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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For Fiscal Year Ended March 31, 1996
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OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________to _______________
Commission File Number 0-15491
Parlux Fragrances, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 22-2562955
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
3725 SW 30th Avenue, Ft. Lauderdale, FL 33312
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(Address of principal executive offices (zip code)
(Registrant's telephone number, including area code) (954) 316-9008
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Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $ .01 per share)
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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
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Indicate the number of shares outstanding of each of the registrant's classes
of stock as of the latest practicable date.
Class Outstanding at June 25, 1996
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Common Stock, $.01 par value 13,229,546
The aggregate market value of the Registrant's common stock held by
non-affiliates of the Registrant was approximately $102,557,000 based on a
closing price of $10.25 for the Common Stock as of June 25, 1996 as reported on
the National Association of Securities Dealers Automated Quotation System on
such date. For purposes of the foregoing calculation, only the Directors and
beneficial owners of the registrant are deemed to be affiliates.
Documents incorporated by Reference: The information required by Part III
(Items 10, 11, 12 & 13) is incorporated by reference from the registrant's
definitive proxy statement (to be filed pursuant to Regulation 14A).
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Item 1. BUSINESS
Parlux Fragrances, Inc. (the Company), was incorporated in Delaware in
1984 and is engaged in the creation, design, manufacture, distribution and sale
of prestige fragrances, cosmetics and beauty related products marketed
primarily through specialty stores and national department stores. The
fragrance market is generally divided into a prestige segment (distributed
primarily through department and specialty stores) and a mass market segment.
The Company's products are positioned primarily in the prestige segment.
Additionally, the Company manufactures and distributes certain brands through
Perfumania Inc., an affiliated national chain which is a leading specialty
retailer of fragrances. Currently, the Company engages in the manufacture
(through sub-contractors), distribution and sale of PERRY ELLIS, FRED HAYMAN
BEVERLY HILLS, TODD OLDHAM, VICKY TIEL and PHANTOM OF THE OPERA fragrances and
grooming items on an exclusive worldwide basis as a licensee. Additionally,
the Company manufactures, distributes and sells its own brands of ANIMALE, BAL
A' VERSAILLES, DANIEL DE FASSON, DECADENCE and LIMOUSINE fragrances and
ALEXANDRA DE MARKOFF cosmetics on a worldwide basis.
Recent Developments
On May 8, 1996 the Company signed a letter of intent with HAAS WHEAT &
PARTNERS (HWP) with respect to the proposed investment by HWP of $40 million
into the Company. The original proposal was structured as a ten-year 10%
pay-in-kind debenture in the face amount of $40 million, accompanied by
warrants to purchase up to 5 million shares of the Company's common stock at
$11.00. On May 31, 1996 the letter of intent was amended to extend the term
of the debenture to 20 years, making the debenture convertible into 3.7 million
shares, and reducing the warrants to the right to acquire 1.3 million common
shares. On June 11, 1996, the parties mutually agreed to terminate the letter
of intent.
On January 31, 1996, the Company entered into an agreement to purchase all
of the assets and assume certain liabilities of Richard Barrie Fragrances, Inc.
(RBF) for a combination of cash and Parlux common stock. The agreement is
subject to the approval of RBF's board of directors, shareholders and
convertible note holders. The Company anticipates that, if the agreement is
approved, closing would take place prior to June 30, 1996.
On January 11, 1996, the Company entered into a non-binding letter of
intent with Parfums Jean Desprez, to purchase, for cash and notes, the
world-wide trademarks and the Bal A' Versailles fragrance brand (BAV). The
acquisition was completed on March 19, 1996. See Note 5 to the accompanying
Consolidated Financial Statements for further discussion.
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On December 27, 1995, the Company consummated the acquisition of
substantially all of the assets of Alexandra de Markoff (AdM), a prestige
cosmetic line, pursuant to an asset purchase agreement entered into on
September 21, 1995 between the Company and Revlon Holdings, Inc. (Revlon). See
Note 5 to the accompanying Consolidated Financial Statements for further
discussion.
In May 1995, the Company terminated its license agreement with FRANCESCO
SMALTO INTERNATIONAL (SMALTO) for breach of contract. On October 5, 1995, the
Company entered into a transition and termination agreement with SMALTO which
provides for the continued use of the Francesco Smalto trademark through
September 30, 1996. The agreement contains certain production restrictions and
requires a fixed amount of royalties during the period, which the Company
anticipates will not exceed 5% of net sales of Smalto fragrances. Sales of
Francesco Smalto products represented approximately 7% of total Company net
sales for the year ended March 31, 1996.
On October 26, 1995, the Company announced a two-for-one stock split
effected in the form of a dividend to shareholders of record as of November 3,
1995 (the stock split). Distribution was effected on November 10, 1995. All
comparable share information in this Form 10-K, unless indicated, has been
retroactively restated to reflect the split.
THE PRODUCTS
The Company's principal products are fragrances and cosmetics. Each
fragrance is distributed in a variety of sizes and packaging. In addition,
each fragrance line may be complemented by beauty-related products such as
soaps, deodorants, body lotions, cremes and dusting powders. The cosmetics
are full-service lines with treatment and make-up products consisting of over
200 stock keeping units (S.K.U.'s). The Company's basic products generally
retail at prices ranging from $20 to $300 per item.
The Company designs and creates fragrances and cosmetics/shades using its
own staff and independent contractors. It also supervises the design of its
packaging by independent contractors and has recently completed the design
process for PERRY ELLIS "AMERICA" for men and women, which is being launched on
July 4, 1996.
During the last three fiscal years, the following brands have accounted
for 10% or more of the Company's gross sales:
Fiscal 1996 Fiscal 1995 Fiscal 1994
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PERRY ELLIS 39% 16% 0%
FRED HAYMAN 20% 45% 0%
ANIMALE 15% 24% 62%
FRANCESCO SMALTO 7% 8% 19%
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The Company anticipates that the sales of PERRY ELLIS, FRED HAYMAN, VICKY
TIEL and ANIMALE brand fragrances, coupled with the recent brand acquisitions
such as ALEXANDRA DE MARKOFF and BAL A' VERSAILLES, will continue to account
for a significant portion of the Company's sales, and will more than offset the
discontinuation of the FRANCESCO SMALTO products.
MARKETING AND SALES
In the United States, the Company has established its own sales and
marketing staff, and also utilizes independent sales representatives for
certain channels of distribution. The Company sells directly to retailers,
primarily national and regional department stores and specialty stores, which
it believes will maintain the image of its products as prestige fragrances.
The Company's products are sold in over 1,800 retail outlets in the United
States. Additionally, the Company sells products to Perfumania, Inc., an
affiliated company, which is a leading specialty retailer of fragrances with
over 190 retail outlets principally located in manufacturers' outlet malls and
regional malls.
Marketing and sales activities outside the United States are conducted
through arrangements with independent distributors. The Company has
established relationships for the marketing of its fragrances with distributors
in Canada, Europe, the Middle East, the Far East, Latin America, the Caribbean
and, recently, Russia.
The Company advertises both directly and through a cooperative advertising
program in association with major retailers in the fashion media on a national
basis and through retailers' statement enclosures and catalogues. The Company
is required to spend certain minimum amounts for advertising under certain
licensing agreements. See "Licensing Agreements" and Note 8(B) to the
Consolidated Financial Statements.
RAW MATERIALS
Raw materials and components for the Company's products are available from
sources in Europe and the United States. The Company uses third party contract
manufacturers to produce finished products. Presently, approximately 10% of
contract manufacturing is performed in France, however, the Company intends to
continue the transition of it's manufacturing to the United States during the
current fiscal year upon the completion of the RBF acquisition.
In the past, the Company has had little difficulty obtaining raw
materials at competitive prices. The Company has no reason to believe that
this situation will change in the near future, but there can be no assurances
that this will continue.
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SEASONALITY
Typical of the fragrance industry, the Company has its highest sales
during the calendar year end holiday season. Lower than projected sales
during this period could have a material adverse affect on the Company's
operating results.
INDUSTRY PRACTICES
It is an industry practice in the United States for businesses that market
cosmetics and fragrances to department stores to provide the department stores
with rights to return merchandise. The Company's products are subject to such
return rights. It is the Company's practice to establish reserves and provide
allowances for product returns at the time of sale. The Company believes that
such reserves and allowances are adequate based on past experience, however,
no assurances can be made that reserves and allowances will continue to be
adequate. Consequently, if product returns are in excess of the reserves and
allowances made by the Company, sales will be reduced in later periods.
CUSTOMERS
The Company concentrates its sales efforts in the United States in
specialty stores, such as Nordstrom's, Neiman Marcus, and Bergdorf Goodman and
a number of regional department store retailers including, among others,
Macy's, J.L. Hudson, Dillards, Bloomingdales and a national department store
chain, J.C. Penney. Retail distribution has been targeted by brand to
maximize potential and minimize overlap between each of these distribution
channels. Certain brands are sold exclusively through specialty stores, while
others are sold exclusively through J.C. Penney.
Sales to Perfumania, a company affiliated with Mr. Ilia Lekach, the
Company's Chairman of the Board and Chief Executive Officer, amounted to
$26,187,460 for the fiscal year ended March 31, 1996. Net amounts owed by
Perfumania to the Company amounted to $13,482,423 at March 31, 1996. The loss
of Perfumania as a customer could have a material adverse effect on the
operations of the Company.
FOREIGN AND EXPORT SALES
A significant portion of the Company's international sales and exports are
made through its wholly-owned French subsidiary, Parlux S.A. Net sales to
unaffiliated customers by Parlux S.A. were $9,101,611, $7,219,601 and
$8,225,259 for fiscal years ended March 31, 1996, 1995, and 1994 respectively.
The French subsidiary reported net income of $887,163, $319,535 and $122,025
for the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
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LICENSING AGREEMENTS
PERRY ELLIS: The Company acquired the Perry Ellis license from Sanofi Beaute in
December 1994. The Perry Ellis license is entering its eleventh year, and is
renewable every two years if the average annual sales in the completed period
exceed 75% of the average sales of the previous four years. All minimum sales
levels have been met by the previous licensee, and the Company believes that
this will continue. The license requires the payment of royalties, which
decline as a percentage of net sales as net sales volume increases, and the
spending of certain minimum amounts for advertising based upon net sales levels
achieved in the prior year.
FRED HAYMAN: In June 1994, the Company entered into an Asset Purchase Agreement
with Fred Hayman Beverly Hills, Inc. (FHBH), pursuant to which the Company
purchased substantially all of the assets and liabilities of the FHBH fragrance
division, including inventory, accounts receivable (excluding those backed by
non-cancelable letters of credit issued prior to June 2, 1994), molds, and
assignable contracts. In addition, FHBH granted to Parlux an exclusive royalty
free 55-year license to use FHBH's United States Class 3 trademarks Fred
Hayman(R), 273(R), Touch(R), With Love(R) and Fred Hayman Personal Selections(R)
and the corresponding international registrations. There are no minimum sales
or advertising requirements.
VICKY TIEL: In September 1992, the Company entered into an exclusive
worldwide license agreement with VICKY TIEL S.A. in which the Company secured
the rights to manufacture and distribute fragrances and beauty care products
using the VICKY TIEL trademark for an initial five-year period, renewable for a
subsequent five-year period upon achieving specified sales or minimum royalty
levels. Under this agreement, the Company is obligated to pay royalties
calculated as a percentage of net sales, which decline as net sales volume
increases. The Company is also obligated to spend certain minimum amounts
for advertising based upon the annual net sales of the products.
TODD OLDHAM: In December 1992, the Company entered into an exclusive worldwide
licensing agreement with L-7 Designs, Inc. in which the Company has secured the
rights to manufacture and distribute fragrances and beauty care products using
the TODD OLDHAM trademark for an initial contract period ending March 31, 1997,
renewable for subsequent three-year and four-year periods upon achieving
specified sales or minimum royalty levels. The license requires the payment
of royalties, which decline as a percentage of net sales as net sales volume
increases, and the spending of certain minimum amounts for advertising based
upon net sales levels. The Company launched the TODD OLDHAM women's fragrance
line in March 1995.
PHANTOM OF THE OPERA: In April 1993, the Company entered into an exclusive
worldwide agreement with Creative Fragrances, Inc. for the worldwide
manufacturing and distribution rights to PHANTOM OF THE OPERA covering men's
and women's fragrances and beauty related products. The agreement expires in
April 1998. Royalties are payable at 7% of net sales. There are no minimum
sales or advertising requirements.
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FRANCESCO SMALTO: In May 1995, the Company terminated its license agreement
with FRANCESCO SMALTO INTERNATIONAL (SMALTO) for breach of contract. On
October 5, 1995, the Company entered into a transition and termination
agreement with SMALTO which provides for the continued use of the Francesco
Smalto trademark through September 30, 1996. The agreement contains certain
production restrictions and requires a fixed amount of royalties during the
period, which the Company anticipates will not exceed 5% of net sales of
Smalto fragrances. Sales of Francesco Smalto products represented
approximately 7% of total Company net sales for the year ended March 31, 1996.
SUMMARY: The Company believes it is presently in compliance with all material
obligations under the above agreements. There can be no assurance the
Company will be able to continue to comply with the terms of these agreements
in the future.
BARTER ARRANGEMENTS
In June 1991, the Company entered into a barter arrangement (the Barter
Agreement) under which the Company would receive advertising credits in
exchange for its inventory of JOAN COLLINS products, which had been
manufactured under a manufacturing and distribution agreement terminated in
1991. Sales under the Barter Agreement were finalized during fiscal 1994.
The estimated value of the advertising was recorded as a prepaid expense
on the Company's balance sheet at the time such inventory was sold, net of
unearned income equal to the amount of advertising credits minus the related
cost of goods bartered. As advertising credits are used by the Company,
unearned income is debited and cost of goods sold is credited. As a result, as
the advertising credits are used aggregate cost of goods as a percentage of net
sales decreases and gross margin as a percentage of net sales increases.
During the fiscal year ended March 31, 1996, the Company had no barter
sales, utilized $684,000 of its deferred advertising credits and realized
$355,000 of deferred income on the use of these credits. Since the inception
of the Barter Agreement, $6,186,000 of JOAN COLLINS products were bartered and
$5,697,000 of advertising credits have been used. In addition, in connection
with the FHBH acquisition in 1994, the Company acquired approximately $471,000
of advertising credits. The balance of deferred advertising credits and
unearned income at March 31, 1996 were $1,493,000 and $434,000, respectively
($1,094,000 and $434,000, respectively relate to the Barter Agreement ).
The Company expects to be able to fully utilize these advertising credits
as part of its normal ongoing advertising expenditures.
TRADEMARKS
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The Company owns the worldwide trademarks and distribution rights to
ANIMALE, BAL A' VERSAILLES, DANIEL DE FASSON, DECADENCE and LIMOUSINE
fragrances, and ALEXANDRA de MARKOFF cosmetics. Accordingly, there are no
licensing agreements requiring the payment of royalties. Additionally, the
Company has the rights to license certain of these trademarks for all classes
of merchandise.
PRODUCT LIABILITY
The Company has insurance coverage for product liability in the amount of
$5 million per incident. The Company maintains an additional $5 million of
coverage under an "umbrella" policy. In addition, the Company believes that
the manufacturers of the products sold by the Company also carry product
liability coverage and that the Company effectively is protected thereunder.
There are no pending and, to the best of the Company's knowledge, no
threatened product liability claims. Over the past eight years, the Company
has not been presented with any product liability claims. Based on this
historical experience, management believes that it's insurance coverage is
adequate.
COMPETITION
The market for fragrances and beauty related products is highly
competitive and sensitive to changing consumer preferences and demands. The
Company believes that the quality of its fragrance and cosmetics products, as
well as its ability to develop, distribute and market new products, will enable
it to continue to compete effectively in the future and to continue to achieve
positive product reception, position and inventory levels in retail outlets.
However, there are products which are better known than the products
distributed by the Company. There are also companies which are substantially
larger and more diversified, and which have substantially greater financial and
marketing resources than the Company, as well as greater name recognition, and
the ability to develop and market products similar to, and competitive with,
those distributed by the Company.
EMPLOYEES
As of March 31, 1996, the Company had 126 full-time and part-time
employees. Of these, 42 were engaged in worldwide sales activities, 46 in
administrative and finance functions and 38 in warehousing and distribution
activities. None of the Company's employees are covered by a collective
bargaining agreement and the Company believes that its relationship with its
employees is satisfactory. The Company also uses the services of independent
contractors in various capacities, including sales representatives.
During June 1993, the Company established a 401-K Plan covering
substantially all of its U.S. employees. Commencing on April 1, 1996, the
Company matches 25% of
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the first 6% of employee contributions, within annual limitations
established by the Internal Revenue Code.
ITEM 2. PROPERTIES
In November 1995, the Company moved its corporate headquarters and
domestic operations from a 38,500 square foot leased facility in Pompano Beach,
Florida to a new 100,000 square foot leased facility in Fort Lauderdale,
Florida to accommodate current and future growth levels. The annual lease cost
of the new facility is approximately $600,000, with the lease covering a
ten-year period.
The Company is actively seeking to sublease the Pompano Beach facility
where the current annual rent is approximately $240,000 annually. Management
expects to sublease this facility for amounts which will closely approximate
its current commitment.
The Company's French subsidiary leases approximately 1,500 square feet
under an operating lease which provides for annual rentals equivalent to
approximately $48,000.
ITEM 3. LEGAL PROCEEDINGS
To the best of the Company's knowledge, there are no proceedings pending
against the Company or any of its properties which, if determined adversely to
the Company, would have a material effect on the Company's financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any actions for shareholders' approval during
the fiscal year ended March 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED SECURITY HOLDER MATTERS
The Company's Common Stock, par value $0.01 per share, has been listed on
the National Association of Securities Dealers Automatic Quotation System
("NASDAQ") National Small Cap List market since February 26, 1987 and commenced
trading on the NASDAQ National Market on October 24, 1995. All share
references below have been retroactively adjusted to reflect the two-for-one
stock split effected on November 3, 1995.
In July 1992, 250,000 shares included in the Company's employee stock
option plans were registered with the SEC via a Form S-8 registration
statement. Of these
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shares, 159,592 had been exercised through March 31, 1996. Of the
90,408 remaining shares, 81,000 have been granted, and 9,408 remain available
for future grants.
At March 31, 1995, certain officers and/or directors and previous
employees of the Company held warrants to purchase 2,172,916 shares of the
Company's common stock exercisable at prices ranging from $1.50 to $3.125 per
share. In addition, Mr. Boris Lekach, a relative of the Company's chairman
received warrants to purchase 100,000 shares of common stock in connection with
a $200,000 loan extended to the Company during 1990. In connection with the
October 1990 acquisition of certain fragrance brands from the Deco Distribution
Group, Inc. (Deco), the Deco shareholders held 1,100,000 warrants exercisable
at $2.00 per share, which were to expire in March 1996. In connection with the
FHBH acquisition, FHBH held 200,000 warrants exercisable at $2.125 per share.
In May 1995, the Company extended a discount of $0.75 per share to those
holders of warrants issued in connection with the FHBH and Deco acquisitions,
as well as the loan to Mr. Boris Lekach, if the holders would exercise by May
31, 1995. The exercise period was subsequently extended to July 31, 1995. These
warrant holders exercised all of their warrants into 1,400,000 shares of common
stock, increasing stockholders' equity by approximately $2,300,000. The Company
had agreed to register with the SEC all shares issued as a result of such
warrants being exercised prior to July 31, 1995, and the registration was
completed in September 1995.
In June 1995, in connection with a long-term loan, the Company issued
warrants to acquire 60,000 unregistered shares of common stock to Mr. F.
Lekach, which are exercisable at $6.94 per share, for a two-year period.
During the year ended March 31, 1996, the Company issued 1,125,044 shares
of common stock in private placements pursuant to Regulation S or Rule 144,
which resulted in an increase in stockholders' equity of $7,715,000.
In December 1995, the Company issued 424,000 shares of common stock, and
options to purchase an additional 176,000 shares of common stock to Revlon in
connection with the AdM acquisition. In May 1996, Revlon exercised the 176,000.
The combined effect increased stockholders' equity by $4,800,000 ($3,392,000
in the year ended March 31, 1996 and $1,408,000 in the ensuing fiscal year).
During the period November 2, 1995 through March 31, 1996 the Company
issued $3,700,000 of 7% convertible debentures and $15,000,000 of 5%
convertible debentures, (the "Debentures") pursuant to Regulation S. The
Debentures were convertible into shares of the Company's common stock at 85% of
the closing price of the stock as listed on NASDAQ over specific time frames.
As of March 31, 1996, $7,000,000 of the Debentures, plus accrued interest of
$48,416, had been converted into 1,073,688 shares of common stock. Subsequent
to March 31, 1996, an additional $10,950,000 have been converted into
1,257,667 shares of common stock. During April and May 1996, the
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Company issued an additional $13,000,000 of 5% convertible debentures,
$3,000,000 pursuant to Regulation S and $10,000,000 pursuant to Regulation D,
of which $3,000,000 have been converted into 308,727 shares of common stock
through June 25, 1996.
The Company believes that the number of beneficial owners of its common
stock is approximately 1,500.
The following chart, as reported by the National Association of Securities
Dealers, Inc., shows the high and low bid prices, adjusted for the stock split,
for the Company's securities available for each quarter of the last two years
and the interim period from January through June 1996. The prices represent
quotations by the dealers without adjustments for retail mark-ups, mark-downs
or commissions and may not represent actual transactions.
Calendar Quarter Common Stock
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High Low
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First 1994 3.563 1.688
Second 1994 3.375 1.750
Third 1994 3.063 2.125
Fourth 1994 3.188 2.188
First 1995 4.875 2.875
Second 1995 7.313 4.500
Third 1995 9.188 6.500
Fourth 1995 10.000 7.000
First 1996 13.250 6.125
Second 1996
(to June 25, 1996) 15.250 9.000
ITEM 6. SELECTED FINANCIAL DATA
The following data has been derived from financial statements audited by
Price Waterhouse LLP, independent certified public accountants. Consolidated
balance sheets at March 31, 1995 and 1996 and the related consolidated
statements of income and of cash flows for the three years ended March 31, 1996
and notes thereto appear elsewhere in this Annual Report on Form 10-K.
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For the Year Ended March 31, (in thousands of dollars, except per share data)
1996 1995 1994 1993 1992
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Net sales $67,727 $38,209 $25,366 $28,427 $28,120
Costs/operating exps. 53,539 31,208 23,071 26,982 26,791
Operating income 14,188 7,001 2,295 1,445 1,329
Net income 7,772 4,231 1,362 135 310
Income per share:
Primary $ 0.74 $ 0.50 $0.22 $ 0.03 $ 0.07
Fully diluted $ 0.72 $ 0.48 $0.22 $ 0.03 $ 0.06
At March 31, 1996 1995 1994 1993 1992
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Current assets $67,666 $31,955 $18,514 $18,094 $20,215
Current liabilities 36,866 27,113 14,679 12,575 13,320
Working capital 30,800 4,842 3,835 5,519 6,895
Long-term debt 4,694 5,281 0 3,021 5,093
Total assets 95,239 45,477 20,746 20,184 22,420
Total liabilities 53,194 32,394 14,679 15,596 18,413
Stockholders' equity 42,045 13,083 6,068 4,588 4,007
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and notes thereto appearing elsewhere in
this annual report. Except for the historical matters contained herein,
statements made in this annual report are forward looking and are made pursuant
to the safe harbor provisions of the Securities Litigation Reform Act of 1995.
Investors are cautioned that forward looking statements involve risks and
uncertainties which may affect the Company's business and prospects, including
economic, competitive, governmental, technological and other factors discussed
in this annual report and in the Company's filings with the Securities and
Exchange Commission.
Comparison of the twelve-month period ended March 31, 1996 with the
twelve-month period ended March 31, 1995
For the fiscal year ended March 31, 1996 net sales increased 77% to
$67,726,926 as compared to $38,209,099 in the prior fiscal year. This
increase was primarily due to strong international growth of Perry Ellis and to
the full year effect of Perry Ellis brands in fiscal 1996, compared to a
partial year of operations in the prior year. Sales of Perry Ellis increased
337% to $26,663,302 as compared to $6,101,700 in the prior year. Sales of
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Parlux continued brands (brands which the Company owned or held licenses at
March 31, 1994) increased 60% to $24,890,474, as compared to $15,551,408 in
the prior year, due to significant increases in Vicky Tiel and Todd Oldham
fragrances, and to the resolution of out-of-stock situations existing in the
prior year. Sales of the FHBH brands declined 18% from $18,024,268 in the
prior year to $14,848,225 in the current fiscal year. Sales of AdM and Bal a
Versailles were $2,095,305 and $1,542,138, respectively, compared to no sales
in the prior year period.
Sales of $41,539,466 to unaffiliated customers increased by 81%, while
sales to affiliates of $26,187,460 increased by 72%. The percentage of sales to
affiliated customers in relation to total sales decreased from 40% in the prior
year to 39% in fiscal 1996. Approximately 82% of total net sales in the fiscal
year ended March 31, 1996 came from operations in, or supplied by, the United
States, and 17% from the Company's French subsidiary.
In June 1991, the Company entered into the Barter Agreement for which the
Company would receive advertising credits in exchange for its inventory of JOAN
COLLINS products. The company expects to fully utilize these bartered
advertising credits as part of its ongoing advertising expenditures.
Advertising credits, less unearned income, are accounted for as prepaid
expenses on the Company's balance sheet at the time such inventory is bartered.
Unearned income equals the amount of advertising credits minus the cost of
goods bartered. As advertising credits are used by the Company, unearned
income is debited and the cost of goods sold is credited. As a result, as the
advertising credits are used, the aggregate cost of goods sold as a percentage
of net sales decreases and gross margin as a percentage of net sales increases.
Cost of goods sold increased as a percentage of net sales from 39% for the
fiscal year ended March 31, 1995 to 42% for the fiscal year ended March 31,
1996, which was mainly attributable to the effect of the Barter Agreement. The
Company utilized advertising credits amounting to $684,000 in the current year
($1,592,000 in 1995) generating $355,000 ($866,000 in 1995) of earned income
which partially offset cost of goods during this period. Without the effects
of the Barter Agreement, cost of goods sold in the fiscal year ended March 31,
1996 would have remained at 42% compared to 41% in the prior fiscal year. All
of the Company's products are manufactured by third parties. For fiscal 1996,
approximately 10% of the Company's products were manufactured in France. The
Company will continue transitioning the consolidation of manufacturing,
warehousing and shipping to the United States, as it believes that it can
continue to achieve cost reductions through consolidation.
Operating expenses increased 54% to $25,099,294 for the year ended March
31, 1996 compared to $16,251,094 in the prior year, but as a percentage of
sales were 37% in fiscal 1996 compared to 43% in the prior year. Advertising
and promotional expenses of $12,942,647 increased by 79% compared to fiscal
1995, reflecting the similar increase in sales. Selling and distribution costs
increased by 45%, but as a percentage of sales decreased from 9% in the prior
fiscal year to 8% currently. General and administrative
13
14
costs increased by 19% in fiscal 1996 compared to the prior year, however, as a
percentage of net sales, general and administrative costs declined to 8%
compared to 12% in the prior fiscal year. These percentage decreases reflect
the economies of scale realized from the acquisition of FHBH, Perry Ellis and
Alexandra de Markoff brand products. Royalty expense increased by 83% in
fiscal 1996 compared to the prior year, principally due to the royalties
required on the sale of Perry Ellis and Todd Oldham brand products, but
remained relatively constant at 2% of net sales. As a result of the above,
operating income increased by 103% to $14,187,843 or 21% of net sales for the
year ended March 31, 1996, compared to $7,000,530 or 18% of net sales in the
prior year.
Interest expense increased by 58% for fiscal 1996 compared to fiscal 1995
due to increased borrowing levels, but remained relatively constant at 3% of
net sales. Exchange gains were $234,074 for fiscal 1996 compared to exchange
losses of $300,661 in the prior year, due to the weakening of the French franc
against the U.S. dollar and the Company's net French franc liability position.
As a result of the above, income before taxes increased to $12,536,505 in
fiscal 1996 compared to $5,510,211 in fiscal 1995. Taxes increased to
$4,763,814 in fiscal 1996 compared to $1,279,000 in fiscal 1995, as the Company
utilized all tax loss carryforwards and reversed its valuation allowance on
deferred tax assets in fiscal 1995. As a result, net income increased 84% to
$7,772,691, or 11% of net sales in the fiscal year ended March 31, 1996,
compared to $4,231,211, or 11% of net sales for the fiscal year ended March 31,
1995.
Comparison of the twelve-month period ended March 31, 1995 with the
twelve-month period ended March 31, 1994
For the fiscal year ended March 31, 1995 net sales increased by 51% to
$38,209,099 as compared to $25,366,436 in the prior year. This increase was
primarily due to the acquisition of FHBH in June 1994 and the Perry Ellis
license in December 1994. Sales of FHBH and Perry Ellis products were
$18,024,000 and $6,102,000, respectively, during the year ended March 31, 1995
compared to no sales during the prior year. Sales of continued brands owned
by Parlux decreased 41% to $10,497,000 compared to sales of $17,830,000 in the
prior year, due to the lack of sufficient working capital to support the
manufacturing of existing lines, as well as to complete peak seasonal inventory
requirements for the FHBH products during the first three quarters of fiscal
1995. Sales of continued licensed brands decreased by 19% to $5,055,000
compared to $6,222,000 in the prior year, due to decreases in the Francesco
Smalto line (see Recent Developments above).
Sales to affiliated customers increased by 23%, while sales to
unaffiliated parties increased by 77%. As a result, the percentage of sales to
affiliates in relation to total sales declined to 40% in fiscal 1995, as
compared to 49% in the prior year, in line with Corporate strategy.
Approximately 80% of total net sales in the fiscal year ended March
14
15
31, 1995 came from operations in the United States, and 20% from the company's
French subsidiary.
Cost of goods sold decreased as a percentage of net sales from 41% for the
fiscal year ended March 31, 1994 to 39% for the fiscal year ended March 31,
1995. The decrease was due primarily to the increase in sales to unaffiliated
parties as a percentage of total sales, since these sales carry a substantially
lower percentage cost of goods than sales to affiliated parties. The Company
utilized advertising credits amounting to $1,592,000 in the current year
($1,154,000 in 1994) generating $866,000 ($619,000 in 1994) of earned income
which partially offset cost of goods during this period. Without the effects
of the Barter Agreement, cost of goods sold in the fiscal year ended March 31,
1995 would have been 41% compared to 40% in the prior fiscal year. All of
the Company's products are manufactured by third parties. For fiscal 1995,
approximately 30% of the Company's products were manufactured in France. The
Company decided to consolidate manufacturing, warehousing and shipping in the
United States, as it believes that it can continue to achieve cost reductions
through consolidation.
Operating expenses increased 28% to $16,251,094 for the year ended March
31, 1995 compared to $12,726,625 in the prior year, but as a percentage of
sales were 43% in fiscal 1995 compared to 50% in the prior year. Advertising
and promotional expenses increased by 51% in line with the sales increase for
fiscal 1995 compared to fiscal 1994, remaining relatively constant at 19% of
net sales, reflecting the increased investment necessary to support FHBH and
Perry Ellis Products. Selling and distribution costs increased by 20%, but
decreased as a percentage of sales from 12% to 9%. General and administrative
costs increased by 3% in fiscal 1995 compared to the prior year, however, as a
percentage of net sales, general and administrative costs declined to 12%
compared to 18% in the prior year, reflecting the economies of scale realized
from the acquisition of FHBH and Perry Ellis brand products. Royalty expense
increased by 77% in fiscal 1995 compared to the prior year, principally due to
the royalties required on the sale of Perry Ellis and Todd Oldham brand
products, but remained relatively constant at 2% of net sales. Sales of FHBH
products represented 45% of total sales, and no royalty is payable on these
sales. As a result of the above, operating income increased by 205% to
$7,000,530 or 18% of net sales for the year ended March 31, 1995, compared to
$2,295,385 or 9% of net sales in the prior year.
Interest expense increased by 69% for fiscal 1995 compared to fiscal 1994
due to increased borrowing levels. Exchange losses were $300,661 for fiscal
1995 compared to exchange losses of $76,124 in the prior year, due to the
strengthening of the French franc against the U.S. dollar.
As a result of the above, income before taxes increased to $5,510,211 in
fiscal 1995 compared to $1,517,334 in fiscal 1994. Taxes increased to
$1,279,000 in fiscal 1995 compared to $155,128 in fiscal 1994, and the Company
utilized all tax loss carryforwards. As a result, net income increased 211% to
$4,231,211, or 11% of net sales
15
16
in the fiscal year ended March 31, 1995 compared to $1,362,206, or 5% of net
sales for the fiscal year ended March 31, 1994.
Liquidity and Capital Resources
Working capital increased to $30,800,351 at March 31, 1996 from $4,842,290
at March 31, 1995. The increase was mainly attributable to (all references to
share information are on a post-split basis): (i) during the twelve months
ended March 31, 1996, certain warrants and employee stock options to acquire a
total of 1,897,966 shares were exercised into common stock, increasing working
capital and stockholders' equity by approximately $3,693,000; (ii) during the
period August 1995 through March 1996, the Company issued 1,125,044 shares of
common stock in private placements pursuant to Regulation S or Rule 144 at an
average price of $6.86 per share, increasing working capital and stockholders'
equity by approximately $7,715,000, net of placement costs; (iii) in
connection with the AdM acquisition, the Company issued 424,000 shares of
common stock to Revlon in December 1995, which increased stockholders' equity
by $3,392,000 (in May 1996, Revlon exercised 176,000 options relating to the
transaction increasing shareholders' equity by an additional $1,408,000 in
fiscal 1997) and; (iv) current period net income.
During the period November 2, 1995 through March 31, 1996, the Company
issued $3,700,000 of 7% convertible debentures and $15,000,000 of 5%
convertible debentures. Of these amounts, $7,000,000 of the Debentures, plus
accrued interest of $48,416, were converted into 1,073,688 shares at an average
price of $6.56 during the period ended March 31, 1996.
In August 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000, from Distribuidora de Perfumes Senderos, Ltda., with
an additional $500,000 available at the option of the Company, to be drawn upon
prior to October 31, 1995. The note bears interest at 12% per annum and was
originally due on February 23, 1996, but was subsequently extended through June
30, 1996. In connection with the note, the Company issued warrants to purchase
53,978 shares of Parlux common stock at a price of $8.11 per share, which
expire on August 21, 1997. The Company borrowed a total of $674,722 under the
agreement . In May 1996, the Company repaid $500,000, leaving an open balance
of $174,722.
In June 1995, the Company borrowed, on an unsecured basis, $300,000 from
an individual related to the Company's Chairman of the Board. The note bears
interest at 11% per annum and is due on September 30, 1996. In connection
with the note, the Company had issued warrants to purchase 60,000 shares of
Parlux common stock at a price of $6.94 per share.
In December 1994, the Company entered into a Loan and Security Agreement
(the Credit Agreement) with Finova Capital Corporation, pursuant to which the
Company is able to borrow, on a revolving basis for a three-year period, up to
$5,000,000 at an interest rate of 2% in excess of the Citibank, N.A. "base or
prime rate." Finova has taken
16
17
a security interest in substantially all of the domestic assets of the Company.
The Credit Agreement contains customary events of default and covenants which
prohibit, among other things, incurring additional indebtedness in excess of a
specified amount, paying dividends, creating liens, and engaging in mergers and
consolidations without the prior consent of Finova. The Credit Agreement also
contains certain financial covenants relating to net worth, interest coverage
and other financial ratios. In May 1996, the Credit Agreement was amended to
provide for a temporary increase in the line up to $6,000,000 until August 29,
1996.
Simultaneously with the closing of the Credit Agreement, the Company
restructured a prior loan extended by the National Bank of Kuwait SAK (NBK) by
paying NBK approximately $2,120,000, including interest, from borrowings under
the Credit Agreement. In exchange for such payment, NBK released Parlux and
its subsidiaries from all outstanding liabilities and guarantees owed to NBK
except for those obligations relating to a new $560,000 term loan, and a
$1,000,000 letter of credit made available to support the Finova loan. The
combined $1,560,000 facility is fully cash collateralized by certain
shareholders' deposits. In addition, these shareholders have signed a
subordination agreement in connection with the Credit Agreement. The term loan
has been repaid at March 31, 1996.
The Company is currently pursuing additional facilities, including an
increase in the Credit Agreement, to finance future growth. There can be no
assurance that such financing facilities will become available, or, if
available, that they will be on terms satisfactory to the Company.
Impact of Currency Exchange and Inflation
The Company's business operations were positively affected in the current
year in the amount of $234,074, and negatively affected in the amount of
$300,661 and $76,124 for the fiscal years ended March 31, 1995 and 1994,
respectively, due to the continuing movement of the French franc vs. the U.S.
dollar.
The Company's sales and purchases are virtually all in U.S. dollars or
French francs. Since approximately 10% of the Company's sales are manufactured
in France, a strengthening of the French franc vis-a-vis the U.S. dollar
results in exchange rate losses for the Company. Conversely, a weakening of
the French franc vis-a-vis the U.S. dollar results in exchange rate gains for
the Company.
The Company monitors exchange rates on a daily basis and regularly seeks
to evaluate long-term expectations for the French franc in order to minimize
its exchange rate risk. To date, the Company has not elected to engage in
currency hedging transactions, but may pursue this alternative.
17
18
The Company intends to continue to centralize manufacturing in the United
States which will minimize the currency exchange impact on intercompany
transactions for the future.
ITEM 8. FINANCIAL STATEMENTS
The financial statements are included herein commencing on page F-1.
The financial statement schedules are listed in the Index to Financial
Statements on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after
the end of the fiscal year covered by this report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission
18
19
pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K.
(a) 1. Financial Statements
See Index to Financial Statements beginning on page F-1 of this annual
report.
2. Financial Statement Schedules
See Index to Financial Statements beginning on Page F-1 of this annual
report.
3. Exhibit Index
The following exhibits are attached:
4.16 5% Convertible Debenture dated March 1, 1996 between the
Company and Karle Limited.
4.17 5% Convertible Debenture dated March 4, 1996 between the
Company and Newsun Limited.
4.18 5% Convertible Debenture dated March 11, 1996 between the
Company and Kempton Investments Ltd.
4.19 5% Convertible Debenture dated March 11, 1996 between the
Company and Newsun Limited.
4.20 5% Convertible Debenture dated April 16, 1996 between the
Company and Kempton Investments, Ltd.
4.21 5% Convertible Debenture dated April 16, 1996 between the
Company and Newsun Limited.
4.22 5% Convertible Debenture dated May 12, 1996 between the
Company and Newsun Limited.
4.23 5% Convertible Debenture dated May 17, 1996 between the
Company and GFL Performance Fund, Ltd.
23 Consent of Price Waterhouse LLP
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
In January 1996, the Company filed a Current Report on Form 8-K with
respect to the license and asset acquisition of Alexandra de Markoff from
Revlon Holdings, Inc.
19
20
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statement of Changes in Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
FORM 10-K SCHEDULES:
Schedule VIII - Valuation and Qualifying Accounts F-28
Schedule IX - Short-term Bank Borrowings F-29
All other Schedules are omitted as the required information is not
applicable or the information is presented in the financial
statements or the related notes thereto.
F-1
21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Parlux Fragrances, Inc.
In our opinion, the consolidated financial statements listed in the index
referred to under Item 14(a)(1) and (2) on page 19 and appearing on page F-1
present fairly, in all material respects, the financial position of Parlux
Fragrances, Inc. and its subsidiaries at March 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles. 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 audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards 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 audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Miami, Florida
June 28, 1996
F-2
22
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31,
ASSETS --------------------------
- --------------------------------------
1996 1995
----------- -----------
CURRENT ASSETS:
Cash and cash equivalents $ 339,423 $ 302,113
Receivables, net of allowance for
doubtful accounts, sales returns and
allowances of approximately $2,121,000 and $2,055,000
in 1996 and 1995, respectively 10,892,347 4,888,250
Trade receivables from affiliates 13,482,423 4,893,710
Inventories, net 35,762,570 16,963,006
Prepaid expenses and other current assets 7,189,213 4,908,321
----------- -----------
TOTAL CURRENT ASSETS 67,665,976 31,995,400
Equipment and leasehold improvements, net 2,475,919 2,043,758
Trademarks, licenses and goodwill, net 24,623,417 11,380,201
Other 473,611 97,107
----------- -----------
TOTAL ASSETS $95,238,923 $45,476,466
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------
CURRENT LIABILITIES:
Borrowings, current portion $11,564,917 $13,512,291
Convertible debentures 250,000 -
Accounts payable 18,739,117 7,337,910
Accrued expenses 1,543,591 2,425,850
Income taxes payable 4,768,000 1,386,000
Advances from customers - 2,451,059
----------- -----------
TOTAL CURRENT LIABILITIES 36,865,625 27,113,110
Borrowings, less current portion 4,694,239 5,280,689
Convertible debentures 11,450,000 -
Deferred tax liability 183,864 -
----------- -----------
TOTAL LIABILITIES 53,193,728 32,393,799
----------- -----------
COMMITMENTS - -
----------- -----------
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares
authorized, 0 issued and outstanding - -
Common stock, $0.01 par value, 15,000,000
shares authorized, 11,456,426 and 6,980,428
shares issued in 1996 and 1995, respectively 114,564 34,902
Additional paid-in capital 32,881,207 11,563,537
Retained earnings 9,000,649 1,271,947
Cumulative translation adjustment 182,247 345,753
----------- -----------
42,178,667 13,216,139
Less - 39,000 shares of common stock in treasury, at cost (133,472) (133,472)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 42,045,195 13,082,667
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $95,238,923 $45,476,466
=========== ===========
See notes to consolidated financial statements.
F-3
23
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended March 31,
----------------------------------------
1996 1995 1994
----------- ----------- -----------
Net sales:
Unaffiliated customers $41,539,466 $22,978,956 $12,956,138
Affiliates 26,187,460 15,230,143 12,410,298
----------- ----------- -----------
67,726,926 38,209,099 25,366,436
Cost of goods sold 28,439,789 14,957,475 10,344,426
----------- ----------- -----------
Gross profit 39,287,137 23,251,624 15,022,010
----------- ----------- -----------
Operating expenses:
Advertising and promotional 12,942,647 7,248,839 4,790,189
Selling and distribution 5,130,099 3,530,133 2,945,019
General and administrative 5,524,416 4,648,899 4,527,445
Royalties 1,502,132 823,223 463,972
----------- ----------- -----------
Total operating expenses 25,099,294 16,251,094 12,726,625
----------- ----------- -----------
Operating income 14,187,843 7,000,530 2,295,385
Interest expense and bank charges 1,885,412 1,189,658 701,927
Exchange (gains) losses (234,074) 300,661 76,124
----------- ----------- -----------
Income before income taxes 12,536,505 5,510,211 1,517,334
Income taxes 4,763,814 1,279,000 155,128
----------- ----------- -----------
Net income $ 7,772,691 $ 4,231,211 $ 1,362,206
=========== =========== ===========
Earnings per common and common
equivalent share:
Primary $ 0.74 $ 0.50 $ 0.22
=========== =========== ===========
Fully diluted $ 0.72 $ 0.48 $ 0.22
=========== =========== ===========
See notes to consolidated financial statements.
F-4
24
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
COMMON STOCK RETAINED
------------------- ADDITIONAL EARNINGS CUMULATIVE
NUMBER PAR PAID-IN (ACCUMULATED TRANSLATION TREASURY
ISSUED VALUE CAPITAL DEFICIT) ADJUSTMENT STOCK TOTAL
---------- -------- ----------- ----------- --------- --------- -----------
BALANCE at April 1, 1993 2,812,642 $ 28,127 $ 8,712,669 $(4,321,470) $ 169,243 - $ 4,588,569
Net income - - - 1,362,206 - - 1,362,206
Issuance of common stock upon exercise of:
Employee stock options 36,547 365 111,445 - - - 111,810
Warrants 12,000 120 44,880 - - - 45,000
Foreign currency translation adjustment - - - - (39,985) - (39,985)
---------- -------- ----------- ----------- --------- --------- -----------
BALANCE at March 31, 1994 2,861,189 28,612 8,868,994 (2,959,264) 129,258 - 6,067,600
Net income - - - 4,231,211 - - 4,231,211
Issuance of common stock in connection with:
Excercise of employee stock options 19,025 190 61,020 - - - 61,210
Sale of stock in private placement 110,000 1,100 438,523 - - - 439,623
Acquisition of assets 500,000 5,000 2,195,000 - - - 2,200,000
Foreign currency translation adjustment - - - - 216,495 - 216,495
Purchase of 19,500 shares of treasury stock, at cost - - - - - $(133,472) (133,472)
---------- -------- ----------- ----------- --------- --------- -----------
BALANCE at March 31, 1995 3,490,214 34,902 11,563,537 1,271,947 345,753 (133,472) 13,082,667
Net income - - - 7,772,691 - - 7,772,691
Issuance of common stock upon exercise of:
Employee stock options 11,175 112 33,910 - - - 34,022
Warrants 1,056,916 10,569 3,006,022 - - - 3,016,591
Sale of stock in private placements 1,001,514 10,015 7,605,570 - - - 7,615,585
Stock issued in connection with
acquisition of assets 424,000 4,240 3,739,760 - - - 3,744,000
Conversion of debentures, net of unamortized debt 1,073,688 10,737 6,932,408 - - - 6,943,145
issuance costs
Adjustment for stock split 4,398,919 43,989 - (43,989) - - -
Foreign currency translation adjustment - - - - (163,506) - (163,506)
---------- -------- ----------- ----------- --------- --------- -----------
BALANCE at March 31, 1996 11,456,426 $114,564 $32,881,207 $ 9,000,649 $ 182,247 $(133,472) $42,045,195
========== ======== =========== =========== ========= ========= ===========
See notes to consolidated financial statements.
F-5
25
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended March 31,
------------------------------------------
1996 1995 1994
------------ ----------- -----------
Cash flows from operating activities:
Net income $ 7,772,691 $ 4,231,211 $ 1,362,206
------------ ----------- -----------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,563,673 807,491 546,882
Net deferred tax benefit (4,184) (628,504) -
Changes in assets and liabilities net of effect of acquisitions:
(Increase) decrease in trade receivables - customers (7,900,097) 2,683,107 1,500,320
Increase in trade receivables - affiliates (8,588,713) (1,788,026) (1,093,192)
(Increase) decrease in inventories (15,371,203) 1,919,988 (722,476)
(Increase) decrease in prepaid expenses and other current assets (1,032,135) 944,125 (478,996)
(Increase) decrease in other non-current assets (376,504) (4,497) 58,126
Increase (decrease) in accounts payable 11,401,204 (1,321,624) 238,251
Increase in accrued expenses 2,726,637 2,557,874 146,655
(Decrease) increase in advances from customers (2,451,059) 2,451,059 -
------------ ----------- -----------
Total adjustments (20,032,381) 7,620,993 195,570
------------ ----------- -----------
Net cash (used in) provided by operating activities (12,259,690) 11,852,204 1,557,776
------------ ----------- -----------
Cash flows from investing activities:
Purchases of equipment and leasehold improvements (1,168,386) (336,046) (709,823)
Purchases of trademarks (82,122) (17,467) (50,178)
Cash paid in acquisitions:
Fred Hayman Beverly Hills - (2,000,000) -
Perry Ellis - (7,500,000) -
Alexandra de Markoff (8,608,000) - -
Bal a Versailles (1,697,500) - -
Purchases of treasury stock - (133,472) -
------------ ----------- -----------
Net cash used in investing activities (11,556,008) (9,986,985) (760,001)
------------ ----------- -----------
Cash flows from financing activities:
Proceeds (payments) - overdraft facilities 145,450 (481,929) 242,636
Proceeds (payments) - receivable financing facilities 579,731 (348,082) (657,791)
Proceeds - notes payable Distr. de Perfumes Senderos 674,722 - -
Proceeds - notes payable related parties 300,000 - -
(Payments) proceeds - notes payable to Finova Capital Corp. (127,352) 4,015,729 -
Payments to National Bank of Kuwait (560,000) (2,040,000) (150,000)
Proceeds from Eagle Bank 401,378 81,014 -
Payments to Sanofi Beaute, Inc. (5,501,535) (947,335) -
Payments to Fred Hayman Beverly Hills (202,480) (2,770,027) -
Payments - other notes payable - (29,969) (195,999)
Proceeds - 7% debentures, net 3,666,000 - -
Proceeds - 5% debentures, net 14,614,500 - -
Proceeds from issuance of common stock, net 9,771,094 500,833 80,610
------------ ----------- -----------
Net cash provided by (used in) financing activities 23,761,508 (2,019,766) (680,544)
------------ ----------- -----------
Effect of exchange rate changes on cash 91,500 417,968 (147,893)
------------ ----------- -----------
Net increase (decrease) in cash and cash equivalents 37,310 263,421 (30,662)
Cash and cash equivalents, beginning of year 302,113 38,692 69,354
------------ ----------- -----------
Cash and cash equivalents, end of year $ 339,423 $ 302,113 $ 38,692
============ =========== ===========
See notes to consolidated financial statements.
F-6
26
PARLUX FRAGRANCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996, 1995 AND 1994
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. NATURE OF BUSINESS
Parlux Fragrances, Inc. was incorporated in Delaware on July 23, 1984,
and is a manufacturer and distributor of prestige fragrances, cosmetics and
beauty related products.
B. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Parlux
Fragrances, Inc., Parlux S.A., a wholly-owned French subsidiary (S.A.) and
Parlux, Ltd. (jointly referred to as the "Company"). All material
intercompany accounts and transactions have been eliminated in consolidation.
C. REVENUE RECOGNITION
Revenue is recognized when the product is shipped to a customer.
Estimated amounts for sales returns and allowances are recorded at the time
of sale.
D. ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 more significant estimates relate to the Company's
reserve for doubtful accounts, sales returns and allowances, inventory
obsolescence and periods of amortization for trademarks, licenses and
goodwill. Actual results could differ from those estimates.
E. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The cost of inventories includes product costs and handling
charges, including the allocation of the Company's applicable overhead.
F. BARTER SALES AND CREDITS
The Company has sold certain of its products to a barter broker in
exchange for advertising that the Company will use. The Company defers the
gross margin on barter sales until the advertising is used.
The estimated value of the advertising is recorded as a prepaid expense
on the Company's balance sheet at the time such inventory is sold, net of
unearned income equal to the amount of advertising credits minus the related
cost of goods sold. As advertising credits are used by the
F-7
27
Company, advertising and promotional expense is charged for the advertising
credits used, unearned income is debited and cost of goods sold is credited.
As a result, as the advertising credits are used, aggregate cost of goods
sold as a percentage of net sales decreases and gross margin as a percentage
of net sales increases.
G. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are carried at cost. Equipment is
depreciated using the straight-line method over the estimated useful life of
the asset. Leasehold improvements are amortized over the lesser of the
estimated useful life or the lease period. Repairs and maintenance charges
are expensed as incurred, while betterments and major renewals are
capitalized.
H. TRADEMARKS, LICENSES AND GOODWILL
Trademarks, licenses and goodwill are recorded at cost and amortized
over the estimated periods of benefit, principally 25 years. Accumulated
amortization at March 31, 1996 of trademarks, licenses and goodwill was
$983,499 ($424,694 at March 31, 1995).
I. ADVERTISING COSTS
Advertising and promotional expenditures are charged to operations as
incurred. These expenditures include print and media advertising as well as
in-store promotions.
J. INCOME TAXES
The Company follows the liability method in accounting for income taxes.
The liability method provides that deferred tax assets and liabilities are
recorded, using currently enacted tax rates, based upon the difference
between the tax bases of assets and liabilities and their carrying amounts
for financial statement purposes.
Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized. Income tax expense is the
tax payable for the period and the change during the period in deferred tax
assets and liabilities.
K. FOREIGN CURRENCY TRANSLATION
The assets and liabilities of S.A. are translated into U.S. dollars at
year-end exchange rates. Income and expense items are translated at weighted
average rates of exchange prevailing during the year. Translation
adjustments are accumulated as a separate component of stockholders' equity.
Both realized and unrealized gains and losses arising from foreign
currency transactions are recorded in the statement of income.
L. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of instruments whose
fair value approximates their carrying value.
M. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
On October 26, 1995, the Company announced a two-for-one stock split
effected in the form of a dividend to shareholders of record as of November
3, 1995 (the stock split). All references to share and per share data
within the financial statements and notes thereto have been retroactively
adjusted to reflect the stock split.
Fully dilutive earnings per common and common equivalent share have been
computed based upon the weighted average number of shares of common stock and
common stock equivalents outstanding of 10,924,808, 9,014,808 and 6,697,790
for the years ended March 31, 1996, 1995 and 1994, respectively. The
modified treasury stock method was used during 1994 and 1995 to determine the
dilutive effect of the options, warrants, and convertible debentures since
the
F-8
28
number of shares of common stock issuable upon their exercise exceeds
20% of the outstanding common shares.
Assuming the convertible debentures issued by the Company during fiscal 1996,
and converted into common stock through June 24, 1996, had been converted
into common stock upon issuance, the Company would have had primary earnings
per common and common equivalent share during fiscal 1996 of $0.72. Such
supplemental primary earnings per common and common equivalent share is based
on the number of common and common equivalent shares used in the calculation
of primary earnings per common and common equivalent share (10,682,206) plus
the number of weighted average shares into which the convertible debentures
were converted (38,597), after giving effect to the after tax interest
savings of $104,099 for fiscal 1996 resulting from such pro forma conversion.
N. STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123, Accounting For Stock
Based Compensation (SFAS123). SFAS 123, the disclosure provisions of which
must be implemented for fiscal years beginning subsequent to December 15,
1995, establishes a fair value based method of accounting for stock based
compensation plans, the effect of which can either be disclosed or recorded.
The Company will adopt the provisions of SFAS 123 for the year ending March
31, 1997. Upon adoption, the Company intends to retain the intrinsic value
method of accounting for stock based compensation, which it currently uses.
O. CASH FLOW INFORMATION
The Company considers temporary investments with an original maturity of
three months or less to be cash equivalents.
Supplemental disclosures of cash flow information follow:
1996 1995 1994
---------- -------- --------
Cash paid for:
Interest $1,940,179 $990,859 $610,924
========== ======== ========
Income taxes $1,390,076 $162,372 $106,037
========== ======== ========
In addition to the barter transactions discussed in Note 8 (D), the
following non-cash transactions were entered into:
Year ended March 31, 1996:
- Acquisition of the Alexandra de Markoff cosmetic line and the
Bal a' Versailles fragrance lines were partially funded through
the issuance of common stock and notes payable, respectively, as
discussed in
Note 5.
- Notes payable and accrued interest in the amount of $792,603 and
$178,750, respectively, were repaid through the issuance of
common stock in connection with the exercise of certain warrants
and options.
Year ended March 31, 1995:
F-9
29
- Acquisitions of the Fred Hayman and Perry Ellis fragrance lines
which were partially financed through the issuance of common
stock and notes payable as discussed in Note 5.
Year ended March 31, 1994:
- Repayment of accounts payable and accrued expenses totaling
$76,200 in connection with the exercise of outstanding options
and warrants for 44,000 shares of common stock.
P. RECLASSIFICATIONS
Certain amounts in the consolidated financial statements for prior years
have been reclassified to conform to the 1996 presentation.
2. INVENTORIES
The components of inventories are as follows:
March 31,
---------
1996 1995
----------- -----------
Finished products $13,477,055 $ 6,582,102
Components and packaging material 17,306,010 9,412,855
Raw material 4,979,505 968,049
----------- -----------
$35,762,570 $16,963,006
=========== ===========
The above amounts are net of reserves for potential inventory
obsolescence of $1,200,000 and $686,000 at March 31, 1996 and 1995,
respectively.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets are as follows:
March 31,
---------
1996 1995
---------- ----------
Promotional supplies $2,903,611 $1,965,493
Advances to vendors 1,463,007 153,930
Deferred tax assets 816,552 628,504
Prepaid advertising 424,000 152,000
Advertising barter credits, net 1,059,332 1,459,121
Other 522,711 549,273
---------- ----------
$7,189,213 $4,908,321
========== ==========
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30
4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are comprised of the following:
Estimated
------------
March 31, useful lives
--------- ------------
1996 1995 (in years)
---- ---- ------------
Molds and equipment $ 4,593,621 $ 3,492,875 3-7
Furniture and fixtures 840,908 639,206 5
Leasehold improvements 126,756 155,694 5-7
Vehicles 6,260 6,575 3
----------- -----------
5,567,545 4,294,350
Less: accumulated
depreciation and
amortization (3,091,626) (2,250,592)
----------- -----------
$ 2,475,919 $ 2,043,758
=========== ===========
Depreciation and amortization expense on equipment and leasehold improvements
for the years ended March 31,1996, 1995 and 1994 was $1,007,522, $560,771 and
$498,582, respectively.
5. ACQUISITIONS
On March 19, 1996, the Company consummated the acquisition of the
trademarks and certain inventory for the Bal a' Versailles (BAV) fragrance
and beauty products brand name from Parfums Jean Desprez, S.A., pursuant to a
letter of intent entered into on January 11, 1996.
At closing, the Company provided as consideration $1,697,500 in cash and
$2,553,360 in the form of non-interest bearing promissory notes due in
varying installments through August 1996.
The estimated fair value of the assets acquired is summarized as follows:
Goodwill, licenses and trademarks $2,772,500
Inventories 978,360
Covenant-not-to-compete 300,000
Molds and other fixed assets 200,000
----------
Fair value of assets acquired $4,250,860
==========
On December 27, 1995, the Company consummated the acquisition of
substantially all of the assets of Alexandra de Markoff (AdM), a prestige
cosmetic line, pursuant to an asset purchase agreement entered into on
September 21, 1995 between the Company and Revlon Holdings, Inc. (Revlon).
Parlux acquired from Revlon certain inventories and fixed assets and the
rights in certain trademarks relating to AdM. Parlux provided as
consideration $8,608,000 in cash, 424,000 shares of common stock valued at
$3,392,000 and agreed to accept returns and allowances in excess of $100,000
related to sales of AdM products by Revlon prior to December 27, 1995. In
addition, the Company granted Revlon an option to purchase 176,000 shares of
the Company's common stock, until June 30, 1996, at an exercise price of
$8.00 per share.
F-11
31
The estimated fair value of the net assets acquired is summarized as follows:
Goodwill, licenses and trademarks $10,267,000
Advance for future inventory purchases 4,000,000
Molds and other fixed assets 85,000
Reserve for sales returns and allowances (2,000,000)
-----------
Fair value of net assets acquired $12,352,000
===========
In December 1994, the Company consummated the acquisition of the license for
the worldwide manufacturing and distribution rights and for the use of the
trademarks associated with the Perry Ellis International, Inc. (Perry Ellis)
line of fragrances and beauty products pursuant to an Asset Purchase Agreement
entered into in October 1994 between the Company and Sanofi Beaute, Inc., the
prior holder of the Perry Ellis fragrances license. In addition to the
acquisition of the license, which is renewable every two years if the Company
meets certain average sales levels, Parlux acquired from Sanofi: a) the
assets, rights, claims and contracts relating to the brands Perry Ellis for
Men(R) and 360(degree) Perry Ellis(R) (the Brands), b) certain inventories
relating to the Brands, c) certain fixed assets relating to the Brands, and d)
the ownership rights in certain trademarks relating to the Brands.
At closing, the Company provided as consideration, $7,500,000 in cash and
$6,535,660 in the form of a one-year promissory note, bearing interest at 7%
and secured by the assets acquired under the Purchase Agreement.
The estimated fair value of the assets acquired is summarized as follows:
Goodwill, license and trademarks $ 7,500,000
Inventories 4,528,925
Promotional supplies 1,073,135
Molds and other fixed assets 933,600
-----------
Fair value of assets acquired $14,035,660
===========
In June 1994, the Company entered into an Asset Purchase Agreement with Fred
Hayman Beverly Hills, Inc. (FHBH) pursuant to which the Company purchased
substantially all of the assets and liabilities of the FHBH fragrance division,
including inventory, accounts receivable molds and other assets. In
addition, FHBH granted Parlux an exclusive 55-year, royalty free license to use
FHBH's United States Class 3 trademarks for Fred Hayman(R), 273(R), Touch(R),
With Love(R), and Fred Hayman Personal Selections(R) and the corresponding
international registrations.
In consideration for the purchased assets, the Company provided the
following to the seller: (i) payment of $2,000,000 in cash, (ii) issuance of
1,000,000 shares of the Company's common stock (approximately $2,200,000 market
value at date of closing), (iii) delivery of a short-term non-interest bearing
note in the amount of $2,544,942 and (iv) delivery of a 10-year 7.25% note in
the amount of $5,950,774. In addition, the Company granted FHBH warrants to
purchase 200,000 shares of the Company's common stock, for a five-year period,
at an exercise price of $2.13 per share.
F-12
32
The estimated fair value of the net assets acquired is summarized as follows:
Accounts receivable, net $ 2,252,796
Inventories 6,461,236
Prepaid promotional supplies
and expenses 1,407,897
Molds 477,894
Goodwill 2,655,719
Accounts payable and other
liabilities (559,827)
-----------
Fair value of net assets acquired $12,695,715
===========
Goodwill, licenses and trademarks recorded in connection with these
acquisitions are being amortized over 25 years.
On January 31, 1996, The Company entered into an agreement to purchase all of
the assets and assume certain liabilities of Richard Barrie Fragrances, Inc.
(RBF) for a combination of $750,000 in cash and 370,000 shares of Parlux common
stock. The agreement is subject to the approval of RBF's board of directors,
shareholders and convertible note holders. The Company anticipates that, if
the agreement is approved, closing would take place prior to June 30, 1996.
F-13
33
6. BORROWINGS
The composition of debt is as follows:
March 31, 1996 March 31, 1995
-------------- --------------
Note payable to FHBH, secured by the
acquired licensed trademarks, interest
at 7.25%, payable in equal monthly
installments of $69,863 including
interest, through June 2004 $5,173,209 $ 5,725,689
Revolving credit facility payable to
Finova Capital Corporation, interest at
Citibank N.A. prime rate (8.25% at
March 31, 1996) plus 2%, payable on
December 27, 1997, net of restricted cash
of $884,464 and $273,587 at March 31, 1996
and 1995, respectively 3,888,378 4,015,729
Notes payable to Parfums Jean Desprez,
non-interest bearing, payable in installments
through August 1996 2,553,360 --
Note payable to Distribuidora de
Perfumes Senderos, Ltda., unsecured,
interest at 12%, $500,000 repaid in May
1996, balance due September 30, 1996 674,722 --
Unsecured $500,000 line of credit payable to
Eagle National Bank, interest at the bank's
prime rate plus 2%, due August 1, 1996 482,392 81,014
Unsecured notes payable to related parties,
interest payable monthly at 11%, due
September 30, 1996 700,000 400,000
Note payable to Sanofi Beaute, Inc., secured
by the acquired inventory and license
agreement with Perry Ellis International, Inc.,
interest at 7%, payable in equal monthly
installments of $565,509, including interest,
through December 31, 1995 -- 5,588,325
Loan payable to NBK, interest at the bank's
prime rate plus 1.5%, secured by
shareholders' deposits, paid in varying
installments through February 1996 -- 560,000
F-14
34
Overdraft facilities, interest from 10.25% to
10.75%, payable on demand (1) 646,368 500,918
Receivable financing facilities, interest at 9.25%
to 10.25%, payable on demand (1) 1,921,876 1,342,145
Note payable to stockholder, interest at 10%,
repaid in May 1996 (1) 148,544 560,291
Other notes payable 70,307 18,869
----------- -----------
16,259,156 18,792,980
Less: long-term borrowings (4,694,239) (5,280,689)
----------- -----------
Short-term borrowings $11,564,917 $13,512,291
=========== ===========
(1) Denominated in French francs
In December 1994, the Company entered into a Loan and Security Agreement (the
Credit Agreement) with Finova Capital Corporation (Finova), pursuant to which
the Company is able to borrow, depending on the availability of a borrowing
base, as defined in the Credit Agreement, on a revolving basis for a three-year
period, up to $5,000,000, at an interest rate of 2% in excess of Citibank, N.A.
"base or prime rate". Finova has taken a security interest in substantially
all of the domestic assets of the Company. The Credit Agreement contains
customary events of default and covenants which prohibit, among other things,
incurring additional indebtedness in excess of a specified amount, paying
dividends, creating liens, and engaging in mergers and consolidation without
the prior consent of Finova. The Credit Agreement also contains certain
financial covenants relating to net worth, interest coverage and other
financial ratios. In May 1996, the Credit Agreement was amended to provide for
a temporary increase in the line up to $6,000,000 until August 29, 1996.
Simultaneously with the closing of the Credit Agreement, the Company
restructured a prior loan extended by the National Bank of Kuwait SAK ("NBK")
by paying NBK approximately $2,120,015, including interest, from borrowings
under the Credit Agreement. In exchange for such payment, NBK released the
Company from all outstanding liabilities and guarantees owed to NBK, except for
those obligations relating to a new $560,000 term loan, and a $1,000,000 letter
of credit made available to support the Finova loan. The combined $1,560,000
facility is fully cash collateralized by certain shareholders' deposits. In
addition, the shareholders have signed a subordination agreement in connection
with the Credit Agreement. During the year ended March 31, 1996, the Company
repaid the $560,000 term loan.
The Company has overdraft and trade financing facilities aggregating 15,450,000
French francs (approximately $3,060,000 as of March 31, 1996). These credit
facilities are renewed annually.
On September 21, 1995, in connection with the proposed purchase of the AdM
cosmetic line, the Company entered into a $2,400,000 loan agreement with
Revlon. The loan was repaid on December 27, 1995 upon closing of the AdM
transaction.
F-15
35
In August, 1995, the Company entered into an agreement to borrow, on an
unsecured basis, $500,000 from Distribuidora de Perfumes Senderos, Ltda.,
with an additional $500,000 available at the option of the Company, to be
drawn upon prior to October 31, 1995. The note bears interest at 12% per
annum and was due on February 23, 1996. The Company borrowed a total of
$674,722 under the agreement and repaid $500,000 in May 1996, with the
balance being extended to September 30, 1996.
In June 1995, the Company borrowed $300,000 from an individual related to the
Company's Chairman of the Board. The unsecured note bears interest at 11%
per annum and is due on September 30, 1996.
Future maturities of borrowings are as follows (in 000's):
For the year ending March 31,
----------------------------
1997 $11,565
1998 515
1999 553
2000 594
2001 639
Thereafter 2,393
-------
Total $16,259
=======
7. CONVERTIBLE DEBENTURES
During the period November 2, 1995 through March 31, 1996, the Company
issued $3,700,000 of 7% convertible debentures and $15,000,000 of 5%
convertible debentures (the Debentures), pursuant to regulation S with
maturities between one and two years. The Debentures are convertible into
shares of the Company's common stock at 85% of the average closing price of
the stock over a five-day period prior to conversion.
As of March 31, 1996, $7,000,000 of the Debentures, plus accrued
interest of $48,146, had been converted into 1,073,688 shares of common stock
and $10,000,000 of the 5% Debentures and $1,700,000 of the 7% Debentures were
outstanding. Subsequent to March 31, 1996, an additional $10,950,000 have
been converted into 1,257,667 shares of common stock. Accordingly, these
$10,950,000 of Debentures have been classified as long-term in the
accompanying consolidated balance sheet at March 31, 1996.
During April and May 1996, the Company issued an additional $13,000,000
in 5% Debentures with the same conversion features and terms as those issued
above, of which $3,000,000 have been converted into 308,727 shares of common
stock during June 1996.
F-16
36
8. COMMITMENTS
A. LEASES:
The Company leases its office space and certain equipment in both the
U.S. and France under operating leases expiring on various dates through
the year ending October 31, 2005. Total rent expense charged to
operations for the years ended March 31, 1996, 1995 and 1994 was
approximately $916,000, $568,000 and $422,000, respectively.
At March 31, 1996, the minimum annual rental commitments are as follows
(in 000's ):
For the year ending March 31,
-----------------------------
1997 $1,052
1998 1,055
1999 1,048
2000 1,033
2001 705
Thereafter 2,580
-----
Total $7,473
======
B. LICENSE AND DISTRIBUTION AGREEMENTS:
The Company holds the following exclusive worldwide licenses to
manufacture and sell fragrance and other related products:
Perry Ellis
Vicky Tiel
Todd Oldham
Phantom of the Opera
Under each of these arrangements, the Company must pay royalties at
various rates based on net sales, and spend minimum amounts for
advertising based on sales volume. The agreements expire on various dates
through 1998 and are subject to renewal.
In May 1995, the Company terminated its license agreement with Francesco
Smalto for breach of contract. On October 5, 1995, the Company entered
into a transition and termination agreement with SMALTO which provides
for the continued use of the Francesco Smalto trademark through September
30, 1996. The agreement contains certain production restrictions and
requires a fixed amount of royalties during the period, which the Company
anticipates will not exceed 5% of net sales of Smalto fragrances. Sales
of Francesco Smalto products represented approximately 7% of total
Company net sales for the year ended March 31, 1996.
F-17
37
The Company believes it is presently in compliance with all material
obligations under the above agreements. The Company expects to incur
continuing obligations for advertising and royalty expense under these
license agreements. The minimum amounts of these obligations derived from
the aggregate minimum sales goals, set forth in the agreements, over the
remaining contract periods are as follows (in 000's):
Fiscal year ending
------------------
March 31, 1997 1998
--------- ------ ------
Advertising $6,781 $5,936
Royalties $ 828 $ 440
C. TRADEMARKS:
Though various acquisitions since 1991, the Company acquired worldwide
trademarks and distribution rights to ANIMALE, DANIEL DE FASSON, DECADENCE,
LIMOUSINE and BAL A VERSAILLES fragrances and ALEXANDRA de MARKOFF cosmetics
and fragrances. In addition, FHBH granted the Company an exclusive 55-year
royalty free license. Accordingly, there are no licensing agreements
requiring the payment of royalties. The Company also has the rights to
license these trademarks, other than FHBH, for all classes of merchandise.
D. BARTER ARRANGEMENTS:
In June 1991, the Company entered into a barter arrangement (the Barter
Agreement) for which the Company would receive advertising credits in
exchange for its inventory of JOAN COLLINS products. The final sale of these
products was completed in June 1993.
The following table sets forth the balances and transactions included in
the accompanying financial statements related to the Barter Agreement (in
000's):
1996 1995 1994
------ -------- ------
Prepaid advertising at March 31,
net of deferred income of
$287, $643 and $1,509 in 1996, 1995
and 1994, respectively $ 660 $ 989 $1,714
====== ======== ======
Barter sales for the year ended
March 31 $ --- $ --- $1,285
====== ======== ======
Advertising credits used for the year ended March 31 $ 684 $ 1,592 $1,154
====== ======== ======
Deferred income recognized for
the year ended March 31 $ 355 $ 866 $ 619
====== ======== ======
F-18
38
In connection with the June 1994 FHBH acquisition, the Company acquired
$471,000 of advertising credits of which $72,000 has been utilized during the
year ended March 31, 1996. The Company expects to be able to fully utilize
all of these barter advertising credits as part of its normal ongoing
advertising expenditures.
E. EMPLOYMENT AND CONSULTING AGREEMENTS:
The Company has employment contracts with certain officers and employees
which expire from April 1997 through January 1998. Minimum commitments
under these contracts are as follows (in 000's):
For the year ending March 31,
-----------------------------
1997 $1,291
1998 288
------
$1,579
======
In connection with the employment contracts, warrants to purchase
1,190,000 shares of common stock, at prices ranging from $1.50 to $7.50 have
been issued. These warrants are exercisable for a ten-year period from the
date of grant and vest over the term of the applicable contracts through
January 1998. During the year ended March 31, 1996, 28,000 warrants were
exercised. As of March 31, 1996, an additional 772,000 of the above mentioned
warrants were vested. In addition, during January 1996, the Board of
Directors approved a resolution whereby the number of warrants issued to
key employees would double in the event of a change in control.
On April 1, 1994, the Company entered into a three-year consulting
agreement with Cosmix, Inc., a company owned by Mr. Frederick Purches, the
Vice Chairman of the Board, which provides for monthly payments of $8,333.
The agreement calls for Mr. Purches to spend substantial time to assist the
Company in the areas of banking, SEC and stockholder relations, financial
planning, assessment and coordination of acquisitions and divestiture, and
any other similar activities which may be assigned by the Board of
Directors. Mr. Purches receives certain insurance benefits as a part of his
agreement, and has received 90,000 warrants to acquire shares of common
stock at $2.06 over the three-year period of the contract, of which 60,000
warrants have been exercised during the year ended March 31, 1996.
On April 1, 1994, the Company entered into a three-year consulting
agreement commencing June 1, 1994, with Cambridge Development Corporation, a
company owned by Mr. Albert F. Vercillo, who is a director of the Company.
The Agreement calls for Mr. Vercillo to devote substantial time to the
Company in the areas of U.S. and international financial analysis and
planning. Cambridge Development Corporation receives $4,500 a month and Mr.
Vercillo receives certain insurance benefits, and has received 30,000
warrants to acquire shares of common stock at $2.06 over the three-year
period of the contract.
On April 1, 1994, the Company entered into a consulting agreement with
its former President, which provides for monthly payments of $16,667 through
September 30, 1997. In addition,
F-19
39
the former President had previously received warrants to purchase
500,000 shares of common stock, at an exercise price of $1.875 per share.
All of the previously described warrants were issued at the market value
of the underlying shares at the date of grant and reflect the two-for-one
stock split effected as of November 3, 1995.
Contingent upon the closing of the proposed acquisition of RBF, the
Company has entered into employment agreements with four RBF employees
through March 31, 1999. Minimum commitments under these agreements are
approximately $575,400, $575,400 and $575,400 for the fiscal years ending
March 31, 1997, 1998 and 1999, respectively. In addition, these employees
were issued warrants to purchase a total of 210,000 shares of common stock
at $6.75 per share that vest equally over the three year period.
9. FOREIGN SUBSIDIARY
The following amounts relate to the Company's wholly-owned subsidiary, Parlux
S.A.:
As of and for the year ended March 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
Total assets $ 9,458,774 $10,607,585 $11,248,450
Working capital 2,115,755 1,112,504 447,107
Equity 2,229,714 1,506,057 970,028
Net Sales:
Trade 9,101,611 7,219,601 8,225,259
Affiliates 2,742,211 336,195 191,425
Intercompany 4,258,054 4,845,524 5,296,957
----------- ----------- -----------
Total $16,101,876 $12,401,320 $13,713,641
=========== =========== ===========
Net income $ 887,163 $ 319,535 $ 122,025
=========== =========== ===========
Prior to 1996, foreign sales were principally made by Parlux S. A. During the
year ended March 31, 1996, sales to foreign customers from the Company's
domestic subsidiary amounted to approximately $19,000,000. At March 31, 1996,
trade receivables from foreign customers amounted to approximately $5,753,000.
F-20
40
10. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" (SFAS 109) in the first quarter of the fiscal
year ended March 31, 1995. The Company provided a valuation allowance for
the full amount of the deferred tax asset at April 1994 and, therefore,
adoption of this statement did not materially impact the financial
statements.
Income tax expense is as follows:
Years Ended March 31,
--------------------
1996 1995 1994
---------- ---------- ---------
Current taxes:
U.S. Federal $3,764,477 $1,570,504 $ 30,000
U.S. state and
local 472,360 175,000 63,008
Foreign income
taxes 531,161 162,000 62,120
--------- ---------- --------
4,767,998 1,907,504 155,128
U.S. Federal deferred
tax benefit (4,184) (628,504) -
---------- ---------- --------
Income tax expense $4,763,814 $1,279,000 $155,128
========== ========== ========
F-21
41
A reconciliation of the U.S. Federal statutory rate to the Company's
effective tax rate follows:
1996 1995 1994
---- ----- -----
Tax at statutory rate 35.0% 35.0% 34.0%
Utilization of net operating
loss carry forward
Valuation allowance - (4.3)% (34.7)%
recognition - (11.0)% -
Non-deductible items .3% .8% 3.9%
Incremental foreign taxes .3% (.1)% 4.1%
State and local taxes 2.4% 2.0% 2.9%
---- ----- -----
38.0% 22.4% 10.2%
==== ===== =====
Deferred tax assets, which are included in other current assets, and deferred
tax liabilities, are comprised of the following:
March 31,
---------
1996 1995
---- ----
Allowance for doubtful accounts, sales returns and
allowances $653,000 $420,000
Reserve for inventory obsolescence 188,000 145,000
Other, net (24,448) 63,504
-------- --------
Total deferred tax assets $816,552 $628,504
======== ========
Deferred tax liabilities related to
depreciation and amortization $183,864 $ -
======== ========
During fiscal 1995, the Company utilized approximately $700,000 of net
operating loss carryforwards to offset current U.S. taxable income. A
valuation allowance for 100% of these net operating loss carryforwards had
been established at March 31, 1994. Additionally, during fiscal 1995, the
Company reversed $544,000 of valuation allowances on deferred tax assets at
March 31, 1994, as a result of the expected recoverability of such deferred
tax assets in the future.
In June 1996, the Company received a notification from the Internal
Revenue Service informing the Company that its federal income tax return for
the year ended March 31, 1994 would be audited. Management believes that the
outcome of this audit will not have a material effect on the Company's
financial position or results of operations.
11. COMMON STOCK
At various dates since April 1989, the Company has issued, in addition to
the warrants described in Note 8 (E), a total of 738,000 warrants to key
employees and/or consultants to
F-22
42
purchase the Company's common stock at an exercise price of $1.87 per share.
In March 1993, Mr. Gerard Semhon, in exchange for an amount due him of
$180,000, exercised warrants to acquire 96,000 registered shares and Mr. Fred
Purches exercised warrants for the acquisition of 28,000 unregistered shares in
exchange for cash and amounts due him of $47,000. In September 1993, Mr.
Semhon exercised his remaining warrants to acquire 24,000 registered shares in
exchange for amounts due him of $45,000. Accordingly, as of March 31, 1995,
540,000 of these warrants remained outstanding. The underlying shares
related to the unexercised warrants had not been registered.
In September 1990, in connection with a long-term loan, the Company issued
100,000 warrants to Mr. Boris Lekach which were exercisable at $2.00 per share.
Mr. Boris Lekach is related to Mr. Ilia Lekach, the Company's Chief Executive
Officer.
In March 1991, the Company issued warrants to Deco Distribution Group, Inc.
(Deco) to acquire 1,100,000 shares of common stock in accordance with an Asset
Acquisition Agreement of the same date. The warrants were exercisable
through March 1, 2001 at an exercise price of $2.00 per share.
In May 1995, the Company extended a discount of $0.75 per share to those
holders of warrants issued in connection with the FHBH and Deco acquisitions,
as well as the loan to Mr. Boris Lekach, if the holders would exercise by May
31, 1995. The exercise period was subsequently extended to July 31, 1995.
These warrant holders exercised all of their warrants into 1,400,000 shares of
common stock, increasing stockholders' equity by approximately $2,300,000.
In June 1995, in connection with a long-term loan, the Company issued warrants
to acquire 60,000 unregistered shares of common stock to Mr. F. Lekach, which
are exercisable at $6.94 per share for a two-year period. Mr. F. Lekach is
related to Mr. Ilia Lekach, the Company's Chief Executive Officer.
In June 1993, in recognition of continuing financial support, personal
guarantees and pledged deposits in connection with the NBK loan, the Company
issued 52,916 warrants to Mr. Zouheir Beidoun, a Director of the Company, at an
exercise price of $1.75. These warrants, along with an additional 200,000
warrants issued during 1991, were exercised during February 1996, whereby
a portion of the note payable to Mr. Beidoun, including accrued interest
payable, was converted to equity.
The following table summarizes the activity for the warrants outstanding under
the commitments disclosed in Note 8(E) and the warrants described above after
the retroactive effect of the stock split:
Amount Exercise Price
------------ --------------
Balance at March 31, 1993 1,614,000 $1.87-$2.00
Issued 452,916 $1.50-$1.87
Exercised (24,000) $1.87
----------
Balance at March 31, 1994 2,042,916 $1.50-$2.00
Issued 1,530,000 $1.75-$3.12
Exercised - -
----------
Balance at March 31, 1995 3,572,916 $1.50-$3.12
Issued 307,978 $3.75-$4.06
Exercised (1,830,916) $1.62-$2.06
----------
Balance at March 31, 1996 2,049,978 $1.50-$8.11
==========
F-23
43
12. STOCK OPTION AND OTHER PLANS
The Company has adopted a Stock Option Plan and a 1989 Stock Option Plan
(collectively, the "Plan") and has reserved and registered 250,000 shares of
its Common Stock for issue thereunder. Options for most of the shares in the
Plan may qualify as "incentive stock options" under the Internal Revenue
Code. The shares are also available for distribution pursuant to options
which do not so qualify. Under the Plan, options can be granted to eligible
officers and key employees at not less than the fair market value of the
shares at the date of grant of the option (110% of the fair market value for
10% or greater stockholders).
Options which do not qualify as "incentive stock options" may also be
granted to consultants. Options generally may be exercised only if the
option holder remains continuously associated with the Company or a
subsidiary from the date of grant to the date of exercise.
On June 20, 1995, the Company granted to various employees additional
options to acquire 24,500 shares of common stock at $5.75, the closing bid
price of the stock on June 19, 1995. These options are exercisable at the
rate of 25% per annum beginning June 20, 1996. Concurrently, 5,500 options
were canceled through employee resignations.
As of March 31, 1996, and since the inception of the Plan, options have
been issued, net of cancellations, to purchase 242,592 shares at exercise
prices ranging from $1.06 to $2.32 per share. Through March 31, 1996,
159,592 options had been exercised under the Plan.
The following table summarizes the activity for options covered by the
Plan after the retroactive effect of the stock split:
Amount Exercise Price
------ --------------
Balance at March 31,1994 118,674 $1.06 - $ 2.32
Issued 10,000 $ 2.19
Exercised (38,050) $1.06 - $ 1.87
Canceled (6,274) $1.06 - $ 1.44
--------
Balance at March 31, 1995 84,350 $1.06 - $ 2.19
Issued 24,500 $ 5.75
Exercised (22,350) $1.06 - $ 2.19
Canceled (5,500) $1.44 - $5.75
--------
Balance at March 31, 1996 81,000 $1.06 - $ 5.75
========
As of March 31, 1996, options to purchase 81,000 shares are outstanding, of
which 36,000 are currently exercisable and 22,000 are exercisable during the
year ending March 31, 1997.
During June 1993, the Company established a 401-K plan covering substantially
all of its U.S. employees. No Company contribution was made during the year.
Commencing on April 1, 1996, the Company has agreed to match 25% of the
first 6% of employee contributions, within annual limitations established by
the Internal Revenue Code.
F-24
44
13. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
For the year ended March 31, 1995, the number of shares of common stock
issuable upon exercise of outstanding options and warrants, in the aggregate,
exceeds 20% of the number of common shares outstanding. Accordingly, the
modified treasury stock method was used to determine the dilutive effect of
the options and warrants on earnings per share.
Earnings per common and common equivalent share and the weighted average
number of shares outstanding used in the computations, retroactively adjusted
for the stock split, are summarized as follows:
Primary 1996 1995
------- ---- ----
Net income $ 7,772,691 $4,231,211
Add - reduction of interest expense 104,099 (1) 237,585 (3)
----------- ----------
Adjusted for per share computation $ 7,876,790 $4,468,796
=========== ==========
Number of shares:
Weighted average shares outstanding 8,791,749 6,696,890
Add - net additional shares issuable 1,890,857 2,317,918
Weighted average shares used in the per ----------- ----------
share computation 10,682,606 (2) 9,014,808 (4)
=========== ==========
Earnings per common and common equivalent
share $ 0.74 $ 0.50
=========== ==========
Fully diluted 1996 1995
------------- ----------- ----------
Net income $ 7,772,691 $4,231,211
Add - reduction of interest expense 104,099 (1) 77,317 (3)
----------- ----------
Adjusted for per share computation $ 7,876,790 $4,308,528
=========== ==========
Number of shares:
Weighted average shares outstanding 8,791,749 6,696,890
Add - net additional shares issuable 2,133,059 2,317,918
Weighted average shares used in the per ----------- ----------
share computation 10,924,808 (2) 9,014,808 (4)
=========== ==========
Earnings per common and common equivalent
share $ 0.72 $ 0.48
=========== ==========
(1) Reduction of interest expense assumes that the Debentures were converted
into shares of common stock on the date of their issuance. Accordingly, no
interest expense on the Debentures would have been incurred.
(2) Assumes exercise or conversion of outstanding common stock equivalents
(options, warrants and convertible debentures) at the beginning of the
period, or at the date of issuance if issued during the period, net of the
assumed repurchase of common stock from exercise proceeds. The assumed
repurchase of common stock is based on the average price of the Company's
common stock during the period for primary and the end of period price for
fully diluted.
F-25
45
(3) Reduction of interest expense assumes that proceeds from the
exercise of stock options and warrants, after the assumed repurchase of 20%
of the weighted average common shares outstanding, were used to repay debt
at the beginning of the period.
(4) Assumes exercise of outstanding common stock equivalents (options and
warrants) at the beginning of the period, or at the date of issuance if
issued during the period, net of the assumed repurchase of common stock. The
assumed repurchase of common stock was limited to 20% of the weighted average
common shares outstanding and is based on the average price of the Company's
common stock during the period for primary and the end of period price for
fully diluted.
14. RELATED PARTY TRANSACTIONS, SIGNIFICANT CUSTOMERS AND CONCENTRATION OF
CREDIT RISK
The Company had sales of approximately $26,187,000, $15,230,000 and
$12,410,000 during the fiscal years ended March 31, 1996, 1995 and 1994,
respectively, to Perfumania, Inc. (Perfumania), a company affiliated with the
Company's Chairman and Chief Executive Officer. Net amounts due from
Perfumania amounted to $13,482,000 and $4,894,000 at March 31, 1996 and 1995,
respectively.
No unaffiliated customer accounted for more than 10% of the Company's
sales during the years ended March 31, 1996 and 1995. During the year ended
March 31, 1994, the Company had sales of approximately $2,760,000 or 10.9% of
net sales, to an unaffiliated customer.
F-26
46
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of the Company's unaudited quarterly results of
operations for the years ended March, 31, 1996 and 1995 (in thousands, except
per share amounts).
Quarter Ended
--------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1995 1995 1995 1996
------------ -------------- ------------ -----------
Net sales $10,209 $13,925 $23,834 $19,759
Gross margin 7,076 8,495 13,687 10,029
Net income 1,142 1,508 2,991 2,132
Earnings per common and
common equivalent share:
Primary $ 0.13 $ 0.15 $ 0.29 $ 0.17
Fully diluted $ 0.13 $ 0.15 $ 0.29 $ 0.15
Quarter Ended
------------------------------------------------------------------------
June 30, September 30, December 31, March 31,
1994 1994 1994 1995
------------ -------------- ------------ ---------
Net sales $ 6,492 $ 7,609 $12,356 $11,752
Gross margin 3,992 4,437 6,635 8,188
Net income 623 740 1,228 1,640
Earnings per common and
common equivalent share:
Primary $ 0.09 $ 0.09 $ 0.14 $ 0.18
Fully diluted $ 0.09 $ 0.09 $ 0.14 $ 0.16
NOTE: Earnings per common and common equivalent shares have been
retroactively adjusted for the effect of the November 1995 two-for-one stock
split.
F-27
47
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
Additions
Description Balance at charged to Balance at
beginning of costs and Deductions end of
period expenses period
- ---------------------------------------------------------------------------------------------------------
Year ended
March 31, 1996
- --------------
Reserve for doubtful
accounts and sales
returns &
allowances $2,055,413 $6,548,444 $6,482,612 (1) $2,121,245
Reserve for inventory
shrinkage and obsolescence $ 685,629 688,626 (3) 174,255 $1,200,000
Year ended
March 31, 1995
- --------------
Reserve for doubtful
accounts and sales
returns &
allowances $ 741,951 $2,001,601 $ 688,139 (2) $2,055,413
Reserve for inventory
shrinkage and obsolescence $ 200,000 $ 485,629 (4) $ 685,629
Year ended
March 31, 1994
- --------------
Reserve for doubtful
accounts and sales
returns & allowances $ 772,857 $1,288,688 $1,319,594 $ 741,951
(1) Net of reserves of $1,500,000 recorded in connection with the AdM
acquisition.
(2) Net of reserves of $1,556,275 recorded in connection with the FHBH
acquisition.
(3) Includes $600,000 recorded in connection with the AdM acquisition
(4) Includes $303,665 recorded in connection with the FHBH and Perry Ellis
acquisitions
F-28
48
PARLUX FRAGRANCES, INC. AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BANK BORROWINGS
Col. A Col. B. Col.C Col.D Col.E Col.F
Category of Balance at end of Weighted Maximum Average Weighted
aggregate period average amount amount average
short-term interest outstanding outstanding interest
borrowings rate (4) during the during the during the
period period period (5)
- ---------------------------------------------------------------------------------------------------------------------
March 31, 1996
Notes Payable
Banks (1) $6,939,014 10.2% $7,823,478 $7,361,251 12.1%
March 31, 1995
Notes Payable
Banks (2) $6,773,394 10.3% $6,773,394 $5,932,300 12.1%
March 31, 1994
Notes Payable
Banks (3) $5,127,715 8.7% $6,294,599 $4,803,080 11.5%
(1) Loans of $3,888,378 from Finova, $482,392 from Eagle National Bank, as
well as overdraft and receivable facilities of $2,568,244 granted by
French banks.
(2) Loans of $4,289,316 from Finova, $560,000 from the National Bank of
Kuwait, $81,014 from Eagle National Bank, as well as overdraft and
receivable facilities of $1,843,074 granted by French banks.
(3) Aggregate revolving credit loan from the National Bank of Kuwait of
$2,600,000 and overdraft and receivable facilities granted by French banks
of $2,527,715. The loan was re-classified from long-term borrowings as
of July 31, 1994 reflecting the proposed repayment date of July 31, 1995.
(4) The weighted average interest rate was computed by dividing the annual
interest costs based on March 31, 1996 rates by the short-term bank
borrowings outstanding at March 31, 1996.
(5) The weighted average interest rate during the period was computed by
dividing the actual interest expense for the year by the average short-term
bank borrowings outstanding during the year.
F-29
49
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.
PARLUX FRAGRANCES, INC.
/s/Ilia Lekach
- -------------------------------------------------
Ilia Lekach, Chief Executive Officer and Chairman
Dated: June 28, 1996
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 date indicated:
/s/Zalman Lekach
- -------------------------------------------------
Zalman Lekach, President, Chief Operating Officer and Director
/s/Frank A. Buttacavoli
- -------------------------------------------------
Frank A. Buttacavoli, Executive Vice President, Chief Financial Officer and
Director
/s/Frederick E. Purches
- -------------------------------------------------
Frederick E. Purches, Vice Chairman and Director
/s/Albert F. Vercillo
- -------------------------------------------------
Albert F. Vercillo, Director
/s/Mayi de la Vega
- -------------------------------------------------
Mayi de la Vega, Director
/s/Glenn Gopman
- -------------------------------------------------
Glenn Gopman, Director