aromatherapy
under the name Nature's Elements(R).
The cornerstone of Perfumania's marketing philosophy is customer
awareness that its stores offer an extensive assortment of brand name and
designer fragrances at discount prices. Perfumania posts highly visible price
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tags for each item in its stores, listing both the manufacturers' suggested
retail price and Perfumania's discounted prices to enable customers to make
price comparisons. In addition, we utilize sales promotions such as "gift with
purchase" and "purchase with purchase" offers. From time to time, we test market
in our stores additional specialty gift items.
Perfumania's stores are "full-service" stores. Accordingly, store
personnel are trained to establish a personal rapport with each customer, to
identify customer preferences with respect to both product and price range, and
to successfully conclude a sale. Management believes that attentive personal
service and knowledgeable sales personnel are key factors to the success of
Perfumania's retail stores. Perfumania's store personnel are compensated on a
salary plus bonus basis. Perfumania has several bonus programs that provide
incentives for store personnel to sell merchandise which have higher profit
margins. In addition, to provide an incentive to reduce expenses, district
managers are eligible to receive a bonus if store profit goals are met.
Management believes that a key component of Perfumania's ability to increase
profitability will be its ability to hire, train and retain store personnel and
regional and district managers. Perfumania conducts comprehensive training
programs designed to increase customer satisfaction.
Perfumania primarily relies on its distinctive store design and window
displays to attract the attention of prospective customers. In addition,
Perfumania distributes advertising flyers and brochures in its stores and in the
malls in which its stores are located. The amount of advertising varies with the
seasonality of the business.
RETAIL STORES. Perfumania's standard store design includes signs and
merchandise displays which are designed to enhance customer recognition of
Perfumania's stores. Perfumania's stores average approximately 1,400 square
feet, however, stores located in manufacturer's outlet malls tend to be larger
than Perfumania's other stores. Each store is managed by one manager and one
assistant manager. The average number of employees in a Perfumania store is
five, including part-time help. District managers visit stores on a regular
basis in an effort to ensure knowledgeable and attentive customer service.
INFORMATION SYSTEMS. Perfumania has a point-of-sale and management
information system which integrates data from every significant phase of our
operations and provides information for planning, purchasing, pricing,
distribution, financial and human resources decisions. Inventory is received in
each retail location using an automated inventory tracking system. Sales and
inventory data are updated in our system each night by downloading information
from our point-of-sale system, resulting in a perpetual daily inventory. Daily
compilation of sales, gross margin and inventory data enables management to
analyze profitability and sell-through by item and product line as well as to
monitor the success of sales promotions. The system also provides price labels
and pick orders as well as automatic reordering, minimum and maximum stocking
levels and optimum order quantities based on actual sales. The information
system also has automated time and attendance modules to capture payroll
information through the stores' point-of-sale systems and E-Mail systems
allowing daily communication among the stores, district managers and the
corporate office and automated scheduling for store personnel. During fiscal
year 2000, Perfumania upgraded its point-of-sale register hardware.
STORE LOCATION AND EXPANSION. Perfumania's stores are located in 37
states, the District of Columbia and Puerto Rico, including 49 in Florida, 30 in
New York, 20 in California, 15 in Texas and 13 in Puerto Rico. Perfumania's
current business strategy focuses on maximizing sales by raising the average
dollar sale per transaction, reducing expenses at existing stores, selectively
closing underperforming stores and on a limited basis, opening new stores in
proven geographic markets. When opening new stores, Perfumania seeks locations
primarily in regional and manufacturers' outlet malls and, selectively, on a
stand-alone basis in suburban shopping centers in metropolitan areas. To achieve
economies of scale with respect to advertising and management costs, Perfumania
evaluates opening additional stores in markets where it already has a presence
or to expand into additional markets that it believes have a population density
to support a cluster of stores. Prior to adding new store locations, Perfumania
analyzes, among other things, the potential adverse effect of competition from
new stores on the sales of existing stores.
Perfumania's current average cost for opening a store is approximately
$200,000, including furniture and fixtures, build-out costs and other items. In
addition, initial inventory in a new store ranges from approximately $150,000
during the first fiscal quarter to approximately $200,000 during the Christmas
holiday season. To support inventory in its stores, Perfumania carries at least
four months supply of inventory in its warehouse.
Perfumania opened 9 stores in fiscal year 2000 (including 6 acquired
stores), 8 stores in fiscal year 1999 and 36 stores in fiscal year 1998.
Perfumania continuously monitors store performance and from time to time has
closed underperforming stores, which typically have been older stores in
undesirable locations. During fiscal years 2000, 1999 and 1998, Perfumania
closed 28, 21 and 32 stores, respectively. For fiscal 2001, Perfumania will
continue to focus on improving the profitability of its existing stores.
Perfumania expects to open a maximum of 10 stores and close up to 10 stores
during fiscal 2001.
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WHOLESALE SEGMENT
Perfumania distributes fragrances on a wholesale basis to national and
regional retail chains and other wholesale distributors throughout North America
and overseas. During fiscal years 2000 and 1999, the wholesale division sold to
approximately 13 and 28 customers, respectively. One Perfumania customer
accounted for 62.9% and 30.4% of net wholesale sales during fiscal year 2000 and
1999, respectively. Foreign wholesale sales during fiscal year 2000 were $1.1
million, compared to $2.0 million during fiscal year 1999. See Note 14 to the
Company's Consolidated Financial Statements included in Item 8 hereof.
Perfumania believes extending credit is an important factor of wholesale
sales. Most sales are made on open account terms, generally net 30 to 60 days
following receipt of the goods. Other sales are made for cash on or in advance
of delivery or upon receipt of a letter of credit. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.
PERFUMANIA.COM
Perfumania.com provides a number of advantages for retail and wholesale
fragrance sales. Our Internet site enables us to display a larger number of
products than traditional store-based or catalog sellers. In addition, the
ability to frequently adjust featured selections, editorial content and pricing,
provides significant merchandising flexibility. Our Internet site benefits from
the ability to reach a large group of customers from a central location.
Additionally, we can also easily obtain demographic and behavioral data of
customers, increasing opportunities for direct marketing and personalized
services. Because brand loyalty is a primary factor influencing a fragrance
purchase, the ability to physically sense the fragrance product is not critical
to the purchasing decision. Perfumania.com's online store provides its customers
with value, pricing and convenience.
Our online store offers visitors several special features arranged in
simple, easy-to-use formats to enhance product search, selection and discovery.
By clicking on the displayed products and product categories, users can move
directly to the site that contains details about the particular products. Users
can quickly browse promotions, such as perfumania.com's perfume of the month and
other featured products. In addition, customers can browse the online store by
linking to specially designed pages dedicated to products of well known national
and specialty brands. Customers can also link to pages by product category, such
as women's brand name perfumes, men's brand name colognes, children's
fragrances, gift set specials and bath and body products.
Customers are offered a choice of over 2,800 designer and private label
fragrances, fragrance related products and bath and body products for men and
women at discounted prices. High levels of customer service and support are
critical to retain and expand our customer base. Perfumania.com monitors orders
from the time they are placed through delivery by providing numerous points of
electronic, telephonic and personal communication to customers. All orders and
shipments are confirmed by e-mail. Customer service representatives are
available during regular business hours by telephone.
Average daily page views, which represent the number of times per day our
server delivers a page to a user, has grown consistently, increasing from
approximately 68,000 views per day during February 2000 to approximately 2.1
million views per day during February 2001. User sessions per day have grown
from 769 shortly after launch of our online store to approximately 144,000 in
February 2001.
A variety of relationships with several Internet sites to build traffic
and attract customers have been established. Perfumania.com obtains most of its
inventory from Perfumania. Perfumania.com may obtain inventory from Perfumania
or from and other suppliers depending on which offers the most favorable
selection, pricing, quality and terms. Products are generally shipped within 24
hours. For a description of perfumania.com's September 1999 initial public
offering, the sale of a majority of our interest in perfumania.com and our
subsequent repurchase of that interest, see Note 11 of Notes to Consolidated
Financial Statements included in Item 6.
SOURCES OF SUPPLY
During fiscal years 2000 and 1999, Perfumania purchased fragrances from
170 and 155 different suppliers, respectively, including national and
international manufacturers, distributors, wholesalers, importers and retailers.
Perfumania generally makes its purchases based on the most favorable available
combination of prices, credit terms, quantities and merchandise selection and,
accordingly, the extent and nature of Perfumania's purchases from its various
suppliers changes constantly. As is customary in the perfume industry,
Perfumania has no long-term or exclusive contract with any supplier.
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Approximately 20% and 22%, respectively of Perfumania's total merchandise
purchased in fiscal year 2000 and 1999 was from our affiliate Parlux Fragrances,
Inc. ("Parlux"), a manufacturer and distributor of prestige fragrances and
related beauty products. The Chairman of the Board of Directors and Chief
Executive Officer of Parlux, Ilia Lekach, is also our Chairman of the Board and
Chief Executive Officer.
Merchandise is purchased both directly from manufacturers and secondary
sources such as distributors, wholesalers, importers and retailers. Merchandise
purchased from secondary sources includes trademarked and copyrighted products
manufactured in foreign countries and trademarked and copyrighted products
manufactured in the United States that may have been sold to foreign
distributors. Substantially all of Perfumania's merchandise is covered by
trademarks or copyrights owned by others. From time to time, United States
trademark and copyright owners and their licensees and trade associations have
initiated litigation or administrative agency proceedings seeking to halt the
importation into the United States of such foreign manufactured or previously
exported trademarked products or restrict the sale of such goods in the United
States. Federal legislation for such purposes has been proposed but not yet
adopted.
In May 1988, the United States Supreme Court in K-MART v. CARTIER
("K-MART"), upheld United States Customs Service regulations permitting the
importation, without the consent of the United States trademark owner, of
products manufactured overseas having legitimate foreign trademarks identical to
United States trademarks, when the foreign and United States trademarks are
owned by the same entity or entities under "common ownership or control." K-MART
also held that where the foreign trademarked goods are produced by an
unaffiliated entity authorized, but not controlled, by the United States
trademark holder, the United States Customs Service cannot permit the
importation of the goods without the consent of the United States trademark
owner. Certain federal courts have narrowly interpreted the K-MART case as
applying to a particular tariff statute, and the courts remain divided on the
extent to which trademark, copyright or other laws or regulations may restrict
the importation or sale of trademarked or copyrighted merchandise without the
consent of the trademark or copyright owner, even where the entities owning and
applying the trademark or copyright involved are under common ownership or
control. For example, in LEVER BROS. v. UNITED STATES ("LEVER BROS."), a 1993
decision, the District of Columbia Circuit Court of Appeals held that the
"common ownership or control" exception does not apply to foreign goods with an
identical trademark but with physical material differences from the product
produced by the United States trademark holder. Under LEVER BROS., such goods
are barred from importation without the permission of the United States
trademark holder. In addition, on November 23, 1992, the U.S. District Court for
the Central District of California, in an unreported decision in PARFUMS
GIVENCHY, INC. v. DRUG EMPORIUM, INC. ("PARFUMS"), which purports to follow a
decision of the Ninth Circuit Court of Appeals, held that the sale of products
manufactured abroad and imported into the United States, which would be covered
by a U.S. copyright, without the consent of the U.S. copyright holder, is a
copyright violation. This decision was upheld by the 9th Circuit Court of
Appeals and on March 6, 1995, the U.S. Supreme Court denied certiorari, without
giving any reason. In March 1998, however, the United States Supreme Court in
QUALITY KING DISTRIBUTORS v. L'ANZA RESEARCH INTERNATIONAL ("L'ANZA"), was faced
with a situation in which a United States manufacturer had manufactured and sold
certain goods with copyrighted labels affixed to a foreign purchaser. These
goods somehow found their way from the foreign purchaser back into the United
States without L'ANZA's permission, and were sold by Quality King to
unauthorized retailers at discounted prices. The L'ANZA Court unanimously held
that there was no copyright violation by Quality King because the "first sale"
doctrine applied to imported copies. The "first sale" doctrine was also
successfully used to defeat a claim for trademark infringement in at least one
federal court decision. Indeed, in February 1996, the U.S. District Court for
the Central District of California, in SUMMIT TECHNOLOGY v. HIGH-LINE MEDICAL
INSTRUMENTS ("SUMMIT"), purported to follow other decisions from the 9th Circuit
Court of Appeals, in holding that the "first sale" doctrine precluded a
trademark infringement claim against a U.S. company which was alleged to have
acquired legally exported trademarked products used in foreign countries and
then re-imported them for distribution in the United States. Several other
federal courts, however, have ruled the other way on this issue. Although L'ANZA
and SUMMIT appear favorable to those involved in purchasing through secondary
sources, we do not know how those decisions will be applied to future
situations.
Moreover, in March 1999, certain amendments to United States Customs
Service's regulations became effective, so as to provide a mechanism by which
United States trademark owners, upon application to United States Customs, may
attempt to restrict importation of certain goods bearing genuine trademarks
identical to or substantially indistinguishable from those appearing on goods
authorized by the United States trademark owner for importation or sale in the
United States, and that thereby create a likelihood of consumer confusion, in
circumstances where the imported goods and those bearing the authorized United
States trademark are physically and materially different. Consistent with the
holding in LEVER BROS., these restrictions apply even if the United States and
foreign trademark owners are the same, are parent and subsidiary companies, or
are otherwise subject to the common ownership or control. However, these
restrictions do not operate to bar importation if the otherwise restricted goods
bear a prescribed label, informing the consumer that the goods were not
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authorized by the United States trademark owner and were physically and
materially different from the goods that were so authorized. It is still too
early to tell how these regulations will impact, if at all, the importation of
products from secondary sources.
As is often the case in the fragrance and cosmetics business, some of the
merchandise purchased by suppliers such as Perfumania may have been manufactured
by entities, particularly foreign licensees and others, who are not the owners
of the trademarks or copyrights for the merchandise. If Perfumania were called
upon or challenged by the owner of a particular trademark or copyright to
demonstrate that specific merchandise was produced and sold with the proper
authority and it was unable to do so, Perfumania could, among other things, be
restricted from reselling the particular merchandise or be subjected to other
liabilities, which could have an adverse effect on Perfumania's business and
results of operations. Perfumania may not always be able to know or to
demonstrate that the manufacturer of specific merchandise had proper authority
from the trademark or copyright owner to produce the merchandise or permit it to
be resold in the United States.
Perfumania's secondary market sources generally will not disclose the
identity of their suppliers, which they consider to be proprietary trade
information. As a result, Perfumania cannot determine specifically what portion
of its merchandise purchased from secondary market sources could be affected by
the potential actions discussed above or actions on other grounds. There can be
no assurance that future judicial, legislative or administrative agency action,
including possible import, export, tariff or other trade restrictions, will not
limit or eliminate some of the secondary sources of supply used by the Company
or any of Perfumania's business activities. In addition, there can be no
assurance that Perfumania's business activities will not become the subject of
legal or administrative actions brought by manufacturers, distributors or
others.
DISTRIBUTION
Perfumania's retail and wholesale operations are served by its warehouse
in Miami, Florida. The lease for the facility expires in July 2003. The
warehouse is approximately 139,000 square feet, of which 20,000 square feet is
utilized as office space. Perfumania's wholesale division also utilizes space in
a third party bonded warehouse.
Perfumania utilizes independent national trucking companies to deliver
merchandise to its stores. Deliveries generally are made weekly, with more
frequent deliveries during the Christmas holiday season. Such deliveries permit
the stores to minimize inventory storage space and increase the space available
for display and sale of merchandise. Perfumania ships merchandise to wholesale
customers by truck, ship or plane. To expedite delivery of merchandise to its
customers, Perfumania sometimes instructs its suppliers to ship merchandise
directly to wholesale division customers.
COMPETITION
Retail and wholesale perfume businesses are highly competitive.
Perfumania's retail competitors include department stores, regional and national
retail chains, independent drug stores, duty free shops and other specialty
retail stores. Perfumania is the largest specialty retailer of discounted
fragrances in the United States in terms of number of stores. Some of
Perfumania's competitors sell fragrances at discount prices, and some are part
of large national or regional chains that have substantially greater resources
and name recognition than Perfumania. Perfumania's stores compete on the basis
of selling price, customer service, merchandise variety, store location and
ambiance. Perfumania believes that its European-style perfumeries concept,
full-service sales staff, discount prices, large and varied selection of brand
name and designer fragrances and attractive shopping environment are important
to its competitive position.
Perfumania's wholesale division competes directly with other perfume
wholesalers and perfume manufacturers, some of which have substantially greater
resources or merchandise variety than Perfumania. The wholesale division
competes principally on the basis of merchandise selection and availability,
selling price and rapid delivery.
EMPLOYEES
At February 3, 2001, the Company had 1,381 employees, of whom 1,203 were
employed in Perfumania's retail stores, 71 were employed in Perfumania's
warehouse and distribution operations and 107 were employed in executive,
administrative and other positions. Temporary and part-time employees are
usually added during peak sales periods (principally between Thanksgiving and
Christmas). None of the Company's employees are covered by a collective
bargaining agreement and the Company considers its relationship with its
employees to be good.
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TRADE NAME AND SERVICE MARK
Perfumania's stores use the trade name and service mark Perfumania(R).
Perfumania also operates 1 store under the trade name "Nature Elements", 3
stores under the trade name "Class Perfumes" in malls where the Company also
operates a Perfumania(R) store, one store under the trade name "Touch at
Perfumania," one store under the trade name "Perfumania Too," and 9 stand-alone
stores under the trade name "Perfumania Plus". Perfumania has common law rights
to its trade names and service mark in those general areas in which its existing
stores are located and has registered the service mark Perfumania(R) with the
U.S. Patent and Trademark Office. The registration expires in 2009 and may be
renewed for 10-year terms thereafter.
INVESTMENT IN TAKE TO AUCTION
During fiscal year 2000, we purchased 314,000 shares of
TakeToAuction.Com, Inc., ("Take To Auction"), an Internet auction site, for
approximately $2.5 million. Ilia Lekach, our Chairman and Chief Executive
Officer and Horacio Groisman, M.D. one of our Directors, are the Chairman and
Vice Chairman, respectively, of Take To Auction. In June 2000, we acquired
approximately 139,000 shares of Take To Auction's common stock upon conversion
of a $1.0 million convertible promissory note receivable. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources." In January 2001, we received
250,000 shares of Take To Auction's common stock as partial payment on a loan
receivable from Ilia Lekach. As of February 3, 2001, we own approximately
703,000 shares of Take To Auction's common stock representing approximately 9.5%
of their total outstanding shares.
As of February 3, 2001, the market price for Take to Auction's common
stock was below the Company's average cost per share of $5.38. Management
believes the Take To Auction concept has merit and it expects that their results
of operations and market value will improve in the future. However, in
consideration of accounting guidance that considers a six to nine month decline
in stock price to be other than temporary, the Company has recorded a non-cash
charge of approximately $3.1 million to realized loss on investments on the
consolidated statements of operations.
In October 2000, we entered into a six month service agreement with Take
To Auction to provide them with distribution and logistics functions. This
agreement, unless otherwise terminated, will automatically renew for successive
one year terms. This service agreement provides for order processing, inventory
management, warehousing, fulfillment and shipping of product. The service fee is
variable based on the volume of Take To Auction's sales. Monthly minimum fees
apply if specified volume levels are not obtained. Such fees range from $11,000
to $20,000 per month, based on volume.
ITEM 2. PROPERTIES
Our executive offices and warehouse are leased for a 10 year period
through 2003 pursuant to a lease which currently provides for monthly rent of
approximately $78,000 and specified annual increases.
All of Perfumania's retail stores are located in leased premises. Most of
the store leases provide for the payment of a fixed amount of base rent plus a
percentage of sales, ranging from 3% to 10%, over certain minimum sales levels.
Store leases typically require Perfumania to pay all utility charges, insurance
premiums, increases in property taxes and certain other costs. Certain of
Perfumania's leases permit the termination of the lease if specified minimum
sales levels are not met. See Note 13 to the Company's Consolidated Financial
Statements included in Item 8 hereof, for additional information with respect to
the Company's store leases.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings in the ordinary course of
business. Management cannot presently predict the outcome of these matters,
although management believes 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 31, 2000, we held our annual meeting of shareholders. At the
annual meeting, the shareholders elected Ilia Lekach, Jerome Falic, Donovan
Chin, Carole Ann Taylor, Horacio Groisman, M.D. and Zalman Lekach to the Board
of Directors.
SHARES SHARES VOTED SHARES VOTED ABSTAIN/
TOTAL VOTED FOR AGAINST WITHHELD NON-VOTES
--------------------- ----- ----------------- ----------------- ------------ -------------
Ilia Lekach 8,846,984 8,584,094 -- 262,890 1,090,292
Jerome Falic 8,816,984 8,558,514 -- 258,470 1,120,292
Donovan Chin 8,846,984 8,591,014 -- 255,970 1,090,292
Carole Ann Taylor 8,846,984 8,588,614 -- 258,370 1,090,292
Zalman Lekach 8,846,984 8,582,344 -- 264,640 1,090,292
Horacio Groisman, M.D 8,846,984 8,586,944 -- 260,040 1,090,292
In addition, the shareholders voted in favor of adopting the 2000 Stock
Option Plan and the 2000 Directors Stock Option Plan which replaced the 1991
Stock Option and the 1992 Directors Stock Option Plan, respectively, and
ratified the appointment of Deloitte & Touche LLP as our independent auditors.
SHARES SHARES VOTED SHARES VOTED ABSTAIN/
TOTAL VOTED FOR AGAINST WITHHELD NON-VOTES
---------------------- --------- ---------------------------------- ------------ ------------
2000 Stock Option Plan 5,646,858 5,191,845 446,343 8,670 4,290,418
2000 Directors Stock Option Plan 5,646,858 5,179,470 457,408 9,980 4,290,418
Ratify Appointment of Deloitte & 8,846,984 8,843,139 3,205 640 1,090,292
Touche LLP
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PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our Common Stock is traded on the NASDAQ Stock Market under the symbol
ECMV. The following table sets forth the high and low closing sales prices for
our Common Stock for the periods indicated, as reported by the NASDAQ Stock
Market.
FISCAL 2000 HIGH LOW
----------- ---- ---
First Quarter $7 13/16 $2 3/4
Second Quarter $3 5/8 $1 9/16
Third Quarter $1 15/16 $0 29/32
Fourth Quarter $1 1/4 $0 15/32
FISCAL 1999 HIGH LOW
----------- ---- ---
First Quarter $ 8 11/16 $2 3/4
Second Quarter $ 3 30/32 $3
Third Quarter $ 4 1/4 $2 3/8
Fourth Quarter $ 5 13/32 $3 1/8
As of April 20, 2001, there were 72 holders of record, which excluded
Common Stock held in street name. The closing sales price for the Common Stock
on April 20, 2001 was $0.90 per share.
DIVIDEND POLICY
We have not declared or paid any dividends on our Common Stock and do not
currently intend to declare or pay cash dividends in the foreseeable future.
Payment of dividends, if any, will be at the discretion of the Board of
Directors after taking into account various factors, including our financial
condition, results of operations, current and anticipated cash needs and plans
for expansion. Perfumania is prohibited from paying cash dividends under its
line of credit agreement with GMAC Commercial Credit LLC.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below for the last five fiscal
years and as of the end of each such fiscal years are derived from our
consolidated financial statements and should be read in conjunction with such
financial statements and related notes.
Our fiscal year end is the Saturday closest to January 31. All references
herein to fiscal years are to the calendar year in which the fiscal year begins;
for example, fiscal year 2000 refers to the fiscal year that began on January
30, 2000 and ended on February 3, 2001. The fiscal year ending February 3, 2001
included 53 weeks.
FISCAL YEAR ENDED
----------------------------------------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1,
2001 2000 1999 1998 1997
-------------- -------------- --------------- --------------- ---------------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales, wholesale division ................. $ 21,199 $ 36,975 $ 40,466 $ 34,032 $ 30,317
Net sales, retail division .................... 185,371 155,953 134,790 129,562 108,603
----------- ------------ ----------- ----------- -----------
Total net sales ............................ 206,570 192,928 175,256 163,594 138,920
----------- ------------ ----------- ----------- -----------
Gross profit, wholesale division .............. 4,216 7,019 7,545 7,942 7,614
Gross profit, retail division ................. 79,218 68,613 57,072 58,032 52,346
----------- ------------ ----------- ----------- -----------
Total gross profit ......................... 83,434 75,632 64,617 65,974 59,960
----------- ------------ ----------- ----------- -----------
Selling, general and administrative expenses .. 79,884 71,354 72,502 64,219 48,165
Provision for doubtful accounts ............... 55 60 -- 1,730 500
Provision (recovery) for impairment of assets
and store closings ......................... (506) 3,427 1,035 2,515 169
Depreciation and amortization ................. 5,819 4,725 4,480 4,698 3,772
----------- ------------ ----------- ----------- -----------
Total operating expenses ................... 85,252 79,566 78,017 73,162 52,606
----------- ------------ ----------- ----------- -----------
(Loss) income from operations before other
income (expense) .......................... (1,818) (3,934) (13,400) (7,188) 7,354
Other income (expense)
Interest expense, net ...................... (8,179) (6,589) (4,882) (4,696) (4,110)
Equity in loss of partially-owned
affiliate ................................ (1,388) (3,165) -- -- --
Gain on sale of affiliate's common stock ... 9,999 14,974 -- -- --
Realized loss on investments ............... (4,819) -- -- -- --
Miscellaneous income (expense),net ......... 85 (118) 645 762 478
----------- ------------ ----------- ----------- -----------
Income (loss) before income taxes ............. (6,120) 1,168 (17,637) (11,122) 3,722
(Provision) benefit for income taxes .......... -- (124) (1,337) 321 (1,647)
----------- ------------ ----------- ----------- -----------
Income (loss) before cumulative effect of
change in accounting principle ............. (6,120) 1,044 (18,974) (10,801) 2,075
Cumulative effect of change in accounting
principle, net of income tax benefit of $381 -- -- -- (632) --
----------- ------------ ----------- ----------- -----------
Net income (loss) ............................. $ (6,120) $ 1,044 $ (18,974) $ (11,433) $ 2,075
=========== ============ =========== =========== ===========
Weighted average shares outstanding:
Basic ...................................... 9,441,825 8,218,638 6,659,882 7,025,236 7,183,462
Diluted .................................... 9,441,825 10,267,619 6,659,882 7,025,236 7,633,588
Basic income (loss) per share before cumulative
effect of change in accounting principle .. $ (0.65) $ 0.13 $ (2.85) $ (1.54) $ 0.29
Diluted income (loss) per share before
cumulative effect of change in accounting
principle .................................. $ (0.65) $ 0.10 $ (2.85) $ (1.54) $ 0.27
Basic income (loss) per share after cumulative
effect of change in accounting principle ... $ (0.65) $ 0.13 $ (2.85) $ (1.63) $ 0.29
Diluted income (loss) per share after
cumulative effect of change in accounting
principle .................................. $ (0.65) $ 0.10 $ (2.85) $ (1.63) $ 0.27
SELECTED OPERATING DATA:
Number of stores open at end of period ........ 257 276 289 285 262
Comparable store sales increase ............... 16.9% 12.9% 0% 0% 3.6%
BALANCE SHEET DATA:
Working capital (deficiency) .................. $ 7,015 $ 8,687 $ (3,835) $ 18,473 $ 32,614
Total assets .................................. 107,329 105,656 95,129 113,908 129,365
Long-term debt, less current portion(1) ....... 11,531 5,032 3,404 5,643 5,708
Total shareholders' equity .................... 26,395 30,689 17,636 35,169 48,782
- -------------
(1) Amount includes redeemable common equity of $471 as of January 30, 1999
but does not include long-term severance payables of $284, $191 and
$1,038 as of February 3, 2001, January 29, 2000 and January 30, 1999,
respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Perfumania's retail division accounts for the majority of our net sales
and gross profit. Perfumania's overall profitability depends principally on our
ability to purchase a wide selection of merchandise at favorable prices. Other
factors affecting our profitability include general economic conditions,
competition, the availability to Perfumania of volume discounts and, in the
retail division, the number of stores in operation, the timing of store openings
and closings and the effect of special promotions offered by Perfumania.
The following table sets forth items from our Consolidated Statements of
Operations expressed as a percentage of total net sales for the periods
indicated:
PERCENTAGE OF NET SALES
FISCAL YEAR
--------------------------------
2000 1999 1998
------ ------ ------
Net sales, wholesale division ................ 10.3% 19.2% 23.1%
Net sales, retail division ................... 89.7 80.8 76.9
------ ------ ------
Total net sales ........................... 100.0 100.0 100.0
Gross profit, wholesale division ............. 19.9 19.0 18.6
Gross profit, retail division ................ 42.7 44.0 42.3
------ ------ ------
Total gross profit ........................ 40.4 39.2 36.9
Selling, general and administrative expenses . 38.7 36.9 41.4
Provision (recovery) for impairment of assets
and store closings ......................... (0.2) 1.8 0.6
Depreciation and amortization ................ 2.8 2.5 2.6
------ ------ ------
Total operating expenses .................. 41.2 41.2 44.6
------ ------ ------
Loss from operations before other income
(expense) ................................. (0.9) (2.0) (7.7)
------ ------ ------
Other income (expense):
Interest expense, net ..................... (4.0) (3.4) (2.8)
Equity in loss of partially-owned affiliate (0.7) (1.7) --
Gain on sale of affiliate's common stock .. 4.9 7.8 --
Realized loss on investments .............. (2.3) -- --
Miscellaneous income (expense), net ....... -- (0.1) 0.4
------ ------ ------
Income (loss) before income taxes ............ (3.0) 0.6 (10.1)
Provision benefit for income taxes ........... -- (0.1) (0.8)
------ ------ ------
Net income (loss) ............................ (3.0)% 0.5% (10.9)%
====== ====== ======
RESULTS OF OPERATIONS
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Some of the statements in this annual report, including those that
contain the words "anticipate," "believe," "plan," "estimate," "expect,"
"should," "intend" and other similar expressions, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Those forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or its industry to be materially different from
any future results, performance or achievements expressed or implied by those
forward-looking statements.
WE MAY HAVE PROBLEMS RAISING THE MONEY NEEDED IN THE FUTURE
Our growth strategy includes increasing Perfumania's average retail sales
per store, and cross marketing and acquisition of Internet related businesses.
We may need to obtain funding to achieve our growth strategy. Additional
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financing may not be available on acceptable terms, if at all. In order to
obtain additional financing, we may be required to issue securities with greater
rights than those currently possessed by holders of our common stock. We may
also be required to take other actions which may lessen the value of our common
stock, including borrowing money on terms that are not favorable to us.
PERFUMANIA'S BUSINESS IS SUBJECT TO SEASONAL FLUCTUATIONS, WHICH COULD LEAD
TO FLUCTUATIONS IN OUR STOCK PRICE
Perfumania has historically experienced and expects to continue
experiencing higher sales in the third and fourth fiscal quarters than in the
first and second fiscal quarters. Purchases of fragrances as gift items increase
during the Christmas holiday season which results in significantly higher fourth
fiscal quarter retail sales. If our quarterly operating results are below
expectations of stock market analysts, our stock price would likely decline. Our
quarterly results may also vary as a result of the timing of new store openings
and store closings, net sales contributed by new stores and fluctuations in
comparable sales of existing stores. Sales levels of new and existing stores are
affected by a variety of factors, including the retail sales environment, the
level of competition, the effect of marketing and promotional programs,
acceptance of new product introductions, adverse weather conditions and general
economic conditions.
PERFUMANIA MAY EXPERIENCE SHORTAGES OF THE MERCHANDISE IT NEEDS BECAUSE IT DOES
NOT HAVE LONG-TERM AGREEMENTS WITH SUPPLIERS
Perfumania's success depends to a large degree on our ability to provide
an extensive assortment of brand name and designer fragrances. Perfumania has no
long-term purchase contracts or other contractual assurance of continued supply,
pricing or access to new products. While we believe that Perfumania has good
relationships with its suppliers, if Perfumania is unable to obtain merchandise
from one or more key suppliers on a timely basis, or if there is a material
change in Perfumania's ability to obtain necessary merchandise, our results of
operations could be seriously harmed.
PERFUMANIA NEEDS TO SUCCESSFULLY MANAGE ITS GROWTH
Even though Perfumania has grown significantly in the past several years,
it may not be able to sustain the growth in revenues that it has achieved
historically. Perfumania's growth is somewhat dependent upon opening and
operating new retail stores on a profitable basis, which in turn is subject to,
among other things, securing suitable store sites on satisfactory terms, hiring,
training and retaining qualified management and other personnel, having adequate
capital resources and successfully integrating new stores into existing
operations. It is possible that Perfumania's new stores might not achieve sales
and profitability comparable to existing stores, and it is possible that the
opening of new locations might adversely effect sales at existing locations.
PERFUMANIA COULD BE SUBJECT TO LITIGATION BECAUSE OF THE MERCHANDISING ASPECT
OF ITS BUSINESS
Some of the merchandise Perfumania purchases from suppliers is
manufactured by entities who are not the owners of the trademarks or copyrights
for the merchandise. This practice is common in the fragrance and cosmetics
business. The owner of a particular trademark or copyright may challenge
Perfumania to demonstrate that the specific merchandise was produced and sold
with the proper authority and if Perfumania is unable to demonstrate this, it
could, among other things, be restricted from reselling the particular
merchandise. This type of restriction could seriously harm Perfumania's business
and results of operations.
OUR COMMON STOCK MAY BE DELISTED
Our common stock is currently listed on the Nasdaq national market.
Due to the recent decline in the trading prices of our common stock, NASDAQ has
notified us that we do not meet its minimum listing requirements and as a
result, our common stock may be delisted. These listing requirements include a
series of financial tests relating to net tangible assets, public float, number
of market makers and shareholders, and maintaining a minimum bid price for
listed securities of $1.00. Our common stock has traded below $1.00 for
more than 30 days and there is no guarantee that it will return to a minimum bid
price of $1.00 or higher. If we fail to meet NASDAQ's maintenance criteria our
common stock may be delisted by NASDAQ. In such event, trading, if any, in our
common stock may then continue to be conducted in the non-NASDAQ
over-the-counter market (commonly referred to as the electronic bulletin board
and the "pink sheets"). As a result, an investor may find it more difficult to
dispose of or obtain accurate quotations as to the market value of our common
stock. In addition, we would be subject to a Securities and Exchange Commission
Rule that may adversely affect the ability of broker-dealers to sell our common
stock, which would affect the ability of our shareholders to sell their shares
in the secondary market. Delisting could make trading our shares more difficult
for investors, potentially leading to further declines in share price. It would
also make it more difficult and more expensive for us to raise additional
capital.
FUTURE GROWTH MAY PLACE STRAINS ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL
RESOURCES
If we grow as expected, a significant strain on our managerial,
operational and financial resources may occur. Further, as the number of our
users, advertisers and other business partners grow, we will be required to
manage multiple relationships with various customers, strategic partners and
other third parties. Future growth or increase in the number of our strategic
relationships will strain our managerial, operational and financial resources,
inhibiting our ability to achieve the rapid execution necessary to successfully
implement our business plan. In addition, our future success will also depend on
our ability to expand our sales and marketing organization and our support
organization commensurate with the growth of our business and the Internet.
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WE ARE SUBJECT TO INTENSE COMPETITION
Some of Perfumania's competitors sell fragrances at discount prices, and
some are part of large national or regional chains that have substantially
greater resources and name recognition than Perfumania. Perfumania's stores
compete on the basis of selling price, customer service, merchandise variety,
store location and ambiance.
Many of our current and potential competitors have greater financial,
technical, operational, and marketing resources. We may not be able to compete
successfully against these competitors in developing our products or services.
OUR STRATEGY OF EXPANDING OUR BUSINESS THROUGH ACQUISITIONS AND INVESTMENTS IN
OTHER BUSINESSES AND TECHNOLOGIES PRESENTS SPECIAL RISKS
We intend to expand through the acquisition of and investment in other
businesses. Acquisitions involve a number of special problems, including:
o difficulty integrating acquired technologies, operations, and
personnel with our existing business;
o diversion of management's attention in connection with both
negotiating the acquisitions and integrating the assets;
o the need for additional funding;
o strain on managerial and operational resources as management tries
to oversee larger operations; and
o exposure to unforeseen liabilities of acquired companies.
We may not be able to successfully address these problems. Moreover, our
future operating results will depend to a significant degree on our ability to
successfully manage growth and integrate acquisitions. In addition, many of our
investments will be in early-stage companies with limited operating histories
and limited or no revenues. We may not be able to successfully develop these
early-stage companies.
COMPARISON OF FISCAL YEARS 2000 AND 1999
Net sales increased 7.1% from $193.0 million in fiscal year 1999 to
$206.6 million in fiscal year 2000. The increase in net sales during fiscal year
2000 was due to an 18.9% increase in retail sales (from $156.0 million to $185.4
million), offset by a 42.7% decrease in wholesale sales (from $37.0 million to
$21.2 million). The increase in retail sales was primarily due to a 16.9%
increase in Perfumania's comparable stores sales compared to the prior year, as
the average number of stores operated during fiscal year 2000 compared to fiscal
year 1999 decreased from 283 in fiscal 1999 to 264 in fiscal 2000. We believe
that the increase in Perfumania's comparable store sales was due to an improved
merchandise assortment at our retail stores. The decrease in wholesale sales was
due to our continuing strategic initiative to redirect our managerial,
administrative and inventory resources to our retail operations.
Gross profit increased 10.3% from $75.6 million in fiscal year 1999
(39.2% of total net sales) to $83.4 million in fiscal year 2000 (40.4% of total
net sales) as a result of higher sales and gross profit in the retail division
offset by lower gross profit in the wholesale division, as well as higher
inventory provisions in fiscal 1999.
Gross profit for the retail division increased 15.5% from $68.6 million
in fiscal year 1999 to $79.2 million in fiscal year 2000, principally as a
result of higher retail sales volume. As a percentage of net retail sales, gross
profit for the retail division decreased from 44.0% in fiscal year 1999 to 42.7%
in fiscal year 2000. The decrease was due to lower merchandise gross margins
offset by decreases in inventory provisions and inventory shrinkage compared to
the prior year.
Gross profit for the wholesale division decreased from $7.0 million in
fiscal year 1999 to $4.2 million in fiscal year 2000. The wholesale division's
gross margin in fiscal 2000 was 19.9% compared to 19.0% in fiscal year 1999. The
decrease in gross profit was due to lower wholesale sales. Wholesale sales
historically yield a lower gross margin when compared to retail sales.
Selling, general and administrative expenses increased 12.0% from $71.4
million in fiscal year 1999 to $79.9 million in fiscal year 2000. The increase
was attributable to 1) higher store payroll associated with competitive wage
pressures, 2) increased incentive compensation due to higher retail sales, 3)
approximately $1.1 million of severance costs incurred for various senior
management whose employment with the Company was terminated in fiscal year 2000
and partially offset by the reversal of $0.7 million of accrued expenses for
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litigation in July 1999 due to a settlement amount which was less than the
expense previously accrued. We also incurred additional payroll and other
administrative costs associated with our reorganization into a holding company
in fiscal year 2000. As a percentage of net sales, selling, general and
administrative expenses increased from 36.9% in fiscal year 1999 to 38.7% in
fiscal year 2000 due primarily to the impact of the significant reduction in
wholesale sales. The majority of our selling, general and administrative
expenses relate to the retail division.
A recovery for impairment of assets and store closings of $0.5 million
was recorded in fiscal year 2000 compared with a provision of $3.4 million in
fiscal year 1999. The recovery is attributable to the $1.0 million reversal of a
write-off on a convertible note receivable offset by $0.5 million of impairment
charges for assets related to retail stores which were closed during fiscal year
2000. In fiscal year 1999, we incurred $1.6 million of asset impairment charges
related to retail store locations with negative cash flows that were either
closed or targeted for closure.
EBITDA, defined as loss from operations less depreciation and
amortization, increased by 406% or $3.2 million to $4.0 million in fiscal year
2000 from $0.8 million in fiscal year 1999. The increase was attributable to
higher net sales and gross profits, offset by increases in selling, general and
administrative expenses described above.
Depreciation and amortization increased $1.1 million, or 23.1%, in fiscal
year 2000 compared to fiscal year 1999 due primarily to amortization of goodwill
related to the acquisition of perfumania.com in May 2000 (see Note 11 of Notes
to Consolidated Financial Statements) and increases in capital spending for
systems improvements over the past two years.
Interest expense (net) increased 24.1% from $6.6 million in fiscal year
1999 to $8.2 million in fiscal 2000. The increase was primarily due to the
issuance of $9.0 million of convertible notes in March 2000, and the resulting
non-cash interest charges of approximately $2.6 million, compared with non-cash
interest charges in fiscal 1999 of approximately $1.4 million related to similar
convertible notes issued in the prior year. See "Liquidity and Capital
Resources."
Gain on the sale of an affiliate's common stock totaled $10.0 million in
2000 compared with $15.0 million in fiscal 1999. The fiscal year 2000 gain is
attributable to the sale of 600,000 shares of Envision Development Corporation
("EDC") and the exchange of 400,000 shares of EDC common stock for the
acquisition of perfumania.com.
Realized loss on investments totaled $4.8 million in fiscal 2000. The
losses were primarily attributable to realized losses of approximately $1.1
million on the sale of securities and a decline in the market prices on
securities available for sale which resulted in the Company recording a non-cash
charge of $3.7 million.
As a result of the foregoing, we had a net loss of $6.1 million in fiscal
2000 compared to a net income of $1.0 million in fiscal 1999.
COMPARISON OF FISCAL YEARS 1999 AND 1998
Net sales increased 10.1% from $175.3 million in fiscal year 1998 to
$193.0 million in fiscal year 1999. The increase in net sales during fiscal year
1999 was due to a 15.7% increase in retail sales (from $134.8 million to $156.0
million), offset by an 8.6% decrease in wholesale sales (from $40.5 million to
$37.0 million). The increase in retail sales was principally due to a 12.9%
increase in Perfumania's comparable stores sales compared to the prior year, as
the average number of stores operated during fiscal year 1999 compared to fiscal
year 1998 decreased from 287 in fiscal 1998 to 283 in fiscal 1999. We believe
the increase in Perfumania's comparable sales was due to an improved merchandise
assortment at our retail stores. The decrease in wholesale sales was due to our
strategic initiative to redirect our managerial, administrative and inventory
resources to our retail operations.
Gross profit increased 17.0% from $64.6 million in fiscal year 1998
(36.9% of total net sales) to $75.6 million in fiscal year 1999 (39.2% of total
net sales) as a result of higher sales and gross profit in the retail division
and by higher gross profit in the wholesale division and higher inventory loss
provisions in fiscal 1998.
Gross profit for the wholesale division decreased from $7.5 million in
fiscal year 1998 to $7.0 million in fiscal year 1999. The wholesale division's
gross margin in fiscal 1999 was 19.0% compared to 18.6% in fiscal year 1998.
Wholesale sales historically yield a lower gross margin when compared to retail
sales.
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Gross profit for the retail division increased 20.2% from $57.1 million
in fiscal year 1998 to $68.6 million in fiscal year 1999, principally as a
result of higher retail sales volume. As a percentage of net retail sales, gross
profit for the retail division increased from 42.3% in fiscal year 1998 to 44.0%
in fiscal year 1999. The increase was due to decreases in the inventory
provisions and freight expense offset by increases in inventory shrinkage
compared to the prior year.
Selling, general and administrative expenses decreased by 1.6% from $72.5
million in fiscal year 1998 to $71.4 million in fiscal year 1999. The decrease
was attributable to a $1.9 million charge in fiscal 1998 related to severance
agreements with two executive officers. As a percentage of net sales, selling,
general and administrative expenses decreased from 41.4% in fiscal year 1998 to
36.9% in fiscal year 1999, due to 1) the impact of Perfumania's higher
comparable retail store sales and the closure of under-performing store
locations in fiscal 1999 and 1998, and 2) the $1.9 million charge in fiscal 1998
related to severance agreements.
Provision for impairment of assets and store closings increased by 231.2%
to $3.4 million in fiscal 1999 due primarily to a $1.0 million charge in fiscal
1999 to write off a convertible note receivable, and a $1.6 million charge on
assets related to retail store locations with negative cash flows that were
either closed or targeted for closure.
EBITDA, defined as loss from operations less depreciation and
amortization, improved by $9.7 million to $0.8 million in fiscal year 1999 from
($8.9) million in fiscal year 1998. The increase was attributable to higher net
sales and gross profits, in addition to the changes in selling, general and
administrative expenses described above.
Depreciation and amortization increased $0.2 million in fiscal year 1999
compared to fiscal year 1998.
Interest expense (net) increased 34.9% from $4.9 million in fiscal year
1998 to $6.6 million in fiscal 1999. The increase was principally due to the
issuance of $4 million in convertible notes in April and July 1999, and the
resulting non-cash interest charges of approximately $1.4 million. See
"Liquidity and Capital Resources."
Gain on the sale of an affiliate's common stock totaled $15.0 million in
1999. The gain is attributable to the sale of 1,000,000 shares of
perfumania.com, inc. common stock, offered as part of perfumania.com, inc.'s
initial public offering on September 29, 1999 by the Company, and the exercise
of an option agreement by an investment firm to purchase 2,000,000 shares of
perfumania.com,inc. common stock from the Company in January 2000.
The provision for income taxes in fiscal 1999 was $124,000.
As a result of the foregoing, we had a net income of $1.0 million in
fiscal 1999 compared to a net loss of $19.0 million in fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are to fund Perfumania's inventory
purchases and to renovate existing stores. During fiscal year 2000, we financed
these capital requirements primarily through cash flows from operations,
issuance of convertible notes, borrowings under our working capital line of
credit, capital equipment leases and other short-term borrowings.
On May 12, 2000, Perfumania entered into a three-year senior secured
credit facility with GMAC Commercial Credit LLC ("GMAC") that provides for
borrowings of up to $40 million for working capital requirements and other
general corporate purposes. Proceeds from this facility were used to refinance
our previous credit facility with LaSalle National Bank. Advances under the line
of credit are based on a formula of eligible inventories and bear interest at
the lender's prime rate for the first six months of the term. After the first
six months, the interest rate adjusts on a quarterly basis and varies at a
floating rate ranging from (a) prime less 0.75% to prime plus 1% or (b) LIBOR
plus 1.75% - 3.50% depending on a financial ratio test. Advances are secured by
a first lien on all assets of Perfumania and the assignment of a life insurance
policy on an officer of the Company. The line contains limitations on additional
borrowings, capital expenditures and other items, and contains various
restrictive covenants including maintenance of minimum net worth, and certain
key ratios, as defined by the lender.
As of February 3, 2001, Perfumania was not in compliance with the fixed
charge coverage ratio, leverage ratio and a limit on the amount of capital
expenditures for fiscal year 2000. On April 26, 2001 we obtained a waiver from
GMAC for all instances of non-compliance as of February 3, 2001, as well as for
prior instances of non-compliance as of the third fiscal quarter of fiscal
2000. In addition, the credit facility was amended to make these covenants and
ratios less restrictive effective fiscal 2001.
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On March 9, 2000, we issued an aggregate of $4 million worth of Series C
Convertible Notes, which are convertible into our common stock. The notes bear
interest at 8% and are payable in full in March 2003. The conversion price is
the lower of (A) $9.58 per share, subject to adjustment or (B) a 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.
On March 27, 2000, we issued an aggregate of $5 million worth of Series D
Convertible Notes, which are convertible into our common stock. The notes bear
interest at 8% and are payable in full in March 2003. The conversion price is
the lower of (A) $7.76 per share, subject to adjustment or (B) a 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 February 2001, the Company entered into a Convertible Note Option
Repurchase Agreement (the "Agreement") with the holders of the Company's
outstanding Series A, B, C, and D Convertible Notes. The Agreement provides that
the Company has the monthly option to repurchase the entire $8.8 million
outstanding convertible notes over an eleven month period, at a price equal to
the unpaid principal balance plus a 20% premium. The portion of the notes
redeemable in each of the eleven months varies as per a specified redemption
schedule. In the event that the Company makes redemption payments as per the
schedule, the note holders are restricted from converting any part of the
remaining outstanding and unpaid principal balance of such holder's notes into
the Company's common stock.
In accordance with accounting literature, when debt is convertible at a
discount from the then current common stock market price, the discounted amount
represents an incremental yield, or a "beneficial conversion feature", which
should be recognized as a return to the debt holders. Based on the market price
of our common stock at the date of issuance, our Series C and Series D Notes had
beneficial conversion features of approximately $1.2 million and $1.4 million,
respectively, at such point in time which represented a non-cash charge that is
included in interest expense on the accompanying consolidated statement of
operations.
In December 1999, we loaned $1 million to Take To Auction pursuant to the
terms of a convertible promissory note. The principal balance of the note was
payable on December 20, 2001, and interest, which accrued at a rate of six
percent per annum was payable semi-annually commencing June 2000. We had the
right to convert, for a period of 14 days after Take To Auction's initial public
offering, all of the principal amount of the note into shares of Take to
Auction's common stock at a conversion price per share equal to the initial
public offering price. Take To Auction commenced its initial public offering on
June 13, 2000 and we converted the $1.0 million note into 138,889 shares of Take
To Auction's common stock.
Due to the uncertainty of Take To Auction's initial public offering and
collectability of the note as of January 29, 2000, we wrote off the principal
balance of the note and related interest receivable. As a result of Take To
Auction's successful initial public offering which occurred on June 13, 2000,
the $1.0 million principal balance and related interest previously written off
was reversed in the first quarter of fiscal 2000.
In March 2000, we loaned Take To Auction an additional $1.0 million
pursuant to the terms of a convertible promissory note. The terms of the note
were the same as the December 1999 note described above except that the
principal balance was payable on March 8, 2002 and interest was payable
semi-annually, commencing September 2000. The note was repaid in full in June
2000. As an incentive to provide the loans, Take To Auction granted us warrants
to purchase 200,000 shares of its common stock at its initial public offering
price. The warrants are exercisable in whole or in part until June 13, 2001.
Note and interest receivable, related party totaled $779,594 as of
January 29, 2000. This note was issued in October 1999 and bore interest at the
rate charged by the Company's major lender and totaled approximately $23,000 as
of January 29, 2000. The note, including accrued interest, was repaid in April
2000.
On June 1, 2000, Perfumania issued a $5.0 million subordinated note
agreement to Parlux. The note was used to refinance the $2.0 million balance due
to Parlux remaining under a previous $8.0 million subordinated secured note
dated October 4, 1999, and reduce $3.0 million in trade payables due to Parlux.
The note was due on December 29, 2000 with various periodic principal payments,
bore interest at prime plus 1% and was subordinate to all bank related
indebtedness. The note was repaid in full in December 2000.
On October 12, 2000, we borrowed $500,000 from Take To Auction. The loan
was unsecured, matured on December 31, 2000 and bore interest at the rate
charged by the Company's major lender. The loan was repaid in December 2000.
17
18
Trade receivables primarily relate to Perfumania's wholesale business.
Trade receivables, net due from customers as of February 3, 2001 were $1.9
million. At fiscal year end 2000, approximately $0.4 million of the trade
receivables, net, were more than 90 days past due. Allowance for doubtful
accounts was approximately $56,000 as of February 3, 2001 and was considered
adequate by management based on its write-off experience during the last three
years and an analysis of the aging of its trade receivables as of February 3,
2001.
In fiscal year 2000, net cash provided by operating activities was
approximately $2.6 million. The difference between the Company's net loss and
operating cash flow in fiscal 2000 was primarily attributable to depreciation
and amortization of $5.8 million, a $2.6 million beneficial conversion feature
of debentures, a decrease in inventories of $8.7 million, partially offset by an
increase of $3.4 million in advances to suppliers and a gain on sale of
affiliate's common stock of $10.0 million.
Net cash used in investing activities in fiscal year 2000 was
approximately $7.3 million, principally due to $4.3 million of capital
expenditures related to opening new stores and renovating existing stores, $1.5
million related to the acquisition of an affiliate, and a $1.5 million increase
in investments available for sale. We intend to focus on continuing to improve
the profitability of our existing stores and anticipate that we will open no
more than 10 stores in fiscal 2001. Currently, our average capital expenditure
for opening a store is approximately $200,000, including furniture and fixtures,
equipment, build-out costs and other items. In addition, initial inventory (not
including inventory replenishment) in a new store ranges from approximately
$150,000 during the first fiscal quarter to approximately $200,000 during the
Christmas holiday season.
In October 2000, we entered into a capital lease of approximately $3.9
million of new point-of-sale equipment for our retail stores. The lease is for a
thirty six month term.
In December 1999, our Board of Directors approved a 1,500,000 stock
repurchase program reflecting its belief that our common stock represented a
significant value at its then current trading price. In January 2001, the Board
approved an increase in the stock repurchase program by an additional 500,000
shares. Pursuant to these programs, we have repurchased approximately 1,635,000
shares of common stock for $5.6 million during fiscal 1999 and 2000.
The Company has fallen below the continued listing requirements of The
Nasdaq National Market in that the Company's common stock has failed to maintain
a minimum bid price of $1.00. The Company has until June 28, 2001 to sustain a
bid price of at least $1.00 for a minimum of 10 consecutive trading days in
order to regain compliance. There can be no assurance that the listing of the
Company's common stock will be continued.
Management believes that Perfumania's borrowing capacity under the bank
line of credit, projected cash flows from operations and other short term
borrowings will be sufficient to support the Company's working capital needs and
capital expenditures, including new store openings, remodeling of existing
stores and debt service for at least the next twelve months.
SEASONALITY AND QUARTERLY RESULTS
Our operations historically have been seasonal, with generally higher
sales in the third and fourth fiscal quarters than in the first and second
fiscal quarters. Significantly higher fourth quarter retail sales result from
increased purchases of fragrances as gift items during the Christmas holiday
season. Our quarterly results may vary due to the timing of new store openings,
net sales contributed by new stores and fluctuations in comparable sales of
existing stores. Wholesale sales vary by fiscal quarter as a result of the
selection of merchandise available for sale and the need to stock our retail
stores for the Christmas holiday season. Results of any interim period are not
necessarily indicative of the results that may be expected during a full fiscal
year.
RECENT ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after June 15, 2000. We will
adopt SFAS No. 133 for our fiscal year 2001. The adoption of SFAS No. 133 will
not have a material impact on the Company's consolidated statements of
operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company complied with SAB 101
in fiscal 2000. Compliance with SAB 101 did not have a material impact on the
Company's consolidated financial statements.
18
19
CHANGES IN FOREIGN EXCHANGE RATES CREATE RISK
Although large fluctuations in foreign exchange rates could have a
material effect on the prices we pay for products purchased from outside the
United States, such fluctuations have not been material to our results of
operations to date. Transactions with foreign suppliers generally are in United
States dollars. We believe inflation has not had a material impact on our
results of operations and we are generally able to pass through cost increases
by increasing sales prices.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
We conduct business in the United States where the functional currency
of the country is the United States dollar. As a result, we are not at risk to
any foreign exchange translation exposure on a prospective basis.
Our exposure to market risk for changes in interest rates relates
primarily to our bank line of credit. The bank line of credit bears interest at
a variable rate, as discussed above under "Liquidity and Capital Resources". We
mitigate interest rate risk by continuously monitoring the interest rates. As a
result of borrowings associated with our operating and investing activities, we
are exposed to interest rate risk. As of February 3, 2001 and January 29, 2000,
our primary source of funds for working capital and other needs is a line of
credit totaling $40.0 million and $35.0 million, respectively.
Of the $48.1 million and $34.9 million of short-term and long-term
borrowings on the Company's balance sheet as of February 3, 2001 and January 29,
2000, respectively, approximately 30.3% and 11.4%, respectively, represented
fixed rate instruments. The line of credit bears interest at a floating rate
ranging from (a) prime less .075% to prime plus 1.0% (currently 8.50%), or (b)
LIBOR plus 1.75% to 3.5% depending on a financial ratio test. A hypothetical 10%
adverse move in interest rates would increase fiscal year 2000 and 1999 interest
expense by approximately $0.5 million and $0.9 million, respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information and the supplementary data required in
response to this Item are as follows:
PAGE
----
E Com Ventures, Inc. and Subsidiaries
Independent Auditors' Report, Deloitte & Touche LLP................................. 20
Report of Independent Certified Public Accountants, PricewaterhouseCoopers LLP...... 21
Consolidated Balance Sheets as of February 3, 2001 and January 29, 2000............. 22
Consolidated Statements of Operations for the Fiscal Years Ended February 3, 2001,
January 29, 2000 and January 30, 1999............................................... 23
Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended
February 3, 2001, January 29, 2000, and January 30, 1999.......................... 24
Consolidated Statements of Cash Flows for the Fiscal Years Ended February 3, 2001,
January 29, 2000, and January 30, 1999.............................................. 25
Notes to Consolidated Financial Statements.......................................... 26
Schedule II - Valuation and Qualifying Accounts and Reserves........................ 41
19
20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
E Com Ventures, Inc.:
We have audited the accompanying consolidated balance sheet of E Com Ventures,
Inc. and subsidiaries (the "Company") as of February 3, 2001, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the fiscal year ended February 3, 2001. Our audit also included the financial
statement schedule listed in the Index at Item 14(a)(2). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of February 3, 2001,
and the results of its operations and its cash flows for the fiscal year ended
February 3, 2001, in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 27, 2001
20
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of E Com Ventures, Inc.
(formerly Perfumania, Inc.)
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of E Com
Ventures, Inc. and its subsidiary, (formerly Perfumania, Inc.), (collectively,
the "Company"), at January 29, 2000, and the results of their operations and
their cash flows for each of the two fiscal years in the period ended January
29, 2000 in conformity with accounting principles generally accepted in the
United States. In addition, in our opinion, the financial statement schedule
listed in the accompanying index presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these financial statements in accordance with auditing standards generally
accepted in the United States which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Miami, Florida
May 12, 2000
21
22
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 3, JANUARY 29,
2001 2000
------------- -------------
ASSETS:
Current assets:
Cash and cash equivalents ......................... $ 2,219,768 $ 1,995,610
Trade receivables, less allowance for doubtful
accounts of $56,377 and $60,000 in 2001
and 2000, respectively ......................... 1,906,406 1,150,035
Advances to suppliers ............................. 5,937,106 4,826,179
Inventories, net of reserve of $2,202,843 and
$2,369,953 in 2001 and 2000, respectively ...... 62,501,712 68,727,528
Note and interest receivable, related party ....... -- 779,594
Prepaid expenses and other current assets ......... 3,003,425 951,544
Investments available for sale .................... 565,311 --
------------- -------------
Total current assets ........................... 76,133,728 78,430,490
Property and equipment, net .......................... 26,412,851 22,671,385
Investment in and advances to partially-owned equity
affiliate, net ..................................... -- 2,845,972
Goodwill and other intangible assets ................. 3,558,397 --
Other assets, net .................................... 1,223,841 1,708,551
------------- -------------
Total assets .................................... $ 107,328,817 $ 105,656,398
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank line of credit and current portion of
long-term debt ................................. $ 34,737,058 $ 32,987,608
Accounts payable, non-affiliates .................. 12,453,497 15,666,781
Accounts payable, affiliate ....................... 13,412,811 9,350,315
Accrued expenses and other liabilities ............ 6,892,051 7,624,601
Income taxes payable .............................. 72,707 223,098
Subordinated note payable, affiliates ............. -- 3,500,000
Current portion of obligations under capital leases 1,551,093 391,220
------------- -------------
Total current liabilities ....................... 69,119,217 69,743,623
Long-term debt, less current portion ................. 438,499 888,765
Long-term portion of obligations under capital leases 2,601,434 634,571
Convertible notes payable ............................ 8,775,044 3,700,000
------------- -------------
Total liabilities ............................... 80,934,194 74,966,959
------------- -------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $0.1 par value, 1,000,000 shares
authorized, none issued ........................ -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 11,722,280 and 9,282,386 shares
issued in 2001 and 2000, respectively ........... 117,224 92,825
Additional paid-in capital ........................ 71,926,355 65,440,135
Treasury stock, at cost, 1,634,528 and
815,646 shares in 2001 and 2000, respectively ... (5,643,377) (3,419,957)
Accumulated deficit ............................... (36,011,206) (29,890,915)
Notes and interest receivable from shareholder and
officers ......................................... (3,844,278) (1,532,649)
Accumulated other comprehensive loss .................... (150,095) --
------------- -------------
Total shareholders' equity ...................... 26,394,623 30,689,439
------------- -------------
Total liabilities and shareholders' equity ...... $ 107,328,817 $ 105,656,398
============= =============
See accompanying notes to consolidated financial statements.
22
23
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED
---------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
------------- ------------- -------------
Net sales ................................. $ 206,569,581 $ 192,928,109 $ 175,255,633
Cost of goods sold ........................ 123,135,117 117,295,771 110,638,432
------------- ------------- -------------
Gross profit .............................. 83,434,464 75,632,338 64,617,201
------------- ------------- -------------
Operating expenses:
Selling, general and administrative
expenses .............................. 79,938,537 71,414,106 72,501,987
Provision (recovery) for impairment of
assets and store closings ............. (505,587) 3,427,151 1,034,717
Depreciation and amortization ............ 5,818,964 4,725,691 4,480,681
------------- ------------- -------------
Total operating expenses ................. 85,251,914 79,566,948 78,017,385
------------- ------------- -------------
Loss from operations before other income
(expense) .............................. (1,817,450) (3,934,610) (13,400,184)
------------- ------------- -------------
Other income (expense):
Interest expense:
Affiliates ............................ (308,545) (142,808) (22,486)
Other ................................. (8,230,910) (6,698,693) (4,938,365)
------------- ------------- -------------
(8,539,455) (6,841,501) (4,960,851)
------------- ------------- -------------
Interest income:
Affiliates ............................ 287,649 94,100 43,440
Other ................................. 73,240 158,732 35,057
------------- ------------- -------------
360,889 252,832 78,497
------------- ------------- -------------
Equity in loss of partially-owned
affiliate............................ (1,388,248) (3,164,439) --
Gain on sale of affiliate's
common stock ........................ 9,998,454 14,973,868 --
Realized loss on investments .......... (4,819,441) -- --
Miscellaneous income (expense), net ... 84,960 (117,968) 645,446
------------- ------------- -------------
Total other income (expense) .............. (4,302,841) 5,102,792 (4,236,908)
------------- ------------- -------------
(Loss) Income before income taxes ......... (6,120,291) 1,168,182 (17,637,092)
Provision for income taxes ................ -- (124,000) (1,337,406)
------------- ------------- -------------
Net (loss) income ......................... $ (6,120,291) $ 1,044,182 $ (18,974,498)
------------- ------------- -------------
Basic (loss) income per common share ...... $ (0.65) $ 0.13 $ (2.85)
------------- ------------- -------------
Diluted (loss) income per common share .... $ (0.65) $ 0.10 $ (2.85)
============= ============= =============
Weighted average number of shares
outstanding:
Basic ................................... 9,441,825 8,218,638 6,659,882
============= ============= =============
Diluted ................................. 9,441,825 10,267,619 6,659,882
============= ============= =============
See accompanying notes to consolidated financial statements.
23
24
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001,
JANUARY 29, 2000 AND JANUARY 30, 1999
ACCUMULATED
COMMON STOCK ADDITIONAL TREASURY STOCK OTHER
------------------- PAID-IN ------------------ COMPREHENSIVE
SHARES AMOUNT CAPITAL SHARES AMOUNT LOSS
-------- ------ ----------- -------- -------- -------------
Balance at January 31, 1998 .... 7,845,291 $ 78,453 $ 52,386,361 1,218,360 $(4,521,068) --
Components of comprehensive
loss:
Net loss ..................... -- -- -- -- -- --
Total comprehensive loss ..... -- -- -- -- -- --
Exercise of stock options ...... 684,200 6,842 310,865 -- -- --
Purchases of treasury stock .... -- -- -- 294,046 (891,934) --
Issuance of common stock ....... 85,000 850 213,371 -- -- --
Proceeds on common stock to be
issued ....................... -- -- 1,529,412 -- -- --
Net change in notes and
interest receivable from
shareholder and officers ..... -- -- -- -- -- --
----------- -------- ------------ ----------- ----------- ------------
Balance at January 30, 1999 .... 8,614,491 86,145 54,440,009 1,512,406 (5,413,002) --
Components of comprehensive
income:
Net income ................... -- -- -- -- -- --
Total comprehensive income ... -- -- -- -- -- --
Exercise of stock options ...... 345,383 3,454 166,298 -- -- --
Purchases of treasury stock .... -- -- -- 815,646 (3,419,957) --
Issuance of common stock ....... 235,293 2,353 (2,353) -- -- --
Conversion of debt and accrued
interest to common stock ..... 87,219 873 316,749 -- -- --
Net change in notes and
interest receivable from
shareholder and officers ..... -- -- -- -- -- --
Beneficial conversion feature
of notes payable.............. -- -- 1,365,384 -- -- --
Equity in partially-owned
affiliate..................... -- -- 9,746,256 -- -- --
Issuance of treasury stock ..... -- -- (592,208) (1,512,406) 5,413,002 --
----------- -------- ------------ ----------- ----------- ------------
Balance at January 29, 2000 .... 9,282,386 92,825 65,440,135 815,646 (3,419,957) --
Components of comprehensive
loss:
Net loss ..................... -- -- -- -- -- --
Unrealized loss on investments -- -- -- -- -- (150,095)
Total comprehensive loss ..... -- -- -- -- -- --
Exercise of stock options ...... 184,225 1,842 147,121 -- -- --
Purchases of treasury stock .... -- -- -- 818,882 (2,223,420) --
Conversion of debt and accrued
interest to common stock...... 2,255,669 22,557 3,702,335 -- -- --
Net change in notes and
interest receivable from
shareholder and officers ..... -- -- -- -- -- --
Beneficial conversion feature
of notes payable ............. -- -- 2,636,764 -- -- --
----------- -------- ------------ ----------- ----------- ------------
Balance at February 3, 2001 .... $11,722,280 $117,224 $ 71,926,355 $ 1,634,528 $(5,643,377) $ (150,095)
=========== ======== ============ =========== =========== ============
NOTES AND
INTEREST
RECEIVABLE
FROM
ACCUMULATED SHAREHOLDER
DEFICIT AND OFFICERS TOTAL
----------- ------------ --------
Balance at January 31, 1998 .... $(11,960,599) $ (814,315) $ 35,168,832
Components of comprehensive
loss:
Net loss ..................... (18,974,498) -- (18,974,498)
Total comprehensive loss ..... -- -- 18,974,498)
------------ ------------ ------------
Exercise of stock options ...... -- -- 317,707
Purchases of treasury stock .... -- -- (891,934)
Issuance of common stock ....... -- -- 214,221
Proceeds on common stock to be
issued ....................... -- -- 1,529,412
Net change in notes and
interest receivable from
shareholder and officers ..... -- 272,172 272,172
------------ ------------ ------------
Balance at January 30, 1999 .... (30,935,097) (542,143) 17,635,912
Components of comprehensive
income:
Net income ................... 1,044,182 -- 1,044,182
Comprehensive income ......... -- -- 1,044,182
------------ ------------ ------------
Exercise of stock options ...... -- -- 169,752
Purchases of treasury stock .... -- -- (3,419,957)
Issuance of common stock ....... -- -- --
Conversion of debt and accrued
interest to common stock ....... -- -- 317,622
Net change in notes and
interest receivable from
shareholder and officers ..... -- (990,506) (990,506)
Beneficial conversion feature
of notes payable.............. -- -- 1,365,384
Equity in partially-owned
affiliate..................... -- -- 9,746,256
Issuance of treasury stock ..... -- -- 4,820,794
------------ ------------ ------------
Balance at January 29, 2000 .... (29,890,915) (1,532,649) 30,689,439
Components of comprehensive
loss:
Net loss ..................... (6,120,291) -- (6,120,291)
Unrealized loss on investments -- -- (150,095)
------------ ------------ ------------
Total comprehensive loss ..... -- -- 6,270,386)
------------ ------------ ------------
Exercise of stock options ...... -- -- 148,963
Purchases of treasury stock .... -- -- (2,223,420)
Conversion of debt and accrued
interest to common stock...... -- -- 3,724,892
Net change in notes and
interest receivable from
shareholder and officers ..... -- (2,311,629) (2,311,629)
Beneficial conversion feature
of notes payable ............. -- -- 2,636,764
------------ ------------ ------------
Balance at February 3, 2001 .... $(36,011,206) $ (3,844,278) $ 26,394,623
============ ============ ============
See accompanying notes to consolidated financial statements.
24
25
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED
-------------------------------------------------------------------
FEBRUARY 3, 2001 JANUARY 29, 2000 JANUARY 30, 1999
----------------- ----------------- ----------------
Cash flows from operating activities:
Net (loss) income ................................... $(6,120,291) $ 1,044,182 $(18,974,498)
Adjustments to reconcile net (loss) income to net cash
provided by (used in) operating activities:
Provision for deferred taxes ........................ -- -- 1,219,856
Provision for doubtful accounts ..................... 55,000 60,000 --
Provision for inventory losses ...................... -- 859,368 3,764,665
Depreciation and amortization ....................... 5,818,964 4,725,691 4,480,681
Provision (recovery) for impairment of assets and
store closings..................................... (505,587) 3,427,151 1,034,717
Beneficial conversion feature of debentures ......... 2,636,764 1,365,384 --
Equity in loss of partially-owned affiliate ......... 1,388,248 3,164,439 --
Loss on extinguishment of debt ...................... -- 313,824 --
Provision for loss on investment .................... 3,727,022 -- --
Gain on sale of affiliate's common stock ............ (9,998,454) (14,973,868) --
Stock compensation .................................. -- -- 214,221
Change in operating assets and liabilities (excluding
effects of partially-owned equity affiliate):
Trade receivables ................................... (731,026) 2,898,812 1,077,626
Advances to suppliers ............................... (3,381,647) 3,239,122 (454,265)
Inventories ......................................... 8,656,891 (15,916,419) 15,493,045
Prepaid expenses and other current assets ........... (1,981,881) (394,357) 627,471
Tax refund receivable ............................... -- -- 814,766
Other assets ........................................ 507,663 (1,357,208) 406,940
Accounts payable, non-affiliate ..................... (3,728,334) 1,337,768 1,020,099
Accounts payable, affiliate ......................... 7,062,496 6,045,045 (1,145,923)
Accrued expenses and other liabilities .............. (687,614) (1,251,023) 2,356,398
Income taxes payable ................................ (150,391) (262,000) (20,006)
----------- ------------ ------------
Net cash provided by (used in) operating activities . 2,567,823 (5,674,089) 11,915,793
----------- ------------ ------------
Cash flows from investing activities:
Additions to property and equipment ................. (4,298,081) (3,971,356) (9,495,824)
Acquisition, net of cash acquired ................... (1,534,769) -- --
Dividend from partially-owned equity affiliate ...... -- 450,000 --
(Purchases) proceeds of investments available
for sale .......................................... (1,497,027) 176,125 --
----------- ------------ ------------
Net cash used in investing activities ............... (7,329,877) (3,345,231) (9,495,824)
----------- ------------ ------------
Cash flows from financing activities:
Net borrowings (repayments) under bank line of credit
and loans payable ................................. 691,439 (2,578,830) (2,640,029)
Net decrease due to related parties ................. -- -- (304,483)
Principal payments under capital lease obligations .. (853,735) (402,369) (981,916)
Net advances to shareholder and officers ............ (2,311,629) (1,770,100) 272,172
Proceeds from note and interest receivable,
related party...................................... 779,594 -- --
Proceeds from issuance of common stock
(stock subscription) .............................. -- -- 2,000,000
Payment of redeemable common equity
(stock subscription)............................... -- (470,588) --
Repayments under subordinated debt .................. (6,500,000) (4,500,000) --
Issuance of convertible notes payable ............... 9,000,000 4,000,000 --
Repayments of convertible notes payable.............. (245,000) -- --
Proceeds from sale of affiliate common stock ........ 6,500,000 18,241,419 --
Proceeds from exercise of stock options ............. 148,963 169,752 317,707
Purchases of treasury stock ......................... (2,223,420) (3,419,957) (891,934)
----------- ------------ ------------
Net cash provided by (used in) financing activities . 4,986,212 9,269,327 (2,228,483)
----------- ------------ ------------
Increase in cash and cash equivalents ................... 224,158 250,007 191,486
Cash and cash equivalents at beginning of period ........ 1,995,610 1,745,603 1,554,117
----------- ------------ ------------
Cash and cash equivalents at end of period .............. $ 2,219,768 $ 1,995,610 $ 1,745,603
=========== ============ ============
See accompanying notes to consolidated financial statements.
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E COM VENTURES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED FEBRUARY 3, 2001,
JANUARY 29, 2000 AND JANUARY 30, 1999
NOTE 1 - NATURE OF BUSINESS
E Com Ventures, Inc., a Florida Corporation (the "Company") is structured
as a holding company that owns and operates Perfumania Inc. ("Perfumania") a
Florida Corporation which is a specialty retailer and wholesaler of fragrances
and related products and perfumania.com, inc., an Internet retailer of fragrance
and other specialty items. We also provide Internet fulfillment and services to
other companies. The core of our business is related to the distribution of
fragrances and related products.
The Company previously operated under the name Perfumania, Inc.
("Perfumania"). In order to provide greater flexibility for expansion, broaden
the alternatives available for future financing and generally provide for
greater administrative and operational flexibility, on February 1, 2000, we
reorganized into the holding company structure with the Company as the holding
company and Perfumania as a wholly owned subsidiary.
Perfumania is incorporated in Florida and operates under the name
Perfumania. Perfumania's retail stores are located in regional malls,
manufacturer's outlet malls, airports and on a stand-alone basis in suburban
strip shopping centers. The number of retail stores in operation at February 3,
2001, January 29, 2000, and January 30, 1999 were 257, 276 and 289,
respectively.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Significant accounting principles and practices used by the Company in
the preparation of the accompanying consolidated financial statements are as
follows:
FISCAL YEAR END
The Company's fiscal year ends the Saturday closest to January 31 to
enable the Company's operations to be reported in a manner which more closely
coincides with general retail reporting practices and the financial reporting
needs of the Company. In the accompanying notes, fiscal year 2000, 1999 and 1998
refers to the years ended February 3, 2001, January 29, 2000 and January 30,
1999, respectively. The fiscal year ended February 3, 2001 included 53 weeks as
compared to 52 weeks for the fiscal years ended January 29, 2000 and January 30,
1999, respectively.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The most significant estimates made by
management in the accompanying financial statements relate to the allowance for
doubtful accounts, inventory reserves, self insured health care reserves,
long-lived asset impairments and estimated useful lives of property and
equipment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation. The equity method of
accounting is used for investments in which the Company has significant
influence which generally represents common stock ownership or partnership
equity of at least 20% and not more than 50%. As of January 29, 2000,
Perfumania's investment in and advances to partially-owned equity affiliates
consisted of a 26.67% (two million shares) interest in perfumania.com, inc.
which totaled approximately $2.6 million and advances in the amount of
approximately $0.2 million. The Company's accumulated deficit as of February 3,
2001 and January 29, 2000 includes the equity in the net loss of perfumania.com,
inc. totaling approximately $1.4 million and $3.2 million, respectively.
Effective May 2000, perfumania.com became a wholly owned subsidiary of the
Company (see Note 11).
26
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REVENUE RECOGNITION
Revenue from wholesale transactions is recorded upon shipment of
inventory. Revenue from retail sales is recorded, net of discounts, upon
customer purchase.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ADVANCES TO SUPPLIERS
Advances to suppliers represent prepayments to vendors on pending
inventory purchase orders.
INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of
cost or market, cost being determined on a weighted average cost basis. The cost
of inventory includes product cost and freight charges. Provision for
potentially slow moving or damaged inventory is recorded based on management's
analysis of inventory levels, turnover ratios, future sales forecasts and
through specific identification of obsolete or damaged merchandise.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the related assets. Leasehold improvements are amortized over
the shorter of the term of the lease including probable renewal periods, or the
estimated useful lives of the improvements, generally ten years. Costs of major
additions and improvements are capitalized and expenditures for maintenance and
repairs which do not extend the useful life of the asset are expensed when
incurred. Gains or losses arising from sales or retirements are included in
income currently.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets represents the excess purchase price
paid over net assets of businesses acquired (see Note 3 and Note 11) under the
purchase method of accounting and is amortized on a straight-line basis over the
period of expected benefit, generally five years. Accumulated amortization for
goodwill and other intangible assets as of February 3, 2001 was $532,389. The
Company continually evaluates whether events or circumstances have occurred that
indicate that the remaining useful life of the goodwill has changed or that the
remaining balance of goodwill may not be recoverable.
INCOME TAXES
Income tax expense is based principally on pre-tax financial income.
Deferred tax assets and liabilities are recognized for the difference between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. A valuation allowance is recognized to reduce net
deferred tax assets to amounts that management believes are more likely than not
to be realized.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
Basic income (loss) per common share is computed by dividing income
(loss) attributable to common shareholders by the weighted average number of
common shares outstanding during the period. Diluted income (loss) per common
share includes, in periods in which they have a dilutive effect, the dilutive
effect of those common stock equivalents where the average market price of the
common shares exceeds the exercise prices for the respective years, and the
dilutive effect of those convertible notes which are convertible into common
stock.
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Basic and diluted income (loss) per share are computed as follows:
FISCAL YEAR
------------------------------------------------------------
2000 1999 1998
----------- ----------- ------------
Numerator:
Net income (loss): ............................. $(6,120,291) $ 1,044,182 $(18,974,498)
----------- ----------- ------------
Denominator:
Denominator for basic income (loss) per
share(1) ..................................... 9,441,825 8,218,638 6,659,882
Effect of dilutive securities:
Options to purchase common stock and convertible
notes......................................... -- 2,048,981 --
----------- ----------- ------------
Denominator for dilutive income (loss)
per share(1) ................................. 9,441,825 10,267,619 6,659,882
=========== =========== ============
Antidilutive securities not included in the diluted
earnings (loss) per share computation:
Options to purchase common stock ............... 2,280,459 68,250 1,758,600
Exercise price $0.41 - $5.38 $3.75 - $5.38 $0.41 - $2.75
- ---------------
(1) The fiscal year 1998 amounts include the weighted average effect of 235,293
shares, which were contingently issuable as of January 30, 1999.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of the
fair value of financial instruments held by the Company. SFAS 107 defines the
fair value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties. The following
methods and assumptions were used to estimate fair value:
- The carrying amounts of cash and cash equivalents, accounts
receivable and accounts payable approximate fair value due to their
short-term nature;
- The fair value of investments are based on quoted market prices, if
available;
- The fair value of the Company's bank line of credit, convertible
notes payable, obligations under capital leases and loans payable
are based on current interest rates and repayment terms of the
individual notes, and;
- Long-term severances payable approximates fair value because
discounted cash flows using current interest rates for debt with
similar characteristics and maturity were used to estimate its
carrying value.
ASSET IMPAIRMENT
The Company reviews long-lived assets and makes a provision for
impairment whenever events or changes in circumstances indicate that the
projected cash flows of related activities may not provide for cost recovery. An
impairment loss is generally recorded when the net book value of assets exceeds
projected undiscounted future cash flows on a store by store basis. The
impairment loss is determined based on the difference between the net book value
and the fair value of the assets, at a particular store location. The estimated
fair value is based on anticipated discounted future cash flows. Any impairment
is charged to operations in the period in which it is identified.
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and provides pro forma
disclosure of net income and earnings per share as if the fair value based
method prescribed by Statement of Financial Accounting Standards No. 123 ("SFAS
123") had been applied in measuring compensation expense for options granted to
28
29
employees and directors in 2000, 1999 and 1998. In accordance with APB 25
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee or director must pay to acquire the stock (See Note 11 for
proforma disclosure).
UNREALIZED LOSS ON INVESTMENTS
Equity securities classified as available for sale are adjusted to fair
market value as of the balance sheet date based on quoted market prices. The
related unrealized loss on investments is reflected in accumulated other
comprehensive loss on the consolidated statements of changes in shareholders'
equity. Realized losses on investments resulting from the sale or permanent
adjustment in fair market values of securities classified as available for sale
are included in the results of operations.
PRE-OPENING EXPENSES
Pre-opening expenses related to opening new stores are expensed as
incurred.
SHIPPING AND HANDLING FEES AND COSTS
In September 2000, the Emerging Issues Task Force ("EITF") reached a
consensus in EITF 00-10, "Accounting for Shipping and Handling Fees and Costs,"
requiring that shipping and handling fees must be classified as revenues. As a
result, the Company has reclassified income generated from shipping and handling
fees from cost of goods sold to revenues for fiscal year 2000. Shipping and
handling fees were not reclassified in fiscal 1999 and 1998 as these amounts
were insignificant. The Company classifies the costs related to shipping and
handling as cost of goods sold.
ADVERTISING COSTS
Advertising costs are charged to expense when incurred.
RECLASSIFICATION
Certain fiscal 1999 and 1998 amounts have been reclassified to conform
with the fiscal 2000 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after June 15, 2000. We will
adopt SFAS No. 133 for our fiscal year 2001. The adoption of SFAS No. 133 will
not have a material impact on the Company's consolidated statements of
operations, financial position or cash flows.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. The Company complied with SAB 101
in fiscal 2000. Compliance with SAB 101 did not have a material impact on the
Company's consolidated financial statements.
NOTE 3 - ACQUISITION
In August 2000, Perfumania purchased six fragrance retail locations for
approximately $2.2 million. The purchase price was offset against advances
previously paid to the seller to source merchandise for Perfumania. The
acquisition was accounted for as an asset purchase and accordingly, the results
of operations are included in the Company's consolidated statement of operations
from the date of acquisition. The cost of the acquisition has been allocated to
the assets acquired based on their fair values at the date of acquisition as
determined by management with the assistance of an independent valuation
consultant. The excess of the purchase price over the fair value of net assets
acquired of approximately $1.1 million has been recorded as an intangible asset
and is being amortized over 5 years. The retail locations acquired are not
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material to the Company's results of operations for fiscal year 2000, therefore
no proforma results are presented.
NOTE 4 - STATEMENTS OF CASH FLOWS
Supplemental disclosures of non-cash investing and financing activities:
FISCAL YEAR ENDED
----------------------------------------------------------
FEBRUARY 3 JANUARY 29, JANUARY 30,
NON-CASH TRANSACTIONS 2001 200 1999
--------------------- -------------- --------------- -----------
Equipment under capital leases ......... $3,980,471 $ 446,121 $ --
Unrealized loss on investments ......... 150,095 -- --
Change in equity investment in affiliate
as part of an initial public offering -- 9,746,256 --
Subordinated debt issued to affiliate .. 3,000,000 8,000,000 --
Reduction in accounts payable associated
with the exchange of treasury stock
with an affiliate...................... -- 4,506,970 --
Treasury stock issued in exchange for a
reduction of debt owed to an affiliate -- 4,820,794 --
Conversion of debt and accrued interest
payable in exchange for common stock . 3,724,892 317,622 --
Cash paid during the period for:
Interest ............................ $6,116,313 $4,801,069 $4,830,230
Income taxes ........................ $ 150,391 $ -- $ 20,000
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment includes the following:
ESTIMATED
FEBRUARY 3, JANUARY 29, USEFUL LIVES
2001 2000 (IN YEARS)
-------------- -------------- ------------
Furniture, fixtures and equipment $ 21,492,091 $ 17,828,590 5-7
Leasehold improvements 21,513,831 20,593,452 10
Equipment under capital leases 6,238,959 4,459,103 5
------------ ------------
49,244,881 42,881,145
Less: Accumulated depreciation and
amortization (22,832,030) (20,209,760)
------------- ------------
$ 26,412,851 $ 22,671,385
============ ============
Depreciation expense for fiscal years 2000, 1999, and 1998 was
$5,229,185, $4,725,691 and $4,480,681, respectively. Accumulated depreciation
for equipment under capital leases was $1,842,650 and $3,275,191 as of February
3, 2001 and January 29, 2000, respectively.
NOTE 6 - RELATED PARTY TRANSACTIONS
Notes receivable from a shareholder and officers were $3,844,278 and
$1,532,649 as of February 3, 2001 and January 29, 2000, respectively. The notes
are unsecured, mature December 31, 2001 and bear interest at 8% per annum.
Principal and interest are payable in full at maturity. Total interest income
recognized during fiscal years 2000, 1999, and 1998 was approximately $247,000,
$70,000 and $43,000, respectively. Accrued interest receivable at February 3,
2001 and January 30, 1999 amounted to approximately $12,000 and $155,000,
respectively. In January 2001, the Company received 250,000 shares of common
stock of TakeToAuction.Com, Inc. ("Take To Auction") valued at $252,500 as
partial payment on the note receivable from the shareholder. The payment amount
was based on a per share price of $1.01 which represents 90% of the closing
price of Take To Auction's common stock for the 30 business days prior to
transfer to the Company. Ilia Lekach, Chairman and Chief Executive Officer and
Horacio Groisman, M.D. one of our Directors, are also the Chairman and Vice
Chairman, respectively, of Take To Auction. In March 2001, the Company received
a principal payment from the shareholder of $500,000.
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31
Note and interest receivable, related party totaled $779,594 as of
January 29, 2000. This note was issued in October 1999 and bore interest at the
rate charged by the Company's major lender and totaled approximately $23,000 as
of January 29, 2000. The note, including accrued interest, was repaid in April
2000.
Purchases of products from Parlux Fragrances, Inc. ("Parlux"), whose
Chairman of the Board of Directors and Chief Executive Officer is the same
individual as the Company's Chairman of the Board of Directors and Chief
Executive Officer, amounted to approximately $22,149,000, $30,100,000, and
$24,333,000, in fiscal years 2000, 1999 and 1998, representing approximately
20%, 22% and 24%, respectively, of the Company's total purchases. The amount due
to Parlux on February 3, 2001 and January 29, 2000 was approximately $13,413,000
and $12,850,000, respectively, which includes a $3,500,000 subordinated secured
note payable and $9,350,000 of accounts payable as of January 29, 2000. Accounts
payable due to Parlux are non-interest bearing.
On June 1, 2000, Perfumania signed a $5,000,000 subordinated note
agreement with Parlux. The note included the refinancing of a $2,000,000 balance
due to Parlux remaining under a previous $8,000,000 subordinated secured note
dated October 4, 1999, and a reduction of $3,000,000 in trade payables due to
Parlux. The note was due on December 29, 2000 with various periodic principal
payments, bore interest at prime plus 1% and was subordinate to all bank related
indebtedness. The note was repaid in full in December 2000.
On August 31, 1999, the Company transferred 1,512,406 shares of the
Company's treasury stock to Parlux 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
approximated 90% of the closing price on the Company's common stock for the
previous 20 business days. As a result of the transaction, the Company recorded
a loss of approximately $314,000 which was charged to cost of goods sold in the
third quarter of fiscal year 1999.
In December 1999, the Company loaned $1,000,000 to Take To Auction. Due
to the uncertainty of collectability of the Note, the Company wrote off the Note
and the related interest receivable which together totaled approximately $1.0
million as of January 29, 2000. The related expense is included in the provision
for impairment of assets and store closings in the accompanying consolidated
statements of operations in fiscal year 1999. The Company converted the loan
into 138,889 shares of the Take To Auction common stock and, as a result of
Take To Auction's successful initial public offering, the $1.0 million principal
balance and related interest previously expensed was reversed in the first
quarter of fiscal 2000.
In March 2000, the Company loaned an additional $1,000,000 to Take To
Auction. The note was repaid in full in June 2000. In connection with both the
December 1999 and March 2000 loans to Take To Auction, the Company was granted
warrants (the "Warrants") to purchase a total of 200,000 shares of the common
stock of Take To Auction at $8 per share. The Warrants may be exercised in whole
or in part at any time commencing on the business day immediately following the
effective date of the Registration Statement and expiring on the first
anniversary of the effective date of the Registration Statement.
In October 2000, the Company entered into a six month service agreement
with Take To Auction to provide distribution and logistic functions for the
affiliate. This agreement will automatically renew for successive one-year terms
unless otherwise terminated. This service agreement includes order processing,
inventory management, warehousing, fulfillment and shipping of product. The
service fee is variable based on volume of Take To Auction's sales, however, it
includes monthly minimum fees if specified volume levels are not reached. Such
fees range from $11,000 to $20,000 per month. Based on volume levels for fiscal
year 2000, service fees totaled approximately $72,000 and is included in
miscellaneous income (expense) net, in the accompanying consolidated statements
of operations.
In October 2000, Take To Auction loaned the Company $500,000. The loan
was unsecured with interest at the rate charged by the Company's major lender.
The loan, including interest, was repaid in December 2000.
In May 2000 and July 2000, the Company entered into severance
agreements with two executive officers. Based upon the borrowing interest rate
on our line of credit, the Company discounted the future payments required by
these agreements resulting in a charge of approximately $724,000. In addition,
in January 2001, the Company entered into a severance agreement with another
executive officer and incurred a charge of approximately $371,000. The resulting
expense is reflected in selling, general and administrative expenses in the
accompanying consolidated statements of operations for fiscal year 2000.
In the fourth quarter of 1998, the Company entered into severance
agreements with two executive officers. Based upon the borrowing interest rate
on the Company's line of credit, the Company discounted the future payments
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required by these agreements resulting in a charge of approximately $1,900,000.
Under the terms of the agreements, both officers will receive severance payments
over a three-year term beginning December 1998. The resulting expense is
reflected in selling, general and administrative expenses in the accompanying
consolidated statements of operations for fiscal year 1998. In addition, as part
of the severance agreement with one of the executive officers, the officer
received 429,000 shares of common stock at no cost and, accordingly, the Company
recorded additional compensation expense of approximately $176,000. In October
1999, the Company and one of the former officers agreed to a lump sum payment in
the amount of $500,000 in full settlement for the total remaining liability
payable by the Company. Accordingly, the Company reversed approximately $200,000
of the then outstanding accrued liability, representing the difference between
the agreed upon payment amount and the then outstanding liability.
Prior to signing an employment agreement effective February 1, 1999,
the Company's Chief Executive Officer provided consulting services to the
Company. Total consulting expense to this officer was $500,000 during fiscal
1998. From time to time, the Chief Executive Officer provides personal
guarantees to various product suppliers.
NOTE 7 - BANK LINE OF CREDIT AND NOTES PAYABLE
The bank line of credit and notes payable consist of the following:
FEBRUARY 3, JANUARY 29,
2001 2000
------------ ------------
Bank line of credit, interest payable monthly, expiring May 12,
2003, secured by a pledge of substantially all of Perfumania's
assets (see below) ............................................. $ 33,526,504 $ 30,906,247
Notes payable bearing interest ranging from 8.8%-10.8%, payable
in monthly installments ranging from $450 - $12,487 including
interest, through March 2003, secured by fixtures .............. 693,166 1,636,140
Note payable bearing interest at 10.25%, payable in monthly
installments of $50,000, including interest, through April
2000 ........................................................... -- 118,901
Severances payable bearing interest at 9.5% payable in monthly
installments ranging from $4,000 - $22,000 including interest,
through December 2002, ......................................... 955,887 437,014
Notes payable bearing interest at 10.25%, payable in monthly
installments of $75,000, including interest, with final payment
of $65,736 in November 2000 .................................... -- 778,071
------------ ------------
35,175,557 33,876,373
Less: current portion .......................................... (34,737,058) (32,987,608)
------------ ------------
Long-term portion .............................................. $ 438,499 $ 888,765
============ ============
The aggregate maturities of the bank line of credit and notes payable at
February 3, 2001 are as follows:
FISCAL YEAR
-----------
2001............ $ 34,737,058
2002............ 406,638
2003............ 31,861
2004............ --
2005............ --
------------
$ 35,175,557
============
On May 12, 2000, Perfumania entered into a three-year senior secured
credit facility with GMAC Commercial Credit LLC that provides for borrowings of
up to $40 million to support normal working capital requirements and other
general corporate purposes. Proceeds from this facility were used to refinance
the previous credit facility with LaSalle National Bank. Advances under the line
of credit are based on a formula of eligible inventories and bore interest at
the lender's prime rate for the first six months of the term. After the first
six months, the interest rate adjusts on a quarterly basis and varies at a
floating rate ranging from (a) prime less 0.75% to prime plus 1% or (b) LIBOR
plus 1.75% to 3.50% depending on a financial ratio test. As of February 3, 2001,
the credit facility bore interest at 8.5%. Advances are secured by a first lien
on all assets of Perfumania and the assignment of a life insurance policy on an
officer of the Company. The line contains limitations on additional borrowings,
capital expenditures and other items, and contains various covenants including
maintenance of minimum net worth, and certain key ratios, as defined by the
lender.
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As of February 3, 2001, Perfumania was not in compliance with the fixed
charge coverage ratio, leverage ratio and a limit on the amount of capital
expenditures for fiscal year 2000. On April 26, 2001 Perfumania obtained a
waiver from GMAC for all instances of non-compliance as of February 3, 2001, as
well as for prior instances of non-compliances as of the third quarter of fiscal
2000. In addition, GMAC made certain modifications to the credit facility making
these covenants and ratios less restrictive effective fiscal 2001. On February
3, 2001, Perfumania had approximately $1.2 million available under the line of
credit.
NOTE 8 - CONVERTIBLE NOTES PAYABLE
On March 9, 2000, the Company entered into a Securities Purchase
Agreement and issued an aggregate of $4 million worth of Series C Convertible
Notes, which are convertible into our common stock. The notes contain a
beneficial conversion feature of approximately $1.2 million which was recorded
as a non-cash interest charge to income in the first quarter of fiscal year
2000. The notes bear interest at 8% and are payable in March 2003. The agreement
required the Company to file a registration statement with the Securities and
Exchange Commission which was filed in July 2000. The conversion price is the
lower of (A) $9.58 per share, subject to adjustment or (B) a 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 notes. As of
February 3, 2001, approximately $3.2 million was outstanding on the Series C
Convertible Notes.
On March 27, 2000, the Company entered into a Securities Purchase
Agreement and issued an aggregate of $5 million worth of Series D Convertible
Notes, which are convertible into our common stock. The notes contain a
beneficial conversion feature of approximately $1.4 million which was recorded
as a non-cash interest charge to income in the first quarter of fiscal year
2000. The notes bear interest at 8% and are payable in March 2003. The agreement
required the Company to file a registration statement with the Securities and
Exchange Commission which was filed in July 2000. The conversion price is the
lower of (A) $7.76 per share, subject to adjustment or (B) a 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 notes. As of
February 3, 2001, approximately $3.8 million was outstanding on the Series D
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 was recorded as a non-cash
interest charge to income in the first quarter of fiscal year 1999. The notes
bear interest at 8% and are payable in April 2002. The agreement required the
Company to file a registration statement with the Securities and Exchange
Commission which was filed in July 2000. The conversion price is the lower of
(A) $4.35 per share, subject to adjustment or (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 notes. As of February 3, 2001,
approximately $198,000 was outstanding on the Series A Convertible Notes.
In July 1999, the Company entered into a Securities Purchase Agreement
and issued an aggregate of $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 was recorded as a non-cash
interest charge to income in the second quarter of fiscal year 1999. The Notes
bear interest at 8% and are payable in July 2002. The agreement required the
Company to file a registration statement with the Securities and Exchange
Commission which was filed in July 2000. The Conversion Price is the lower of
(A) $3.40625 per share, subject to adjustment or (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 notes. As of
February 3, 2001, approximately $1.6 million was outstanding on the Series B
Convertible Notes.
The holders of the Series A, B, C and D Convertible Notes are
restricted from converting to the extent that the holder owns more than 9.9% of
our outstanding common stock.
In February 2001, the Company entered into a Convertible Note Option
Repurchase Agreement (the "Agreement") with the holders of the Company's
outstanding Series A, B, C, and D Convertible Notes. The Agreement provides that
the Company has the monthly option to repurchase the entire $8.8 million
outstanding convertible notes over an eleven month period beginning February
33
34
2001, at a price equal to the unpaid principal balance plus a 20% premium. The
portion of the notes redeemable in each of the eleven months varies as per a
specified redemption schedule. In the event that the Company exercises its
monthly option, the note holders are restricted from converting any part of the
remaining outstanding and unpaid principal balance of such holder's notes into
the Company's common stock. As of April 27, 2001, the Company had repaid
$800,000 to the note holders.
NOTE 9 - IMPAIRMENT OF ASSETS
Based on a review of the Company's retail store locations with negative
cash flows, the Company recognized non-cash impairment charges relating to its
retail segment of approximately $0.5 million, $1.6 million and $1.0 million
during the fiscal years ended 2000, 1999 and 1998, respectively. These charges
were determined based on the difference between the carrying amounts of the
assets, representing primarily fixtures and leasehold improvements, at
particular store locations and the fair value of the assets on a store by store
basis. The estimated fair values are based on anticipated future cash flow
discounted at a rate commensurate with the risk involved. These impairment
losses are included in provision for impairment of assets and store closings in
the accompanying consolidated statements of operations.
NOTE 10 - INCOME TAXES
The provision for income taxes is comprised of the following amounts:
FISCAL YEAR ENDED
----------------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- --------- -----------
Current:
Federal ........... $ -- $(124,000) $ --
State ............. -- -- (117,550)
----------- --------- -----------
-- (124,000) (117,550)
----------- --------- -----------
Deferred:
Federal ........... -- -- (1,219,856)
State ............. -- -- --
----------- --------- -----------
-- -- (1,219,856)
----------- --------- -----------
Total tax provision... $ -- $(124,000) $(1,337,406)
=========== ========= ===========
The income tax provision differs from the amount obtained by applying the
statutory Federal income tax rate to pretax income as follows:
FISCAL YEAR ENDED
-----------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
----------- ----------- -----------
Benefit (provision) at federal statutory
rates................................. $ 2,080,899 $ (492,514) $ 7,161,669
Valuation allowance against current year
benefit............................... -- -- (7,161,669)
State taxes ............................ -- -- (117,550)
Non deductible expenses ................ (2,221,453) (709,450) --
(Increase) reduction in the valuation
allowance............................. (44,370) 1,072,545 (1,219,856)
Other .................................. 184,924 5,419 --
----------- ----------- -----------
Provision for income taxes ............. $ -- $ (124,000) $(1,337,406)
=========== =========== ===========
Net deferred tax assets reflect the tax effect of the following
differences between financial statement carrying amounts and tax basis of assets
and liabilities:
FEBRUARY 3, JANUARY 29,
2001 2000
------------ ------------
Assets:
Net operating loss and tax credit
carryforwards ................................. $ 5,728,264 $ 3,781,476
Inventory ........................................ 1,207,816 2,155,336
Property and equipment ........................... 2,803,943 2,659,469
Allowance for doubtful accounts and other ........ 116,286 73,368
Reserves ......................................... 502,056 2,849,638
Goodwill ......................................... 137,823 --
Unrealized loss on securities .................... 1,129,767 --
Other ............................................ 86,012 148,310
------------ ------------
Total deferred tax assets ........................... 11,711,967 11,667,597
Valuation allowance ................................. (11,711,967) (11,667,597)
------------ ------------
Net deferred tax assets ............................. $ -- $ --
============ ============
34
35
During fiscal 2000, a valuation allowance of $11,711,967 was provided for
deferred tax assets as management believes that it is more likely than not that
the benefit of the deferred tax asset will not be realized. Realization of
future tax benefits related to the deferred tax assets is dependent on many
factors, including the Company's ability to generate taxable income within the
net operating loss carryforward period. Management has considered these factors
in reaching its conclusion as to the valuation allowance for financial reporting
purposes. The Company has net operating loss carryforwards of approximately
$14.5 million, which begin to expire in the year 2017.
NOTE 11 - STOCKHOLDERS' EQUITY
STOCK SUBSCRIPTION
In March 1999, the Company entered into Subscription Agreements for the
sale of 235,293 shares of our common stock to a group of private investors at
the agreed upon price of $8.50 per share. The proceeds of $2 million were
received in January 1999. The Subscription Agreements required that the Company
file the appropriate registration statement with the Securities and Exchange
Commission within six months from the date of the Subscription Agreements 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 was less than $8.50 per share, the Company was 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 January 30, 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 consolidated balance sheets. The Company filed a registration
statement in September 1999. Since the market price was less than $8.50 per
share on the effective date of the registration statement, the Company
reimbursed the investor group $470,588 in October 1999.
INVESTMENT IN AFFILIATE
During September 1999, perfumania.com, inc., the Company's then wholly
owned subsidiary, completed an initial public offering (the "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 Company
recorded a gain on its sale of the 1,000,000 shares of perfumania.com, inc.
common stock in the Offering totaling approximately $5.9 million. The gain was
recorded net of issuance costs of approximately $1.1 million which included the
Company's portion of the fair value of common stock warrants issued by
perfumania.com, inc. (approximately $0.4 million) and is included in gain on
sale of affiliate's common stock in the accompanying consolidated statement of
operations. In connection with the public offering, the Company recorded a $9.7
million increase in additional paid-in capital representing its then 53% (four
million shares) interest in perfumania.com, inc.'s net proceeds in the initial
public offering under the equity method of accounting.
On October 4, 1999, Perfumania sold certain assets to perfumania.com,
inc. consisting primarily of an e-commerce greeting card website for $500,000,
of which $450,000 was reflected as a dividend, since the Company's cost basis in
such assets amounted to $50,000.
During December 1999, Perfumania signed an Option Agreement (the
"Agreement") with an investment firm granting the investment firm two options to
acquire up to 2,500,000 shares of perfumania.com, inc. from the Company for
consideration in the amount of $12,500. The first option provided that the
investment firm could purchase 2,000,000 shares for $6.00 per share on or prior
to January 15, 2000 and provided that this option was exercised, a second option
to purchase 500,000 shares for $8.00 per share on or prior to the earlier to
occur of December 31, 2000 or various other events, as defined in the Agreement.
The investment firm exercised the first option for the 2,000,000 shares on
January 11, 2000 and the Company realized proceeds of $12,000,000. As a result,
we recognized a gain of approximately $9.1 million which is included in the
accompanying consolidated statement of operations for fiscal year 1999 as a
gain on sale of affiliate's common stock. The Agreement provided that when the
first option was exercised, nominees of the investment firm would be appointed
to constitute the majority of the members of the Board of Directors of
perfumania.com, inc. subject to satisfaction of applicable SEC regulations.
Subject to the exercise of the first option, the Agreement limited the amount of
shares of perfumania.com, inc. that could be sold by the Company, as well as the
timing of these sales.
On February 10, 2000, Envision Development Corporation ("EDC") entered
into a plan of merger with perfumania.com, inc. The plan of merger provided for
among other things, the merger of EDC with perfumania.com, inc. As a result,
perfumania.com, inc. became a direct wholly owned subsidiary of EDC and each
share of common stock, par value $0.01 per share, of perfumania.com, inc. issued
35
36
and outstanding before the plan of merger was converted into and exchanged for
one share of common stock, par value $0.01 per share, of EDC.
In May 2000, the Company acquired from EDC 100% of the outstanding common
stock of perfumania.com, inc., in exchange for 400,000 shares of EDC common
stock. As a result, perfumania.com, inc. became a wholly owned subsidiary of the
Company. The acquisition of perfumania.com, inc. has been accounted for using
the purchase method of accounting, and accordingly, the purchase price was
allocated to the assets acquired and liabilities assumed based on their
estimated fair values at the acquisition date. Tangible assets acquired
consisted primarily of merchandise inventories. Based on an independent
appraisal, the transaction was valued at approximately $4.7 million. As a
result, the Company recognized a gain of approximately $4.5 million, which is
included in the accompanying consolidated statement of operations fiscal year
2000 as gain on sale of affiliate's common stock. The excess of the purchase
price over the fair value of tangible net assets acquired of approximately $2.9
million is included in goodwill in the accompanying consolidated balance sheets
and is being amortized over 5 years. The results of operations for
perfumania.com, inc. are included with our results from the date of acquisition.
Prior to May 2000, our ownership in EDC was accounted for under the equity
method of accounting. The acquisition of perfumania.com, inc. was not material
to the Company's results of operation, and therefore no proforma results are
presented.
Additionally, in May 2000 the Company sold 100,000 shares of EDC common
stock for $2.5 million to a majority shareholder of EDC, and in a related
transaction, the second option of the Agreement was exercised and an investment
firm acquired from us 500,000 shares of EDC common stock at $8.00 per share. As
a result of these transactions, the Company received total cash proceeds of $6.5
million and realized a gain of approximately $5.5 million. As of January 29,
2000, Perfumania's investment in and advances to partially-owned equity
affiliates consisted of a 26.67% (two million shares) interest in
perfumania.com, inc. which totaled approximately $2.6 million and advances in
the amount of approximately $0.2 million. Effective May 2000, perfumania.com
became a wholly owned subsidiary of the Company.
In December 2000, the Company wrote off the remaining investment in EDC
of approximately $0.6 million, representing 1,000,000 shares of EDC's common
stock, due to EDC ceasing operations. This loss is included in realized loss on
investments on the accompanying consolidated statement of operations for fiscal
year 2000.
INVESTMENTS AVAILABLE FOR SALE
During fiscal year 2000, the Company purchased 314,000 shares of Take To
Auction for approximately $2.5 million. In June 2000, the Company acquired
approximately 139,000 shares of Take to Auction's common stock upon conversion
of a $1 million convertible promissory note receivable from them. In January
2001, the Company received 250,000 shares of Take To Auction's common stock as
partial payment on a loan receivable from an officer of the Company. As of
February 3, 2001, the Company owns approximately 703,000 shares of Take To
Auction's common stock representing approximately 9.5% of their total
outstanding shares.
As of February 3, 2001, the market price for Take to Auction's common
stock was below the Company's average cost per share of $5.38. Management
believes the Take To Auction concept has merit and it expects that their results
of operations and market value will improve in the future. However, in
consideration of accounting guidance that considers a six to nine month decline
in stock price to be other than temporary, the Company has recorded a non-cash
charge of approximately $3.1 million in realized loss on investments on the
consolidated statements of operations.
During fiscal year 2000, the Company purchased for cash totaling
approximately $1.6 million approximately 343,000 shares of common stock of The
Sportman's Guide, Inc. ("SGI"), representing approximately 7.0% of SGI's
outstanding shares of common stock. SGI is a marketer of value priced outdoor
gear and general merchandise. During fiscal year 2000, the Company sold
approximately 340,000 shares of SGI and realized a loss on the sale of these
securities of approximately $1.1 million, which is included in realized loss on
investments on the accompanying consolidated statements of operations.
All investments, with the exception of the Company's 1,000,000 shares of
EDC, are accounted for as available-for-sale securities and are carried at fair
value based on quoted market prices pursuant to Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". Unrealized gains and losses are included in comprehensive
income (loss) and is included in shareholders' equity as accumulated other
comprehensive loss on the accompanying consolidated balance sheet as of
February 3, 2001.
36
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PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of up to
1,000,000 shares of preferred stock. The preferred stock may be issued from time
to time at the discretion of the Board of Directors without stockholders'
approval. The Board of Directors is authorized to issue these shares in
different series and, with respect to each series, to determine the dividend
rate, and provisions regarding redemption, conversion, liquidation preference
and other rights and privileges. As of February 3, 2001, no preferred stock had
been issued.
TREASURY STOCK
In December 1999, the Company's Board of Directors approved a 1,500,000
stock repurchase program. On January 12, 2001, the Board approved an increase in
the stock repurchase program by an additional 500,000 shares. Pursuant to these
programs, we have repurchased approximately 1,635,000 shares of common stock for
$5.6 million during fiscal 1999 and 2000.
STOCK OPTION PLANS
Under the Company's 2000 Stock Option Plan (the "Stock Option Plan") and
2000 Directors Stock Option Plan (the "Directors Plan") (collectively, the
"Plans"), both of which superseded the previously existing plans effective
October 2000, 1,500,000 shares of common stock and 120,000 shares of common
stock, respectively, are reserved for issuance upon exercise of options.
Additionally, the number of shares available under the Stock Option Plan shall
automatically increase each year by 3% of the shares of common stock of the
Company outstanding at the end of the immediate preceding year. The Company's
Board of Directors, or a committee thereof, administers and interprets the Stock
Option Plan. The Stock Option Plan provides for the granting of both "incentive
stock options" (as defined in Section 422A of the Internal Revenue Code) and
non-statutory stock options. Options can be granted under the Stock Option Plan
on such terms and at such prices as determined by the Board, except that the per
share exercise price of options will not be less than the fair market value of
the common stock on the date of grant. Only non-employee directors are eligible
to receive options under the Directors Plan. The Directors Plan provides for an
automatic grant of an option to purchase 2,000 shares of common stock upon
election as a director of the Company and an automatic grant of 4,000 shares of
common stock upon such person's re-election as a director of the Company, in
both instances at an exercise price equal to the fair value of the common stock
on the date of grant.
During October 1998, the Company offered each employee, who had
previously been granted options to purchase the Company's stock, the opportunity
to change the option price effective October 27, 1998 (the "Repricing"). Under
the terms of the Repricing, all previously granted stock options would be
cancelled, and the employee would be granted the same number of options at the
fair market value of the Company's common stock on October 27, 1998, which was
$0.50 per share. No other terms to the stock options were amended. At the time
of the offer, the Company had approximately 80 employees who had been granted
options to purchase the Company's common stock with option prices ranging from
$2.75 to $6.84. The Repricing plan was accepted by all employees with respect to
outstanding stock options.
The Company has elected to follow the measurement prescribed by APB 25.
Had compensation costs for the Company's Plans been determined based on the fair
market value at the grant dates of options granted consistent with the method of
SFAS 123, the Company's net income (loss) and diluted net income (loss) per
share would have been reduced to the pro forma amounts indicated below:
FISCAL YEARS
--------------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
Net income (loss):
As reported ........... $ (6,120,291) $ 1,044,182 $ (18,974,498)
Proforma .............. $ (6,685,352) $ (341,025) $ (19,735,008)
Diluted net income (loss)
per share:
As reported ........... $ (0.65) $ 0.10 $ (2.85)
Pro forma ............. $ (0.71) $ (0.03) $ (2.96)
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In calculating the pro forma net income (loss) per share for 2000, 1999
and 1998, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in fiscal 2000, 1999 and 1998:
2000 1999 1998
----------- ----------- --------
Expected life (years) 7 years 3 - 7 years 3 - 7 years
Interest rate...... 6.07% 4.72% 6.02%
Volatility......... 101% 126% 102%
Dividend yield..... 0% 0% 0%
Options granted under the Stock Option Plan are exercisable after the
period or periods specified in the option agreement, and options granted under
the Directors Plan are exercisable immediately. Options granted under the Plans
are not exercisable after the expiration of 10 years from the date of grant.
A summary of the Company's option activity, and related information for
each of the three fiscal years ended February 3, 2001 is as follows:
2000 1999 1998
------------------------------- ------------------------------- ------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISABLE EXERCISABLE EXERCISABLE
SHARES PRICE SHARES PRICE SHARES PRICE
--------------- --------------- --------------- --------------- --------------- -----------
Outstanding at beginning of year. 1,986,850 $ 1.31 1,758,600 $ 0.46 1,724,150 $ 3.18
Granted....................... 590,500 2.80 624,250 3.30 1,926,750(1) 0.46
Exercised..................... (184,225) 0.68 (345,383) 0.50 (684,200) 0.45
Cancelled..................... (112,666) 4.08 (50,617) 0.50 (1,208,100)(1) 2.99
--------- -------- ----------
Outstanding at end of year.... 2,280,459 $ 1.61 1,986,850 $ 1.31 1,758,600 $ 0.46
========= ========= ==========
Options exercisable at end of
year....................... 1,843,297 $ 1.34 1,880,350 $ 1.18 1,600,275 $ 0.46
Weighted-average fair value of
options granted during the
year....................... 590,500 $ 2.34 624,250 $ 2.87 1,926,750 $ 0.46
- ---------------
(1) Includes 1,130,600 options cancelled and then subsequently re-granted as
part of the repricing.
The following table summarizes information about stock options
outstanding at February 3, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- -------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICES
------------- --------------- ---------------- ----------------- ----------------- ------------
$0.41 - $0.50 1,271,125 $0.46 7 1,196,125 $0.45
$0.88 - $3.13 834,500 $2.78 9 602,334 $2.93
$3.22 - $5.38 174,834 $4.40 9 44,838 $3.80
--------- ------ --- --------- -------
2,280,459 $1.61 8 1,843,297 $1.34
---------- ------ --- --------- -------
NOTE 12- EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Savings and Investment Plan ("the Plan").
Pursuant to such Plan, participants may make contributions to the Plan up to a
maximum of 20% of total compensation or $10,500, whichever is less, and the
Company, in its discretion, may match such contributions to the extent of 25% of
the first 6% of a participant's contribution. The Company's matching
contributions vest over a 4-year period. In addition to matching contributions,
the Company may make additional contributions on a discretionary basis in order
to comply with certain Internal Revenue Code regulations prohibiting
discrimination in favor of highly compensated employees. The Company's matching
contributions during fiscal years 2000, 1999 and 1998 were not significant.
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NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company is self-insured for employee medical benefits under the
Company's group health plan. The Company maintains stop loss coverage for
individual medical claims in excess of $80,000 and for annual Company medical
claims which exceed approximately $2.2 million in the aggregate. While the
ultimate amount of claims incurred are dependent on future developments, in
management's opinion, recorded reserves are adequate to cover the future payment
of claims. However, it is possible that recorded reserves may not be adequate to
cover the future payment of claims. Adjustments, if any, to estimates recorded
resulting from ultimate claim payments will be reflected in operations in the
periods in which such adjustments are known. The self-insurance reserve at
February 3, 2001 and January 29, 2000 was approximately $450,000 and $364,000,
respectively, which is included in accrued expenses and other liabilities in the
accompanying consolidated balance sheets.
The Company leases space for its office, warehouse and retail stores. The
lease terms vary from one to ten years, in some cases with options to renew for
longer periods. Various leases contain clauses which adjust the base rental rate
by the prevailing Consumer Price Index, as well as additional rent based on a
percentage of gross sales in excess of a specified amount.
Rent expense for fiscal year 2000, 1999, and 1998 was approximately
$16,156,000, $16,473,000, and $15,972,000, respectively. Future minimum lease
commitments under non-cancelable operating leases at February 3, 2001 are as
follows:
FISCAL YEAR
------------
2001 $14,519,000
2002 10,760,000
2003 7,911,000
2004 6,246,000
2005 4,710,000
Thereafter 8,599,000
-----------
Total future minimum lease payments $52,745,000
===========
The Company's capitalized leases consist primarily of computer hardware
and software. The lease terms vary from one to five years. The following is a
schedule of future minimum lease payments under capital leases together with the
present value of the net minimum lease payments, at February 3, 2001:
FISCAL YEAR
------------
2001 $ 1,887,173
2002 1,798,557
2003 1,017,182
2004 --
2005 --
-----------
Total future minimum lease payments 4,702,912
Less: amount representing interest (550,385)
------------
Present value of minimum lease payments 4,152,527
Less: current portion (1,551,093)
------------
$ 2,601,434
============
The depreciation expense relating to capital leases is included in
depreciation and amortization expense in the accompanying consolidated
statements of operations.
The Company is party to an irrevocable standby letter of credit totaling
approximately $1.2 million as of February 3, 2001 which serves as security for
performance of an equipment lease with a vendor for point-of-sale registers.
Management believes that the carrying value approximates fair value and does not
expect any material losses from its resolution since performance is not likely
to be required.
The Company is involved in various legal proceedings in the ordinary
course of business. Management cannot presently predict the outcome of these
matters, although management believes that the ultimate resolution of these
matters should not have a materially adverse effect on the Company's financial
position or result of operations.
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NOTE 14 - SEGMENT INFORMATION
Perfumania 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:
FISCAL YEAR ENDED
----------------------------------------------------
FEBRUARY 3, JANUARY 29, JANUARY 30,
2001 2000 1999
-------------- ---------------- ---------------
Net sales to external customers:
Wholesale......................... $ 21,198,489 $ 36,975,463 $ 40,465,689
Retail............................ 185,371,092 155,952,646 134,789,944
------------ ------------ ------------
Total net sales to external
customers..................... $206,569,581 $192,928,109 $175,255,633
============ ============ ============
Intersegment sales (excluded from above):
Wholesale......................... $ 150,592 $ 18,556,182 $ 18,477,729
Retail............................ -- -- --
------------ ------------ ------------
Total intersegment sales........ $ 150,592 $ 18,556,182 $ 18,477,729
============ ============ ============
Cost of goods sold:
Wholesale......................... $ 16,982,114 $ 29,956,394 $ 32,920,317
Retail............................ 106,153,003 87,339,377 77,718,115
------------ ------------ ------------
Total cost of goods sold........ $123,135,117 $117,295,771 $110,638,432
============ ============ ============
Gross profit:
Wholesale......................... $ 4,216,375 $ 7,019,069 $ 7,545,372
Retail............................ 79,218,089 68,613,269 57,071,829
------------ ------------ ------------
Total gross profit.............. $ 83,434,464 $ 75,632,338 $ 64,617,201
============ ============ ============
Total assets:
Wholesale......................... $ 8,075,536 $ 11,821,552 $ 21,665,800
Retail............................ 94,483,606 86,474,006 65,159,924
Corporate......................... 4,769,675 7,360,840 8,303,652
------------ ------------ ------------
Total assets.................... $107,328,817 $105,656,398 $ 95,129,376
============ ============ ============
Inventories:
Wholesale......................... $ 1,213,000 $ 5,746,383 $ 8,227,522
Retail............................ 61,288,712 62,981,145 45,652,610
------------ ------------ ------------
Total inventories............... $ 62,501,712 $ 68,727,528 $ 53,880,132
============ ============ ============
Depreciation and amortization:
Retail............................ $ 5,377,146 $ 4,725,691 $ 4,480,681
Corporate......................... 441,818 -- --
------------ ------------ ------------
Total depreciation and
amortization............... $ 5,818,964 $ 4,725,691 $ 4,480,681
============ ============ ============
Capital expenditures:
Retail............................ $ 3,418,955 $ 2,820,321 $ 8,849,837
Corporate......................... 879,126 1,151,035 645,987
------------ ------------ ------------
Total capital expenditures...... $ 4,298,081 $ 3,971,356 $ 9,495,824
============ ============ ============
In fiscal year 2000, 1999 and 1998, the wholesale segment included
foreign sales of approximately $1.1 million, $2.0 million and $2.9 million,
respectively.
NOTE 15- QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial results for fiscal 2000 and 1999 follows
(in thousands, except for per share data):
2000 QUARTER FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Net sales: $ 39,615 $ 48,638 $ 47,214 $ 71,103
Gross Profit: 16,423 19,384 17,928 29,699
Net Income (loss): (6,623) 5,261 (4,003) (755)
Net Income (loss) per basic share: ($0.78) $0.57 ($0.41) ($0.07)
Net Income (loss) per diluted share: ($0.78) $0.41 ($0.41) ($0.07)
1999 QUARTER FIRST SECOND THIRD FOURTH
----- ------ ----- ------
Net sales: $ 39,401 $ 45,953 $47,696 $ 59,879
Gross Profit: 15,253 19,154 19,824 21,401
Net Income (loss): (4,092) (311) 5,573 (126)
Net Income (loss) per basic share: ($0.56) ($0.04) $0.64 ($0.01)
Net Income (loss) per diluted share: ($0.56) ($0.04) $0.47 ($0.01)
40
41
E COM VENTURES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
ADDITIONS
-------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS OF PERIOD
-------------- --------------- --------------- --------------- ------------
FOR THE YEAR ENDED
JANUARY 30, 1999:
Accounts receivable 704,954 -- -- -- 704,954
Inventories 2,750,000 3,764,665 -- (2,351,414)(4) 4,163,251
Self insurance 338,222 1,295,410 541,484(2) (1,654,491)(3) 520,625
FOR THE YEAR ENDED
JANUARY 29, 2000
Accounts receivable 704,954 60,000 -- (704,954)(1) 60,000
Inventories 4,163,251 859,368 -- (2,652,666)(4) 2,369,953
Self insurance 520,625 986,501 370,875(2) (1,514,449)(3) 363,552
FOR THE YEAR ENDED
FEBRUARY 3, 2001
Accounts receivable 60,000 55,000 -- (58,663)(1) 56,337
Inventories 2,369,953 -- -- (167,110)(4) 2,202,843
Self insurance 363,552 1,054,170 713,137(2) (1,681,056)(3) 449,803
- ------------------
(1) Represents amounts written off against accounts receivable.
(2) Represents employee contributions.
(3) Represents benefit/premium payments.
(4) Represents amounts written off against inventory.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
As disclosed in a form 8-K filed with the Securities and Exchange
Commission on April 11, 2000, on April 4, 2000, PricewaterhouseCoopers LLP
("PwC"), notified us that upon completion of their audit of our consolidated
financial statements for the fiscal year ended January 29, 2000, they would
resign as our independent certified public accountants.
PwC has previously audited our consolidated financial statements for the
fiscal years ended January 30, 1999 and January 31, 1998 ("Prior Fiscal Years").
Their reports on such consolidated financial statements did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles, except for a modified
opinion for the fiscal year ended January 30, 1999 relating to our ability to
continue as a "going concern". Further, in connection with its audits of our
financial statements for the Prior Fiscal Years and through May 15, 2000, we had
no disagreements with PwC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused
them to make a reference to the subject matter of the disagreements in
connection with its reports on our consolidated financial statements for each of
the Prior Fiscal Years.
41
42
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND EXECUTIVE OFFICERS
The information called for by this item is incorporated by reference from
E Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement
- - 2001 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction 6 to the Annual
Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference from
E Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement
- - 2001 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction 6 to the Annual
Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated by reference from
E Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement
- - 2001 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction 6 to the Annual
Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated by reference from
E Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement
- - 2001 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction 6 to the Annual
Report on Form 10-K.
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43
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
An index to financial statements for the fiscal years ended February 3,
2001, January 29, 2000 and January 30, 1999 appears on page 19.
(2) Financial Statement Schedule
The following statement schedule for the fiscal years ended February 3,
2001, January 29, 2000 and January 30, 1999 are submitted herewith:
ITEM
FORM 10-K
NUMBER
PAGE
---------
Schedule II - Valuation and Qualifying Accounts
and Reserves 41
All other financial schedules are omitted because they are not
applicable, or the required information is otherwise shown in the financial
statements or notes thereto.
(3) Exhibits
PAGE NUMBER
OR INCORPORATED
BY REFERENCE
EXHIBIT DESCRIPTION FROM
------- ----------- --------------
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (2)
10.1 Executive Compensation Plans and Arrangements
(a) Employment Agreement, dated as of December 24, 1999, between (8)
the Company and Marc Finer
(b) Employment Agreement, dated as of December 24, 1999, between (8)
the Company and Donovan Chin
(c) Employment Agreement, dated as of February 16, 2001, between (11)
the Company and A. Mark Young
(d) Employment Agreement, dated as of February 1, 1999, between (8)
the Company and Ilia Lekach
(e) Employment Agreement, dated as of March 27, 2000, between (11)
the Company and Jeffrey Geller
10.5 1991 Stock Option Plan, as amended (6)
10.6 1992 Directors Stock Option Plan, as amended (6)
10.7 Series A Securities Purchase Agreement (3)
10.8 Series B Securities Purchase Agreement (4)
43
44
PAGE NUMBER
OR INCORPORATED
BY REFERENCE
EXHIBIT DESCRIPTION FROM
------- ----------- -------------
10.9 Series C Securities Purchase Agreement (5)
10.10 Series D Securities Purchase Agreement (5)
10.11 2000 Stock Option Plan (10)
10.12 2000 Directors Stock Option Plan (10)
11.1 Revolving Credit and Security Agreement with GMAC Commercial Credit LLC, (9)
dated May 12, 2000
11.2 Waiver and Amendment to the Revolving Credit and Security Agreement (11)
with GMAC Commercial Credit LLC, dated November 8, 2000
11.3 Waiver and Amendment to the Revolving Credit and Security Agreement (11)
with GMAC Commercial Credit LLC, dated April 26, 2001
21.1 Subsidiaries of the Registrant (11)
23.1 Consent of PricewaterhouseCoopers LLP (11)
23.2 Consent of Deloitte & Touche LLP (11)
- ---------------------
(1) Incorporated by reference to the exhibit of the same description filed
with the Company's 1993 Form 10-K (filed April 28, 1994).
(2) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-1 (No. 33-46833).
(3) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-1 filed June 11, 1999
(No. 333-_______).
(4) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-1/A, filed August 31,
1999 (No. 333-80525).
(5) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-3 filed April 25,
2000 (No. 333-35580).
(6) Incorporated by reference to the exhibit of the same description filed
with the Company's 1995 Form 10-K (filed April 26, 1996).
(7) Not used.
(8) Incorporated by reference to the exhibit of the same description filed
with the Company's 1999 Form 10-K/A (filed May 30, 2000).
(9) Incorporated by reference to the exhibit of the same description filed
with the Company's 1999 Form 10-Q (filed June 13, 2000).
(10) Incorporated by reference to the exhibit of the same description filed
with the Company's Proxy Statement (filed October 6, 2000).
(11) Filed herewith.
(b) Reports on Form 8-K
On March 2, 2001, the Company filed a Current Report on Form 8-K
reporting that the company had signed an option agreement to repurchase its
outstanding convertible debentures.
44
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, May 3, 2001.
E Com Ventures, Inc.
BY: /s/ ILIA LEKACH
----------------------------------
Ilia Lekach, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned, hereby constitute Ilia Lekach and A. Mark Young, or
either of them, our true and lawful attorneys-in-fact with full power to sign
for us in our name and in the capacity indicated below any and all amendments
and supplements to this report, and to file the same, with exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorneys-in-fact or
their substitutes, each acting alone, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ILIA LEKACH Chairman of the Board and May 3, 2001
------------------------------ Chief Executive Officer,
Ilia Lekach Principal Executive Officer
/s/ JEFFREY GELLER President and Chief Operating Officer May 3, 2001
------------------------------ of Perfumania, Inc., and Director
Jeffrey Geller
/s/ A. MARK YOUNG Chief Financial Officer May 3, 2001
------------------------------ and Director,
A. Mark Young Principal Financial Officer
/s/ DONOVAN CHIN Chief Financial Officer May 3, 2001
------------------------------ Perfumania, Inc.,
Donovan Chin Secretary and Director
/s/ CAROLE ANN TAYLOR Director May 3, 2001
------------------------------
Carole Ann Taylor
/s/ HORACIO GROISMAN, M.D. Director May 3, 2001
------------------------------
Horacio Groisman, M.D.
/s/ ZALMAN LEKACH Director May 3, 2001
------------------------------
Zalman Lekach
/s/ JAMES FELLUS Director May 3, 2001
------------------------------
James Fellus
45