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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 29, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 0-10714
E COM VENTURES, INC.
(Exact name of Registrant as specified in its charter)
Florida 65-0977964
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
251 International Parkway
Sunrise, Florida 33325
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 335-9100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock $.01 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No|X|
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $10.6 million as of July 30, 2004, based on a
market price of $9.06 per share. For purposes of the foregoing computation, all
executive officers, directors and 5% beneficial owners of the registrant are
deemed to be affiliates. Such determination should not be deemed to be an
admission that such executive officers, directors or 5% beneficial owners are,
in fact, affiliates of the registrant.
The number of shares outstanding of the Registrant's common stock as of
April 22, 2005: 2,941,935 shares
Documents Incorporated By Reference
Portions of the Registrant's definitive proxy statement for its 2005
annual meeting of shareholders, which proxy statement will be filed no later
than 120 days after the close of the Registrant's fiscal year ended January 29,
2005, are hereby incorporated by reference in Part III of this Annual Report on
Form 10-K
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business 3
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote of Security Holders 9
PART II
5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 10
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
7A. Quantitative and Qualitative Disclosures About Market Risk 23
8. Financial Statements and Supplementary Data 24
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 42
9A. Controls and Procedures 42
9B. Other Information 42
PART III
10. Directors and Executive Officers of the Registrant 42
11. Executive Compensation 42
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 42
13. Certain Relationships and Related Transactions 42
14. Principal Accountant Fees and Services 42
PART IV
15. Exhibits and Financial Statement Schedules 43
2
PART I.
ITEM 1. BUSINESS
GENERAL
E Com Ventures, Inc., a Florida corporation ("ECOMV" or the "Company"),
performs all of its operations through two wholly-owned subsidiaries,
Perfumania, Inc. ("Perfumania"), a Florida corporation, which is a specialty
retailer and wholesaler of fragrances and related products, and perfumania.com,
Inc., ("perfumania.com"), a Florida corporation, which is an Internet retailer
of fragrances and other specialty items.
Perfumania is a leading specialty retailer and wholesale distributor of a
wide range of brand name and designer fragrances. As of January 29, 2005,
Perfumania operated a chain of 223 retail stores specializing in the sale of
fragrances at discounted prices up to 75% below the manufacturers' suggested
retail prices. Perfumania's wholesale division distributes fragrances and
related products primarily to an affiliate. Perfumania.com offers a selection of
the Company's more popular products for sale over the Internet and serves as an
alternative shopping experience to the Perfumania retail stores.
Perfumania operates its wholesale business directly. It operates its
retail business through Magnifique Parfumes and Cosmetics, Inc. ("Magnifique"),
a wholly-owned subsidiary of Perfumania, although the stores are generally
operated under the name Perfumania as described below under "Trade Name and
Service Mark." Perfumania's retail stores are generally located in regional
malls, manufacturers' outlet malls, airports and on a stand-alone basis in
suburban strip shopping centers. The number of retail stores in operation at
January 29, 2005, January 31, 2004, and February 1, 2003 were 223, 232 and 238,
respectively.
Sales of perfumania.com are included within those of our retail business
in this Form 10-K. For ease of reference in this Form 10-K, our retail and
wholesale business are referred to as divisions. See Item 6 for Selected
Financial Data by division.
Our executive offices are located at 251 International Parkway, Sunrise,
Florida 33325, our telephone number is (954) 335-9100, our retail internet
address is www.perfumania.com. and our business internet address is
www.ecomv.com. Through our business website, we make available, free of charge,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on Form 8-K, and amendments to those reports as soon as is reasonably
practicable after we electronically file them with, or furnish them to, the
Securities and Exchange Commission. In addition, we have made our Code of
Business Conduct and Ethics available through our website under "about ECOMV -
corporate compliance." The reference to our website does not constitute
incorporation by reference of the information contained on our website, and the
information contained on the website is not part of this Form 10-K.
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal year 2004 ended on January 29, 2005, fiscal year 2003 ended on January
31, 2004 and fiscal year 2002 ended on February 1, 2003. Each of the fiscal
years presented contain fifty-two weeks.
RETAIL DIVISION
STRATEGY
Each of Perfumania's retail stores generally offers approximately 175
different brands of fragrances for women and men at prices up to 75% below the
manufacturer's suggested retail prices. Stores stock brand name and designer
brands such as Estee Lauder(R), Fendi(R), Yves Saint Laurent(R), Fred Hayman(R),
Calvin Klein(R), Giorgio Armani(R), Gucci(R), Ralph Lauren/Polo(R), Perry
Ellis(R), Liz Claiborne(R), Giorgio(R), Hugo Boss(R), Halston(R), Christian
Dior(R), Chanel(R) and Cartier(R). Perfumania also carries a private label line
of bath & body treatment products under the name Jerome Privee(R).
The cornerstone of Perfumania's marketing philosophy is customer awareness
that its stores offer an extensive assortment of brand name and designer
fragrances at discount prices. Perfumania posts highly visible price tags in its
stores, listing both the manufacturers' suggested retail prices and Perfumania's
discounted prices to enable customers to make price comparisons. In addition, we
utilize sales promotions such as "gift with purchase" and "purchase with
purchase" offers. From time to time, we test market in our stores additional
specialty gift items.
3
Perfumania's stores are "full-service" stores. Accordingly, store
personnel are trained to establish personal rapport with customers, to identify
customer preferences with respect to both product and price range, and to
successfully conclude a sale. Management believes that attentive personal
service and knowledgeable sales personnel are key factors to the success of
Perfumania's retail stores. Perfumania's store personnel are compensated on a
salary plus bonus basis. Perfumania has several bonus programs that provide
incentives for store personnel to sell merchandise which have higher profit
margins. In addition, to provide an incentive to reduce expenses and increase
sales, regional and district managers are eligible to receive a bonus if store
profitability and operational goals are met. Management believes that a key
component of Perfumania's ability to increase profitability will be its ability
to hire, train and retain store personnel and district managers. Perfumania
conducts comprehensive training programs for store associates, designed to
achieve higher levels of customer satisfaction.
Perfumania primarily relies on its distinctive store design and window
displays to attract the attention of prospective customers. In addition,
Perfumania distributes advertising flyers and brochures by mail and in its
stores and in the malls in which its stores are located. The amount of
advertising varies with the seasonality of the business.
RETAIL STORES
Perfumania's standard store design includes signs and merchandise displays
which are designed to enhance customer recognition of Perfumania's stores.
Perfumania's stores average approximately 1,400 square feet; however, stores
located in manufacturers' outlet malls tend to be larger than Perfumania's other
stores. A store is typically managed by one manager and one assistant manager.
The average number of employees in a Perfumania store is five, including
part-time help. District managers visit stores on a regular basis in an effort
to ensure knowledgeable and attentive customer service and compliance with
operational policies and procedures.
INFORMATION SYSTEMS
Perfumania has an integrated information system including retail outlet
and corporate systems. Perfumania.com has a completely integrated e-commerce
system. These systems encompass every significant phase of our operations and
provide information for planning, purchasing, pricing, distribution, finance and
human resource decisions. E-mail and other information are communicated between
the corporate office and store locations through an enterprise-wide Intranet.
Daily compilation of sales, gross margin, and inventory levels enables
management to analyze profitability and sell-through by item and product line as
well as monitor the success of sale promotions. Inventory is tracked through its
entire life cycle. During fiscal year 2003, a new point of sale system was
implemented in all stores. This system enabled improved communication, pricing
and promotion programs, time and attendance reporting, and enhanced inventory
control.
STORE LOCATION AND EXPANSION
Perfumania's stores are located in 34 states, the District of Columbia and
Puerto Rico, including 41 locations in Florida, 19 in both New York and
California, 17 in Texas and 16 in Puerto Rico. Perfumania's current business
strategy focuses on maximizing sales by raising the average dollar sale per
transaction, reducing expenses at existing stores, selectively closing
under-performing stores and on a limited basis, opening new stores in proven
geographic markets. When opening new stores, Perfumania seeks locations
primarily in regional and manufacturers' outlet malls and, selectively, on a
stand-alone basis in suburban shopping centers in metropolitan areas. To achieve
economies of scale with respect to advertising and management costs, Perfumania
evaluates whether to open additional stores in markets where it already has a
presence or whether to expand into additional markets that it believes have a
population density to support a cluster of stores.
In fiscal years 2004, 2003 and 2002, Perfumania opened 14 stores, 11
stores and 4 stores, respectively. Perfumania continuously monitors store
performance and from time to time closes under-performing stores, which
typically have been older stores in less trafficked locations. During fiscal
years 2004, 2003 and 2002, Perfumania closed 27 stores, 17 and 13 stores,
respectively. For fiscal year 2005, Perfumania will continue to focus on
improving the profitability of its existing stores and management expects to
open approximately 25 stores and close approximately 4 stores.
WHOLESALE DIVISION
During fiscal year 2004 Perfumania distributed fragrances on a wholesale
basis primarily to Quality King Distributors, Inc. ("Quality King"). During
fiscal years 2003 and 2002, the wholesale division sold to approximately 5
customers. Our current President and Chief Executive Officer, Michael Katz and
our principal shareholders, Stephen Nussdorf, the Chairman of our Board of
Directors and Glenn Nussdorf, his brother, are affiliates of Quality King.
Quality King accounted for 100%, 81% and 47% of net wholesale sales during
fiscal years 2004, 2003 and 2002, respectively. See further discussion at Note 5
to our Consolidated Financial Statements included in Item 8, hereof.
4
PERFUMANIA.COM
Perfumania.com provides a number of advantages for retail fragrance sales.
Our Internet site enables us to display a larger number of products than
traditional store-based or catalog sellers. In addition, the ability to
frequently adjust featured selections and edit content and pricing provides
significant merchandising flexibility. Our Internet site benefits from the
ability to reach a large group of customers from a central location.
Additionally, we can also obtain demographic and behavioral data of customers,
increasing opportunities for direct marketing and personalized services. Because
brand loyalty is a primary factor influencing a fragrance purchase, we believe
the ability to physically sense the fragrance product is not critical to the
purchasing decision. Perfumania.com's online store provides its customers with
value, selection, pricing and convenience.
CHANGE OF CONTROL
Effective January 30, 2004, Ilia Lekach, the Company's then Chairman of
the Board and Chief Executive Officer, and several other parties controlled by
Mr. Lekach and his wife Deborah Lekach (collectively, "Lekach"), entered into an
option agreement (the "Nussdorf Option Agreement") with Stephen Nussdorf and
Glenn Nussdorf (the "Nussdorfs"), pursuant to which the Nussdorfs were granted
options to acquire up to an aggregate 720,954 shares of the Company's common
stock beneficially owned by Lekach, for a purchase price of $12.70 per share,
exercisable at various dates.
As of May 10, 2004, Mr. Lekach had exercised his options from the Company
to acquire 443,750 shares and the Nussdorfs had acquired all 720,954 shares
pursuant to the Nussdorf Option Agreement. Currently, the Nussdorfs own an
aggregate of 1,113,144 shares of the Company's common stock outstanding. The
Nussdorfs also collectively have the right to acquire an additional 444,445
shares of the Company's common stock upon conversion of their Convertible
Debenture. See further discussion in Note 5 to our Consolidated Financial
Statements.
SOURCES OF SUPPLY
During fiscal years 2004 and 2003, Perfumania purchased fragrances from
approximately 120 and 100 different suppliers, respectively, including national
and international manufacturers, distributors, wholesalers, importers and
retailers. Perfumania generally makes its purchases based on a favorable
available combination of prices, credit terms, quantities and merchandise
selection and, accordingly, the extent and nature of Perfumania's purchases from
its various suppliers change constantly. As is customary in the fragrance
industry, Perfumania has no long-term or exclusive contracts with suppliers.
Approximately 27% and 5% of Perfumania's total merchandise purchased in
fiscal years 2004 and 2003, respectively, was from our affiliate, Quality King.
Approximately 26% and 23% of Perfumania's total merchandise purchased in fiscal
years 2004 and 2003, respectively, was from another affiliate, Parlux
Fragrances, Inc. ("Parlux"), a manufacturer and distributor of prestige
fragrances and related beauty products. Ilia Lekach, our former Chairman of the
Board and Chief Executive Officer and one of our principal shareholders with
approximately 10% of our outstanding common stock, is the Chairman of the Board
and Chief Executive Officer of Parlux which also owns approximately 13% of our
outstanding common stock. No other supplier accounted for more than 10% of our
merchandise purchases during 2004 or 2003.
A portion of Perfumania's merchandise is purchased from secondary sources
such as distributors, wholesalers, importers and retailers. Merchandise
purchased from secondary sources includes trademarked and copyrighted products
that were manufactured in the United States, sold to foreign distributors and
then re-imported into the United States, as well as trademarked and copyrighted
products manufactured and intended for sale in foreign countries. From time to
time, U.S. trademark and copyright owners and their licensees and trade
associations have initiated litigation or administrative agency proceedings,
based on U.S. Customs Service regulations or trademark or copyright laws,
seeking to halt the importation into the United States of such "gray market"
merchandise or to restrict its resale in the United States, and some of these
actions have been successful. However, the U.S. courts remain divided on the
extent to which trademark, copyright or other existing laws or regulations can
be used to restrict the importation or sale of "gray market" merchandise. In
addition, from time to time federal legislation to restrict the importation or
sale of "gray market" merchandise has been proposed, but no such legislation has
been adopted.
As is often the case in the fragrance and cosmetics business, some of the
merchandise purchased by Perfumania may have been manufactured by entities,
particularly foreign licensees and others, who are not the owners of the
trademarks or copyrights for the merchandise. Perfumania's secondary market
sources generally will not disclose the identity of their suppliers, which they
consider to be proprietary trade information. As a result, Perfumania may not
always be able to demonstrate that the manufacturer of specific merchandise had
proper authority from the trademark or copyright owner to produce the
merchandise or permit it to be resold in the United States. Accordingly, there
is a risk that if Perfumania were called upon or challenged by the owner of a
particular trademark or copyright to demonstrate that specific merchandise was
produced and sold with the proper authority and it was unable to do so,
Perfumania could, among other things, be restricted from reselling the
particular merchandise or be subjected to other liabilities.
5
Perfumania's business activities could become the subject of legal or
administrative actions brought by manufacturers, distributors or others, any of
which actions could have a material adverse effect on our business or financial
condition. In addition, future judicial, legislative or administrative agency
action, including possible import, export, tariff or other trade restrictions,
could limit or eliminate some of Perfumania's secondary sources of supply or any
of its business activities.
DISTRIBUTION
Perfumania utilizes independent national trucking companies to deliver
merchandise to its stores. Retail store deliveries generally are made weekly,
with more frequent deliveries during the holiday season. Such deliveries permit
the stores to minimize inventory storage space and increase the space available
for display and sale of merchandise. To expedite delivery of merchandise to its
customers, Perfumania sometimes instructs its suppliers to ship merchandise
directly to wholesale division customers. Sales of perfumania.com are shipped
through national carriers and are typically delivered within a few days of being
ordered.
COMPETITION
Retail and wholesale perfume businesses are highly competitive.
Perfumania's retail competitors include department stores, regional and national
retail chains, independent drug stores, duty-free shops and other specialty
retail stores. We believe Perfumania is the largest specialty retailer of
discounted fragrances in the United States in terms of number of stores. Some of
Perfumania's competitors sell fragrances at discount prices and some are part of
large national or regional chains that have substantially greater resources and
name recognition than Perfumania. Perfumania's stores compete on the basis of
selling price, promotions, customer service, merchandise variety, store location
and ambiance. Perfumania believes that its perfumery concept, full-service sales
staff, discount prices, large and varied selection of brand name and designer
fragrances and attractive shopping environment are important to its competitive
position.
Perfumania's wholesale division competes directly with other perfume
wholesalers and perfume manufacturers, some of which have substantially greater
resources or merchandise variety than Perfumania. The wholesale division
competes principally on the basis of merchandise selection, price and
availability.
EMPLOYEES
At January 29, 2005, we had 1,363 employees, of whom 1,202 were employed
in Perfumania's retail stores, 59 were employed in Perfumania's warehouse and
distribution operations and 102 were employed in executive, administrative and
other positions. Temporary and part-time employees are added between
Thanksgiving and Christmas. None of our employees are covered by a collective
bargaining agreement and we consider our relationship with our employees to be
good.
TRADE NAME AND SERVICE MARK
Perfumania's stores use the trade name and service mark Perfumania(R);
Perfumania also operates under the trade names, Also Perfumania, Class Perfumes,
Touch at Perfumania, Perfumania Too and Perfumania Plus. Perfumania has common
law rights to its trade names and service mark in those general areas in which
its existing stores are located and has registered the service mark
Perfumania(R) with the U.S. Patent and Trademark Office. The registration
expires in 2009 and may be renewed for 10-year terms thereafter.
INVESTMENT IN NIMBUS GROUP, INC.
Our former Chairman of the Board and Chief Executive Officer, Ilia Lekach,
was also Chairman and interim CEO of Nimbus Group, Inc. ("Nimbus"), formerly
known as TakeToAuction.com ("TTA"), a public company previously committed to the
development of a private jet air taxi network. TTA initially sold consumer
products on Internet auction sites.
From fiscal year 2000 through fiscal year 2002 we acquired approximately
1,003,000 shares of Nimbus common stock. The investment in Nimbus was shown on
our balance sheets as investments available for sale. During fiscal year 2003 we
disposed of our holding in Nimbus in open market transactions at a loss of
approximately $172,000.
6
As of February 1, 2003, the market price for Nimbus' common stock was
below the Company's average cost per share of $4.13. In consideration of
accounting guidance that considers a six to nine month decline in stock price to
be other than temporary, the Company recorded a non-cash-charge of approximately
$700,000 in realized loss on investments on the consolidated statement of
operations for fiscal year 2002.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The following set forth certain risk factors that may affect the Company
and results of operations. These may be additional risks not set forth below or
in this Annual Report on form 10-K, which may also affect the Company and its
operations.
We could face liquidity and working capital constraints if we are unable to
generate sufficient cash flows from operations
If we are unable to generate sufficient cash flows from operations to
service our obligations, we could face liquidity and working capital
constraints, which could adversely impact our future operations and growth.
Failure to comply with covenants in our existing credit facility could result in
our inability to borrow additional funds
Our credit facility requires us to maintain compliance with various
financial covenants. Our ability to meet those covenants can be affected by
events beyond our control, and therefore we may be unable to meet those
covenants. If our actual results deviate significantly from our projections, we
may not be in compliance with the covenants and might not be allowed to borrow
under the credit facility. If we were not able to borrow under our credit
facility, we would be required to develop an alternative source of liquidity, or
to sell additional securities which would result in dilution to existing
shareholders. We cannot assure that we could obtain replacement credit
facilities on favorable terms or at all. Without a source of financing, we could
experience cash flow difficulties and be forced to curtail our then current
operations.
Perfumania may have problems raising money needed in the future
Our growth strategy includes selectively opening and operating new
Perfumania retail locations and increasing the average retail sales per store.
We may need to obtain funding to achieve our growth strategy. Additional
financing may not be available on acceptable terms, if at all. In order to
obtain additional financing, we may be required to issue securities with greater
rights than those currently possessed by holders of our common stock. We may
also be required to take other actions, which may lessen the value of our common
stock, including borrowing money on terms that are not favorable.
Perfumania's business is subject to seasonal fluctuations, which could lead to
fluctuations in our stock price
Perfumania has historically experienced and expects to continue
experiencing higher sales in the fourth fiscal quarter than in the first three
fiscal quarters. Purchases of fragrances as gift items increase during the
Holiday season, which results in significantly higher fourth fiscal quarter
retail sales. If our quarterly operating results are below expectations of stock
market analysts, our stock price might decline. Sales levels of new and existing
stores are affected by a variety of factors, including the retail sales
environment, the level of competition, the effect of marketing and promotional
programs, acceptance of new product introductions, adverse weather conditions
and general economic conditions. Our quarterly results may also vary as a result
of the timing of new store openings and store closings, net sales contributed by
new stores and fluctuations in comparable sales of existing stores.
Perfumania may experience shortages of the merchandise it needs because it does
not have long-term agreements with suppliers
Perfumania's success depends to a large degree on our ability to provide
an extensive assortment of brand name and designer fragrances. Perfumania has no
long-term purchase contracts or other contractual assurance of continued supply,
pricing or access to new products. If Perfumania is unable to obtain merchandise
from one or more key suppliers on a timely basis or acceptable terms, or if
there is a material change in Perfumania's ability to obtain necessary
merchandise, our results of operations could be seriously harmed.
Perfumania purchases merchandise from related parties, which may cause a
conflict of interest
Approximately 53% and 28%, respectively, of Perfumania's total merchandise
purchased in fiscal years 2004 and 2003 were from our affiliates Quality King
and Parlux. While we believe the terms of these purchases are more favorable to
us than the terms of third party arrangements, there may be a conflict of
interest between our interest in purchasing at the best price and those of our
principal shareholders and affiliates in obtaining the best price for their
respective companies.
7
Perfumania needs to successfully manage its growth
Perfumania may not be able to sustain growth in revenues. Perfumania's
growth is somewhat dependent upon opening and operating new retail stores on a
profitable basis, which in turn is subject to, among other things, securing
suitable store sites on satisfactory terms, hiring, training and retaining
qualified management and other personnel, having adequate capital resources and
successfully integrating new stores into existing operations. It is possible
that Perfumania's new stores might not achieve sales and profitability
comparable to existing stores, and it is possible that the opening of new
locations might adversely affect sales at existing locations.
Perfumania could be subject to litigation because of the merchandising aspect of
its business
Some of the merchandise Perfumania purchases from suppliers is
manufactured by entities who are not the owners of the trademarks or copyrights
for the merchandise. The owner of a particular trademark or copyright may
challenge Perfumania to demonstrate that the specific merchandise was produced
and sold with the proper authority, and if Perfumania is unable to demonstrate
this, it could, among other things, be restricted from reselling the particular
merchandise. This type of restriction could adversely affect Perfumania's
business and results of operations.
Our stock price volatility could result in securities class action litigation,
substantial cost, and diversion of management's attention
The price of our common stock has been and likely will continue to be
subject to wide fluctuations in response to a number of events, such as:
o quarterly variations in operating results;
o acquisitions, capital commitments of strategic alliances by us or
our competitors;
o legal regulatory matters that are applicable to our business;
o the operating and stock price performances of other companies that
investors may deem comparable to us; and
o news reports relating to trends in our markets.
In addition, the stock market in general has experienced significant price
and volume fluctuations that often have been unrelated to the performance of
specific companies. The broad market fluctuations may adversely affect the
market price of our common stock, regardless of our operating performance. Our
stock price volatility could result in class action litigation which would
require substantial monetary cost to defend, as well as the diversion of
management attention from day-to-day activities which could negatively affect
operating performance. Such litigation could also have a negative impact on the
price of our common stock due to the uncertainty and negative publicity
associated with litigation.
Future growth may place strains on our managerial, operational and financial
resources
If we grow as expected, a significant strain on our managerial,
operational and financial resources may occur. Further, as the number of our
users, advertisers and other business partners grow, we will be required to
manage multiple relationships with various customers, strategic partners and
other third parties. Future growth or increase in the number of our strategic
relationships could strain our managerial, operational and financial resources,
inhibiting our ability to achieve the rapid execution necessary to successfully
implement our business plan. In addition, our future success will also depend on
our ability to expand our sales and marketing organization and our support
organization commensurate with the growth of our business and the Internet.
We are subject to competition
Some of Perfumania's competitors sell fragrances at discount prices and
some are part of large national or regional chains that have substantially
greater resources and name recognition than Perfumania. Perfumania's stores
compete on the basis of selling price, customer service, merchandise variety and
store location. Many of our current and potential competitors have greater
financial, technical, operational, and marketing resources. We may not be able
to compete successfully against these competitors in developing our products or
services. These factors, as well as demographic trends, economic conditions and
discount pricing strategies by competitors, could result in increased
competition and could have a material adverse effect on our profitability,
operating cash flow, and many other aspects of our business, prospects, results
of operations and financial condition.
8
The loss of or disruption in our distribution facility could have a material
adverse effect on our sales
We currently have one distribution facility, which is located in Sunrise,
Florida. The loss of, or damage to this facility, as well as the inventory
stored therein, would require us to find replacement facilities and assets. In
addition, weather conditions, such as natural disasters, could disrupt our
distribution operations. If we cannot replace our distribution capacity and
inventory in a timely, cost-efficient manner, it could reduce the inventory we
have available for sale, adversely affecting our profitability and operating
cash flows.
Expanding our business through acquisitions and investments in other businesses
and technologies presents special risks
We may expand through the acquisition of and investment in other
businesses. Acquisitions involve a number of special problems, including:
o difficulty integrating acquired technologies, operations, and
personnel with our existing business;
o diversion of management's attention in connection with both
negotiating the acquisitions and integrating the assets;
o the need for additional financing;
o strain on managerial and operational resources as management tries
to oversee larger operations; and
o exposure to unforeseen liabilities of acquired companies.
We may not be able to successfully address these problems. Moreover, our
future operating results will depend to a significant degree on our ability to
successfully manage growth and integrate acquisitions.
ITEM 2. PROPERTIES
Our executive offices and distribution center are located in a 179,000
square foot facility in Sunrise, Florida. The facility is leased through
December 2017 pursuant to a lease which currently provides for monthly rent of
approximately $82,000 with specified increases.
All of Perfumania's retail stores are located in leased premises. Most of
the store leases provide for the payment of a fixed amount of base rent plus a
percentage of sales, ranging from 3% to 15%, over certain minimum sales levels.
Store leases typically require Perfumania to pay its proportionate share of
utility charges, insurance premiums, real estate taxes and certain other costs.
Some of Perfumania's leases permit the termination of the lease if specified
minimum sales levels are not met. See Note 11 to our Consolidated Financial
Statements included in Item 8 hereof, for additional information with respect to
our store leases.
ITEM 3. LEGAL PROCEEDINGS
We are involved in legal proceedings in the ordinary course of business.
Management cannot presently predict the outcome of these matters, although
management believes that the ultimate resolution of these matters should not
have a materially adverse effect on our financial position or result of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 14, 2004, we held our annual meeting of shareholders. At the
annual meeting, the shareholders elected Michael W. Katz, Stephen Nussdorf,
Carole Ann Taylor, Joseph Bouhadana, and Paul Garfinkle to the Board of
Directors. In addition, the shareholders ratified the appointment of Deloitte &
Touche LLP as our independent auditors. The following table reflects the results
of the meeting:
ELECTION OF DIRECTORS:
---------------------
SHARES SHARES VOTED SHARES VOTED ABSTAIN/
TOTAL VOTED FOR AGAINST WITHHELD NON-VOTES
- ---------------- ----- ---------- ------------- --------- ---------
Michael W. Katz 2,316,120 2,278,782 -- 37,338 93,211
Stephen Nussdorf 2,316,120 2,308,646 -- 7,474 93,211
Carole Ann Taylor 2,316,120 2,314,396 -- 1,724 93,211
Joseph Bouhadana 2,316,120 2,308,596 -- 7,524 93,211
Paul Garfinkle 2,316,120 2,314,446 -- 1,674 93,211
9
RATIFICATION OF AUDITORS:
- ------------------------
SHARES SHARES VOTED SHARES VOTED ABSTAIN/
TOTAL VOTED FOR AGAINST WITHHELD NON-VOTES
- ---------------- ----- ---------- ------------- --------- ---------
Ratify Appointment of 2,316,120 2,314,030 2,090 -- 93,211
Deloitte & Touche LLP
On February 6, 2004, Miles Raper, Donovan Chin and Daniel Bengio resigned
as members of the Company's Board of Directors, and Stephen Nussdorf, Paul
Garfinkle and Michael W. Katz were elected to the Company's Board of Directors.
Effective February 10, 2004, Mr. Lekach's employment with the Company was
terminated and Mr. Lekach ceased serving as an employee and officer of the
Company. In addition, on February 10, 2004, Mr. Lekach resigned from the Board
of Directors and Stephen L. Nussdorf was appointed the Company's Chairman of the
Board and Michael W. Katz was appointed the Company's President and Chief
Executive Officer.
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock is traded on the NASDAQ Stock Market under the symbol
ECMV. The following table sets forth the high and low closing sales prices for
our common stock for the periods indicated, as reported by the NASDAQ Stock
Market.
FISCAL 2004 HIGH LOW
----------------- -------- ---------
First Quarter $14.70 $9.92
Second Quarter 12.16 6.85
Third Quarter 12.04 8.35
Fourth Quarter 15.42 10.02
FISCAL 2003 HIGH LOW
----------------- -------- ---------
First Quarter $5.00 $2.61
Second Quarter 12.00 2.60
Third Quarter 15.69 9.92
Fourth Quarter 15.50 11.00
As of April 19, 2005, there were 63 holders of record which excluded
common stock held in street name. The closing sales price for the common stock
on April 19, 2005 was $12.00 per share.
REVERSE STOCK-SPLIT
Our Board of Directors authorized a one-for-four reverse stock-split of
our outstanding shares of common stock for shareholders of record on March 20,
2002. Accordingly, all share and per share data shown in this Form 10-K for
periods ended prior to March 20, 2002 have been retroactively adjusted to
reflect this reverse stock split.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock and do not
currently intend to declare or pay cash dividends in the foreseeable future.
Payment of dividends, if any, will be at the discretion of the Board of
Directors after taking into account various factors, including our financial
condition, results of operations, current and anticipated cash needs and plans
for expansion. Perfumania is prohibited from paying cash dividends under its
line of credit agreement with GMAC Commercial Finance LLC and Congress Financial
Corporation.
10
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of January 29, 2005, with
respect to our compensation plans under which our equity securities are
authorized for issuance.
Number of securities
remaining available
for future issuance
Number of securities Weighted-average under equity
to be issued upon exercise price of compensation plans
exercise of outstanding excluding securities
outstanding options, options, warrants reflected in column
warrants and rights and rights (a)(1)
---------------------- --------------------- ------------------------
Plan Category: (a) (b) (c)
Equity compensation plans
approved by stockholders 212,032 $9.46 494,697
Equity compensation plans
not approved by
stockholders -- -- --
---------------------- --------------------- ------------------------
Total 212,032 $9.46 494,697
---------------------- --------------------- ------------------------
(1) The number of shares available under our 2000 Stock Option Plan
automatically increases each year by 3% of the shares of common stock of
the Company outstanding at the end of the immediate preceding year.
11
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction
with such financial statements and related notes.
Our fiscal year ends on the Saturday closest to January 31. All references
herein to fiscal years are to the calendar year in which the fiscal year begins;
for example, fiscal year 2004 refers to the fiscal year that began on February
1, 2004 and ended on January 29, 2005. All fiscal years presented below contain
fifty-two weeks, except fiscal year 2000, which contains fifty-three weeks.
FISCAL YEAR ENDED
-------------------------------------------------------------------------------
JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2, FEBRUARY 3,
2005 2004 2003 2002 2001
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales, retail division $ 201,425 $ 198,479 $ 199,369 $ 184,142 $ 185,371
Net sales, wholesale division 23,578 14,089 2,145 9,210 21,199
----------- ----------- ----------- ----------- -----------
Total net sales 225,003 212,568 201,514 193,352 206,570
----------- ----------- ----------- ----------- -----------
Gross profit, retail division 90,049 81,923 84,159 78,468 79,218
Gross profit, wholesale division 1,288 1,454 435 1,767 4,216
----------- ----------- ----------- ----------- -----------
Total gross profit 91,337 83,377 84,594 80,235 83,434
----------- ----------- ----------- ----------- -----------
Selling, general and administrative expenses 78,521 82,297 76,178 72,918 79,884
Provision for doubtful accounts -- -- -- 55 55
Change of control expenses -- 4,931 -- -- --
Provision for receivables from affiliate -- -- 1,961 -- --
Provision for impairment of assets
and store closings 314 593 663 727 22,894
Depreciation and amortization 5,875 6,103 6,024 6,825 5,819
----------- ----------- ----------- ----------- -----------
Total operating expenses 84,710 93,924 84,826 80,525 108,652
----------- ----------- ----------- ----------- -----------
Income (loss) from operations 6,627 (10,547) (232) (290) (25,218)
Other income (expense)
Interest expense, net (3,326) (2,153) (1,883) (3,095) (8,179)
Share of loss of partially-owned affiliate -- -- -- -- (1,388)
Gain on sale of affiliate's common stock -- -- -- -- 33,399
Realized loss on investments -- (172) (711) -- (4,819)
Miscellaneous (expense) income, net -- -- -- (18) 85
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 3,301 (12,872) (2,826) (3,403) (6,120)
Benefit (provision) for income taxes (150) -- -- 211 --
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 3,151 $ (12,872) $ (2,826) $ (3,192) $ (6,120)
=========== =========== =========== =========== ===========
Weighted average shares outstanding:
Basic 2,832,107 2,454,340 2,528,326 2,420,467 2,360,456
Diluted 3,001,844 2,454,340 2,528,326 2,420,467 2,360,456
Basic income (loss) per share $ 1.11 $ (5.24) $ (1.12) $ (1.32) $ (2.59)
Diluted income (loss) per share $ 1.06 $ (5.24) $ (1.12) $ (1.32) $ (2.59)
SELECTED OPERATING DATA:
Number of stores open at end of period 223 232 238 247 257
Comparable store sales increase 1.8% 1.1% 10.2% 2.5% 16.9%
BALANCE SHEET DATA:
Working capital (deficiency) $ 2,240 $ (9,090) $ 1,804 $ 2,760 $ 7,015
Total assets 107,817 92,463 103,423 102,559 107,329
Long-term debt, less current portion 12,972 7,746 7,752 5,204 11,531
Total shareholders' equity 15,060 10,222 21,853 22,603 26,395
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ACQUISITION OF PERFUMANIA.COM
On May 10, 2000, the Company acquired perfumania.com for 400,000 shares of
Envision Development Corporation ("EDC") stock held by the Company which were
restricted securities under Rule 144 of the Securities Act of 1933, as amended,
and subject to a lock-up agreement as well as certain other restrictions
including approval by an affiliate of EDC prior to the sale of shares by the
Company. The lock-up agreement did not allow the Company to dispose of any of
their EDC shares until May 2000, after which the Company was allowed to dispose
of up to 50,000 shares per month from May through December 2000, up to 75,000
shares per month from January through July 2001 and up to 100,000 shares per
month thereafter. Approval required by the affiliate of EDC allowing the Company
to sell 50,000 shares in May 2000 was withheld and the Company believed that it
would not obtain approval to sell such shares or any additional shares in
subsequent months. In addition, management of the Company had concerns about the
direction and business prospects of EDC and the future value of the EDC shares.
The Company recorded the acquisition of perfumania.com at $5.4 million, which
was based on an independent appraisal completed in December 2000. The Company
used this valuation because it believed that the appraisal was more clearly
evident of the fair value of the transaction than the quoted market price of the
EDC stock at the time of the transaction. In December 2000, the EDC shares were
delisted from the American Stock Exchange and the value of its shares became
nominal.
The presentation of this transaction was revised in the fiscal 2003 10-K
from the previously reported amounts to reflect the accounting treatment that
would result from using the quoted market price of the EDC shares on the
acquisition date rather than the appraised value as the more clearly evident
indicator of the value of the transaction. The market price of EDC shares on the
acquisition date was $70.25 per share and would have valued perfumania.com in
the aggregate at approximately $28.1 million resulting in an increase in the
gain on the sale of affiliate's common stock of $23.4 million, an increase in
the acquisition price from $5.4 million to $28.8 million, and the recognition of
additional goodwill of $23.4 million at the time of the transaction. Based on
the results of the independent appraisal of the value of perfumania.com using
the discounted cash flow method, goodwill would have been impaired by $23.4
million. Gross profit and net income remained unchanged for the fiscal year
ended February 3, 2001.
GENERAL
Perfumania's retail division accounts for most of our net sales and gross
profit. Perfumania's overall profitability depends principally on our ability to
attract customers and successfully conclude retail sales. Other factors
affecting our profitability include general economic conditions, competition,
availability of volume discounts, number of stores in operation, timing of store
openings and closings and the effect of special promotions offered by
Perfumania.
The following table sets forth items from our Consolidated Statements of
Operations expressed as a percentage of total net sales for the periods
indicated:
PERCENTAGE OF NET SALES
FISCAL YEAR
2004 2003 2002
------ ------ ------
Net sales, retail division .......................... 89.5% 93.4% 98.9%
Net sales, wholesale division ....................... 10.5 6.6 1.1
------ ------ ------
Total net sales ................................... 100.0 100.0 100.0
------ ------ ------
Gross profit, retail division ....................... 40.0 38.5 41.8
Gross profit, wholesale division .................... 0.6 0.7 0.0
------ ------ ------
Total gross profit ................................ 40.6 39.2 42.0
------ ------ ------
Selling, general and administrative expenses ........ 34.9 38.7 37.8
Change of control expenses .......................... 0.0 2.3 0.0
Provision for impairment of receivable from affiliate 0.0 0.0 1.0
Provision for impairment of assets and store closings 0.1 0.3 0.3
Depreciation and amortization ....................... 2.6 2.9 3.0
------ ------ ------
Total operating expenses .......................... 37.6 44.2 42.1
------ ------ ------
Income (loss) from operations before other expense .. 2.9 (5.0) (0.1)
------ ------ ------
Other expense:
Interest expense, net ............................. (1.5) (1.0) (0.9)
Realized loss on investments ...................... 0.0 (0.1) (0.4)
------ ------ ------
Loss before income taxes ............................ 1.5 (6.0) (1.4)
(Provision) benefit from income taxes ............... (0.1) 0.0 0.0
------ ------ ------
Net income (loss) ................................... 1.4% (6.1)% (1.4)%
------ ------ ------
13
FORWARD LOOKING STATEMENTS
Some of the statements in this Annual Report on Form 10-K, including those
that contain the words "anticipate," "believe," "plan," "estimate," "expect,"
"should," "intend," and other similar expressions, are "forward-looking
statements' within the meaning of the Private Securities Litigation Reform Act
of 1995. Those forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements of those of our industry to be materially different from any
future results, performance or achievements expressed or implied by those
forward-looking statements. Among the factors that could cause actual results,
performance or achievement to differ materially from those described or implied
in the forward-looking statements are our ability to service our obligations and
refinance our credit facility on acceptable terms, our ability to comply with
the covenants in our credit facility, general economic conditions including a
continued decrease in discretionary spending by consumers, competition,
potential technology changes, changes in or the lack of anticipated changes in
the regulatory environment in various countries, the ability to secure
partnership or joint-venture relationships with other entities, the ability to
raise additional capital to finance expansion, the risks inherent in new product
and service introductions and the entry into new geographic markets and other
factors included in our filings with the Securities and Exchange Commission (the
"SEC"), including the Risk Factors included in this Annual Report on Form 10-K.
Copies of our SEC filings are available from the SEC or may be obtained upon
request from us. We do not undertake any obligation to update the information
contained herein, which speaks only as of this date.
CRITICAL ACCOUNTING ESTIMATES
Our consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
Preparation of these statements requires management to make judgments and
estimates. As such, some accounting policies have a significant impact on
amounts reported in these financial statements. The judgments and estimates made
can significantly affect results. Materially different amounts would be reported
under different conditions or by using different assumptions. A summary of
significant accounting policies can be found in Note 2 to the Consolidated
Financial Statements.
We consider an accounting policy to be critical if it requires significant
judgment and estimates in its application. We have identified certain accounting
policies that we consider critical to our business and our results of operations
and have provided below additional information on those policies.
Inventory Adjustments and Reserves
Inventories are stated at the lower of cost or market, cost being
determined on a weighted average cost basis. We review our inventory on a
regular basis for excess and potentially slow moving inventory based on prior
sales, forecasted demand, historical experience and through specific
identification of obsolete or damaged merchandise and we record inventory
writeoffs in accordance with our expectations. If there are material changes to
these estimates, additional writeoffs could be necessary.
Impairment of Long-Lived Assets
When facts and circumstances indicate that the values of long-lived
assets, including intangibles, may be impaired, an evaluation of recoverability
is performed by comparing the carrying value of the assets to projected future
cash flows in addition to other quantitative and qualitative analyses. Inherent
in this process is significant management judgment as to the projected cash
flows. Upon indication that the carrying value of such assets may not be
recoverable, the Company recognizes an impairment loss as a charge against
current operations. Cash flows for retail assets are identified at the
individual store level. Judgments are also made as to whether under-performing
stores should be closed. Even if a decision has been made not to close an
under-performing store, the assets at that store may be impaired. If there are
material changes to these judgments or estimates, additional charges could be
necessary.
14
COMPARISON OF FISCAL YEARS 2004 AND 2003
Revenues:
For the year ended
-----------------------------------------------------------------------------------
($ in thousands)
Percentage
of Percentage Percentage
January 29, 2005 Revenues January 31, 2004 of Revenues Increase
----------------- ----------- ----------------- ------------ -----------
Wholesale $23,578 10.5% $14,089 6.6% 67.4%
Retail 201,425 89.5% 198,479 93.4% 1.5%
----------------- ----------- ----------------- ------------ -----------
Total Revenues $225,003 100.0% $212,568 100.0% 5.9%
----------------- ----------- ----------------- ------------ -----------
In fiscal year 2004 net sales increased for both wholesale and retail
sales. The increase in wholesale sales was due to purchases made by Quality
King. The Company, through its supplier relationships, is able to obtain certain
merchandise at better prices and quantities than Quality King. Overall retail
sales increased by 1.5% and comparable store sales increased by 1.8%. Comparable
store sales measure the sales from stores that have been open for one year or
more. The average number of stores operated decreased from 235 during fiscal
year 2003 to 230 in fiscal year 2004 primarily due to the closure of older,
underperforming stores. We believe that Perfumania's retail sales were
negatively impacted in fiscal year 2004 by the overall soft United States
economy earlier in the year and management transition following the change in
control. However, the later months of fiscal 2004 were improved due to greater
availability of merchandise brands, quantity of product and as new management
programs, which are discussed below, took effect.
Cost of Goods Sold:
For the year ended
-------------------------------------------------------------
($ in thousands)
Percentage
Increase
January 29, 2005 January 31, 2004 (Decrease)
------------------- ------------------- ----------------
Wholesale $22,291 $12,635 76.4%
Retail 111,376 116,556 (4.4%)
------------------- ------------------- ----------------
Total cost of goods
sold $133,667 $129,191 3.5%
------------------- ------------------- ----------------
Gross Profit:
For the year ended
-------------------------------------------------------------
($ in thousands)
Percentage
Increase
January 29, 2005 January 31, 2004 (Decrease)
------------------- ------------------ -------------------
Wholesale $1,288 $1,454 (11.4%)
Retail 90,049 81,923 9.9%
------------------- ------------------ -------------------
Total gross profit $91,337 $83,377 9.5%
------------------- ------------------ -------------------
15
Gross profit for the retail division increased principally as a result of
lower cost of inventory purchases and marginal adjustments to sales prices.
Total gross profit increased as a result of higher sales and profit margins in
the retail division offset by higher sales and lower profit margins in the
wholesale division.
Gross Profit Margin Percentages:
For the year ended
---------------------------------------
January 29, 2005 January 31, 2004
------------------- ------------------
Wholesale 5.6% 10.3%
Retail 44.7% 41.3%
Gross profit margin 40.6% 39.2%
The decrease in gross margin on wholesale sales resulted from an increase
in the cost of the wholesale goods which were sold to Quality King. We were
unable to offset this higher cost by increasing sales prices to Quality King.
See Note 5 to our Consolidated Financial Statements for further discussion.
Operating Expenses and Income (loss) from Operations:
For the year ended
------------------------------------------------------------
($ in thousands)
Percentage
January 31, Increase
January 29, 2005 2004 (Decrease)
----------------- ---------------- -------------------
Selling, general and
administrative $78,521 $82,297 (4.6%)
Change of control expenses -- 4,931 --
Asset impairment charges 314 593 (47.1%)
Depreciation and amortization 5,875 6,103 (3.7%)
----------------- ---------------- -------------------
Total operating expenses 84,710 93,924 (9.8%)
----------------- ---------------- -------------------
Income (loss) from operations $6,627 ($10,547) --
----------------- ---------------- -------------------
The decrease in selling, general and administrative expenses is
attributable primarily to lower store associate compensation costs, better
control of store operating costs and a result of the reduction of our average
number of stores. During fiscal 2004 we improved our method of scheduling store
associates, modified our sales incentive programs and refocused our advertising
and promotional efforts at lower costs. The majority of our selling, general and
administrative expenses relate to the retail division.
Change of control expenses described in the comparison of fiscal years
2003 and 2002 did not affect fiscal 2004. The asset impairment charges in both
fiscal years relate to retail store locations with negative cash flows that were
either closed or targeted for closure. The asset impairment charges were reduced
as we do not expect more than 4 closures during fiscal year 2005.
16
Other Expense:
For the year ended
------------------------------------------------------------
($ in thousands)
Percentage
Increase
January 29, 2005 January 31, 2004 (Decrease)
------------------ ----------------- ------------------
Interest expense, net $3,326 $2,153 54.5%
Loss on investments -- 172 --
------------------ ----------------- ------------------
Total other expense $3,326 $2,325 43.1%
------------------ ----------------- ------------------
The increase in interest expense resulted from higher loan balances on our
new expanded revolving line of credit, higher interest rates and a new $5
million convertible note payable to the Nussdorfs.
Provision for Income Taxes:
For the year ended
-------------------------------------------------------------
($ in thousands)
January 29, Percentage
2005 January 31, 2004 Increase
---------------- ------------------ -------------------
Provision for income taxes $150,000 -- --
The tax provision resulted primarily from alternative minimum taxes due to
the utilization of net operating loss carry forwards.
Net Income (Loss):
For the year ended
-------------------------------------------------------------
($ in thousands)
Percentage
January 29, 2005 January 31, 2004 Increase
----------------- ----------------- -------------------
Net Income (loss) $3,151 ($12,872) --
As a result of our increase in sales and gross profit and the reduction in
expenses described above, we realized net income compared to a net loss in the
prior year.
17
COMPARISON OF FISCAL YEARS 2003 AND 2002
Revenues:
For the year ended
-----------------------------------------------------------------------------------------------
($ in thousands)
Percentage
Percentage Percentage of Increase
January 31, 2004 of Revenues February 1, 2003 Revenues (Decrease)
------------------ -------------- ------------------ --------------- --------------
Wholesale $14,089 6.6% $2,145 1.1% 556.8%
Retail 198,479 93.4% 199,369 98.9% (0.4)%
------------------ -------------- ------------------ --------------- --------------
Total Revenues $212,568 100.0% $201,514 100.0% 5.5%
------------------ -------------- ------------------ --------------- --------------
Net sales increased due to an increase in wholesale sales, offset by a
decrease in retail sales. The increase in wholesale sales was due primarily to
$11.4 million of sales made to Quality King. The Company, through its supplier
relationships, is able to obtain certain merchandise at better prices and
quantities than Quality King. See Note 5 to our Consolidated Financial
Statements for further discussion. Comparable store sales measure the sales from
stores that have been open for one year or more. Perfumania's comparable store
sales increased 1.1% in fiscal year 2003. However, the average number of stores
operated decreased from 242 during fiscal year 2002 to 235 in fiscal year 2003
primarily due to the closure of older, underperforming stores. We believe that
Perfumania's retail sales were negatively impacted for part of fiscal year 2003
by the overall soft United States economy, the war in Iraq and disruption in our
inventory supplies due to the relocation of our distribution facility.
Cost of Goods Sold:
For the year ended
-----------------------------------------------------
($ in thousands)
Percentage
Increase
January 31, 2004 February 1, 2003 (Decrease)
----------------- ----------------- -------------
Wholesale $12,635 $1,710 638.9%
Retail 116,556 115,210 1.2%
----------------- ----------------- -------------
Total cost of goods sold $129,191 $116,920 10.5%
================= ================= =============
Gross Profit:
For the year ended
------------------------------------------------------
($ in thousands)
Percentage
Increase
January 31, 2004 February 1, 2003 (Decrease)
----------------- ----------------- -------------
Wholesale $1,454 $435 234.3%
Retail 81,923 84,159 (2.7)%
----------------- ----------------- -------------
Total gross profit $83,377 $84,594 (1.4)%
----------------- ----------------- -------------
Gross profit decreased as a result of lower sales and gross profit in the
retail division offset by higher sales and gross profit in the wholesale
division.
18
Gross profit for the retail division decreased principally as a result of
lower retail sales. Based on a comprehensive review of the Company's merchandise
offerings conducted by management, approximately 3,400 stock keeping units
("skus") of our 25,000 skus were identified which we intend to discontinue
offering for sale in Perfumania's retail stores. We recorded writeoffs totaling
approximately $2.6 million as of fiscal year end 2003, which represents the
difference between the estimated selling value and the historical cost of this
inventory. This writeoff is included in cost of goods sold and accounts for 1.4%
of the decrease in our retail gross profit as a percentage of net retail sales
for fiscal year 2003.
The increase in gross profit in the wholesale division was due to higher
wholesale sales as discussed above. Wholesale sales historically yield a lower
gross margin compared to retail sales.
Gross Profit Margin Percentages:
For the year ended
------------------------------------
January 31, February 1,
2004 2003
---------------- ----------------
Wholesale 10.3% 20.3%
Retail 41.7% 43.0%
Gross profit margin 39.2% 42.0%
The decrease in wholesale gross profit margins was primarily attributable
to larger number of units per wholesale transaction in fiscal 2004 compared to
fiscal 2003. Large unit orders yield lower margins than small orders.
Operating Expenses and Loss from Operations:
For the year ended
------------------------------------------------------------
($ in thousands)
Percentage
Increase
January 31, 2004 February 1, 2003 (Decrease)
------------------ ----------------- ------------------
Selling, general and
administrative $82,297 $76,178 8.0%
Change of control expenses 4,931 -- --
Asset impairment charges 593 663 (10.6%)
Receivable impairment
amortization -- 1,961 --
Depreciation and amortization 6,103 6,024 1.3%
------- ------- -------
Total operating expenses 93,924 84,826 10.7%
------- ------- -------
Loss from operations $10,547 $ 232 4446.1%
------- ------- -------
The increase in selling, general and administrative expenses is
attributable primarily to higher employee compensation costs and other store
operating costs. During fiscal 2003 we also incurred increased expenses for the
relocation of our corporate headquarters and distribution center as well as the
implementation of new point of sale software in our stores. The majority of our
selling, general and administrative expenses relate to the retail division.
Change of control expenses of approximately $4.9 million in fiscal year
2003 represents expenses incurred as a result of the Nussdorf Option Agreement
which was entered into effective January 30, 2004 between Ilia Lekach, our then
Chairman of the Board and Chief Executive Officer, IZJD Corp. and Pacific
Investment Group Inc., each of which are wholly-owned by Mr. Lekach and Deborah
Lekach, Mr. Lekach's wife, and Stephen and Glenn Nussdorf. Approximately $2.6
million of these expenses represent amounts paid to certain of our executive
officers and a consultant pursuant to employment and consulting agreements and
approximately $2.3 million represents a non-cash charge for stock option
expenses, also relating to these same employment and consulting agreements. See
further discussion in Item 1 and also Note 5 to our Consolidated Financial
Statements.
19
The asset impairment charges in both fiscal years relate to retail store
locations with negative cash flows that were either closed or are targeted for
closure.
The provision for receivables during fiscal year 2002 relates to an
affiliate receivable which management determined was not collectible. See
further discussion at Note 5 of the Notes to Consolidated Financial Statements.
Other Expense:
For the year ended
-------------------------------------------------------
($ in thousands)
Percentage
Increase
January 31, 2004 February 1, 2003 (Decrease)
----------------- ----------------- -------------
Interest expense $2,179 $2,072 5.2%
Loss on investments 172 711 (75.8)%
----------------- ----------------- -------------
Total other expense $2,351 $2,783 (15.5)%
================= ================= =============
The increase in interest expense was primarily due to lower interest
incurred on the capital lease for our corporate office and distribution center
to which we relocated in the second quarter of fiscal year 2003.
The realized loss on investments in fiscal year 2002 was due to a decline
in the market prices on securities available for sale that resulted in the
Company recording a non-cash charge. During fiscal year 2003 the Company
recorded a loss from the sale of these same investments. See further discussion
at Note 9 of the Notes to Consolidated Financial Statements.
Net Loss:
For the year ended
-------------------------------------------------------
($ in thousands)
Percentage
January 31, 2004 February 1, 2003 Increase
----------------- ----------------- -------------
Net Loss $12,872 $2,826 355.5%
As a result of the foregoing our net loss was increased as indicated
above.
20
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements for operating purposes are to fund
Perfumania's inventory purchases, renovate existing stores and selectively open
new stores. During fiscal years 2004 and 2003, we financed these requirements
primarily through cash flows from operations, borrowings under our line of
credit, issuance of convertible notes and other short-term borrowings. We
believe we will have adequate liquidity in fiscal year 2005 to operate our
business and to meet our cash requirements.
A summary of our cash flows is as follows:
For the year ended
January 29, 2005
---------------------
($ in thousands)
Summary Cash Flow Information:
Cash used in operating activities $ (4,369)
Cash used in investing activities (4,148)
Cash provided by financing activities 7,806
---------------------
Decrease in cash and cash equivalents (711)
Cash and cash equivalents, February 1, 2004 1,961
---------------------
Cash and cash equivalents. January 29, 2005 $ 1,250
---------------------
In May 2004, we entered into a three-year amended and restated senior
secured credit facility with GMAC Commercial Finance LLC and Congress Financial
Corporation. The line of credit provides for borrowings of up to $60 million,
increased from $40 million in our previous credit facility, of which $31.5
million was outstanding under our line of credit and $12.6 million was available
as of January 29, 2005, to support normal working capital requirements and other
general corporate purposes. Advances under the line of credit are based on a
formula of eligible inventories and bears interest at a floating rate ranging
from (a) prime to prime plus 1.25% or (b) LIBOR plus 2.5% to 3.75% depending on
a financial ratio test. Advances are secured by a first lien on all assets of
Perfumania. The credit facility contains limitations on additional borrowings,
capital expenditures and other items, and contains various covenants including a
fixed charge coverage ratio, a leverage ratio and capital expenditure limits as
defined. As of January 29, 2005, we were in compliance with all covenant
requirements.
In March 2004, the Nussdorfs made a $5,000,000 subordinated secured demand
loan to Perfumania. The demand loan bore interest at the prime rate plus 1%,
required quarterly interest payments and was secured by a security interest in
Perfumania's assets pursuant to a Security Agreement, by and among Perfumania
and the Nussdorfs. There were no prepayment penalties and the loan was
subordinate to all bank related indebtedness. On December 9, 2004, we issued a
Subordinated Convertible Note (the "Convertible Note") in exchange for the
$5,000,000 subordinated secured demand loan. The Convertible Note bears interest
at the prime rate plus 1%, requires quarterly interest payments and is secured
by a security interest in the Company's assets pursuant to a Security Agreement,
by and among the Company and the Nussdorfs. There are no prepayment penalties
and the Convertible Note is subordinate to all bank related indebtedness. The
Convertible Note is payable in January 2007 and allows the Nussdorfs to convert
the Convertible Note into shares of our common stock at a conversion price of
$11.25, which equals the closing market price of the Company's common stock on
December 9, 2004.
On June 30, 2003, Perfumania signed a $5.0 million subordinated note
agreement with Parlux. The note was in consideration for the reduction of $5.0
million in trade payables due to Parlux in that year. The note was due on
February 29, 2004, with various periodic principal payments, bore interest at
prime plus 1% and was subordinated to all bank related indebtedness. As of
January 31, 2004, the outstanding principal balance due on the note was
$250,000. The note was repaid in full in February 2004 in accordance with its
terms.
In fiscal year 2004, net cash used in operating activities was
approximately $4.4 million compared with net cash provided of $10.2 million in
fiscal year 2003. Net cash used in operating activities in fiscal year 2004 was
primarily to fund the net change in our inventories, accounts payable to
affiliates, accrued expenses and other liabilities. In January 2004 we incurred
and accrued approximately $4.9 million in change of control expenses.
Approximately $2.6 million of these expenses represented amounts paid to certain
of our executive officers and a consultant pursuant to employment and consulting
agreements during fiscal 2004 and approximately $2.3 million represented a
non-cash charge for stock option expenses, also relating to these same
employment and consulting agreements. As a result of the anticipated change in
management, which would follow the change in control, inventory purchases were
delayed at fiscal year-end 2003 resulting in the comparative large increase in
inventory levels at fiscal year-end 2004.
21
Net cash used in investing activities in fiscal year 2004 was
approximately $4.1 million, compared with $5.7 million for fiscal year 2003.
Investing activities generally represent spending for the renovation of existing
stores and new store openings. During fiscal year 2004 we opened 14 new stores
and remodeled/relocated 7 stores. Approximately $1.1 million of the $5.7 million
used in investing activities during fiscal year 2003 was attributable to the
relocation of the Company's corporate office and distribution center to Sunrise,
Florida. We intend to focus on continuing to improve the profitability of our
existing stores and growing the number of stores. We anticipate that we will
open approximately 25 stores in fiscal 2005.
In fiscal year 2004, net cash provided by financing activities was
approximately $7.8 million compared with $5.5 million used in fiscal year 2003.
Cash provided by financing activities in fiscal year 2004 was principally due to
$5 million in proceeds from a subordinated secured demand loan from the
Nussdorfs, $1.1 million of net bank borrowings and $1.7 million from the
proceeds of stock option exercises.
In December 1999, our Board of Directors approved the repurchase by the
Company of up to 375,000 shares of our common stock, reflecting its belief that
our common stock represented a significant value at its then current trading
price. In January 2001, the Board approved an increase in the stock repurchase
program by an additional 250,000 shares, in February 2002, the Board approved an
increase in the stock repurchase program by an additional 250,000 shares and in
April 2002, the Board approved an increase in the stock repurchase program by an
additional 100,000 shares. Pursuant to these authorizations, we have repurchased
approximately 898,000 shares of common stock for approximately $8.6 million
since December 1999, including approximately 118,000 shares for $1.5 million in
fiscal year 2003. There were no repurchases of our common stock during fiscal
year 2004.
Management believes that Perfumania's borrowing capacity under it's
current credit facility, projected cash flows from operations and other short
term borrowings will be sufficient to support our working capital needs, capital
expenditures and debt service for at least the next twelve months. There can be
no assurance that management's plans and expectations will be successful.
Payments due by period
-----------------------------------------------------------------------
($ in thousands)
less than more than
Contractual Obligations Total 1 year 1-3 years 3-5 years 5 years
- ----------------------- ---------- ------------ ----------- ----------- ------------
Capital Lease Obligations $16,243 $1,165 $2,285 $2,377 $10,416
Operating Lease Obligations 44,868 11,496 16,605 8,533 8,234
---------- ------------ ----------- ----------- ------------
Total $61,111 $12,661 $18,890 $10,910 $18,650
========== ============ =========== =========== ============
SEASONALITY AND QUARTERLY RESULTS
Our operations historically have been seasonal, with higher sales in the
fourth fiscal quarter than the other three fiscal quarters. Significantly higher
fourth quarter retail sales result from increased purchases of fragrances as
gift items during the holiday season. Our quarterly results may vary due to the
timing of new store openings, net sales contributed by new stores and
fluctuations in comparable sales of existing stores. Results of any interim
period are not necessarily indicative of the results that may be expected during
a full fiscal year.
RECENT ACCOUNTING STANDARDS
On December 16, 2004 the Financial Accounting Standards Board ("FASB")
issued Statement No. 123 (revised 2004)("SFAS 123(R)"), "Share-Based Payment,"
which is effective for reporting periods beginning after June 15, 2005. SFAS
123(R) requires an entity to recognize compensation expense in an amount equal
to the fair value of share-based payments granted to employees. On April 14,
2005, the Securities and Exchange Commission ("SEC") amended the compliance date
for SFAS 123(R). The SEC's new rule allows implementation of SFAS 123(R) at the
beginning of an entity's next fiscal year that begins after June 15, 2005.
Accordingly, we will adopt SFAS 123(R) at the beginning of fiscal year 2006 and
apply the standard using the modified prospective method, which requires
compensation expense to be recorded for new and modified awards. For any
unvested portion of previously issued and outstanding awards, compensation
expense is required to be recorded based on the previously disclosed SFAS 123
methodology and amounts. Prior periods presented are not required to be
restated. We are in the process of assessing the impact on our results of
operations and financial position upon the adoption of SFAS 123(R).
22
CHANGES IN FOREIGN EXCHANGE RATES CREATE RISK
Although large fluctuations in foreign exchange rates could have a
material effect on the prices we pay for products purchased from outside the
United States, such fluctuations have not been material to our results of
operations to date. Transactions with foreign suppliers are in United States
dollars. We believe inflation has not had a material impact on our results of
operations and we are generally able to pass through cost increases by
increasing sales prices.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We conduct business in the United States where the functional currency of
the country is the United States dollar. As a result, we are not at risk to any
foreign exchange translation exposure on a prospective basis.
Our exposure to market risk for changes in interest rates relates
primarily to our bank line of credit. The bank line of credit bears interest at
a variable rate, as discussed above under "Liquidity and Capital Resources". We
mitigate interest rate risk by continuously monitoring the interest rates and
reacting to changes in LIBOR and prime rates. As a result of borrowings
associated with our operating and investing activities, we are exposed to
interest rate risk. As of January 29, 2005 and January 31, 2004, our primary
source of funds for working capital and other needs is a line of credit that
provides for borrowings up to $60 million and $40 million, respectively.
Of the $44.7 million and $38.7 million of short-term and long-term
borrowings on our balance sheet as of January 29, 2005 and January 31, 2004,
respectively, approximately 18.4% and 20.7%, respectively, represented fixed
rate instruments. The line of credit bears interest at a floating rate ranging
from (a) prime to prime plus 1.25%, or (b) LIBOR plus 2.5% to 3.75% depending on
financial ratio tests. For fiscal year 2004, the credit facility bore interest
at an average rate of 4.7%. A hypothetical 10% adverse move in interest rates
would increase fiscal years 2004 and 2003 interest expense by approximately $0.1
million in both years.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information and the supplementary data required in response
to this Item are as follows:
PAGE
----
E Com Ventures, Inc. and Subsidiaries
Report of Independent Registered Public Accounting Firm............................. 25
Consolidated Balance Sheets as of January 29, 2005 and January 31, 2004............. 26
Consolidated Statements of Operations for the Fiscal Years Ended January 29, 2005,
January 31, 2004 and February 1, 2003............................................... 27
Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended
January 29, 2005, January 31, 2004, and February 1, 2003............................ 28
Consolidated Statements of Cash Flows for the Fiscal Years Ended January 29, 2005,
January 31, 2004, and February 1, 2003.............................................. 29
Notes to Consolidated Financial Statements.......................................... 30
Supplemental schedules have been omitted, as all required
information is disclosed or not applicable.
24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
E Com Ventures, Inc.
Sunrise, Florida
We have audited the accompanying consolidated balance sheets of E Com Ventures,
Inc. and subsidiaries (the "Company") as of January 29, 2005 and January 31,
2004, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended January 29, 2005. 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 in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of E Com Ventures, Inc. and
subsidiaries as of January 29, 2005 and January 31, 2004, and the results of
their operations and their cash flows for each of the three years in the period
ended January 29, 2005, in conformity with accounting principles generally
accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
April 27, 2005
25
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS: JANUARY 29, 2005 JANUARY 31, 2004
---------------- ----------------
Current assets:
Cash and cash equivalents $ 1,249,543 $ 1,961,310
Trade receivables, net 695,812 777,186
Inventories 78,929,639 60,877,451
Prepaid expenses and other current assets 1,149,723 1,461,493
Notes and interest receivable from shareholder and
officer -- 327,311
------------- -------------
Total current assets 82,024,717 65,404,751
Property and equipment, net 23,070,723 24,414,624
Goodwill 1,904,448 1,904,448
Other assets, net 817,156 739,575
------------- -------------
Total assets $ 107,817,044 $ 92,463,398
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank line of credit $ 31,528,212 $ 30,472,027
Accounts payable 18,111,196 16,459,786
Accounts payable, affiliates 23,228,325 17,440,492
Accrued expenses and other liabilities 6,685,494 9,614,287
Subordinated note payable, affiliate -- 250,000
Current portion of obligations under capital leases 231,353 258,700
------------- -------------
Total current liabilites 79,784,580 74,495,292
Convertible note payable - affiliate 5,000,000 --
Long-term portion of obligations under capital leases 7,972,455 7,746,262
------------- -------------
Total liabilities 92,757,035 82,241,554
------------- -------------
Commitments and contingencies (See Note 11)
Shareholders' equity:
Preferred stock, $0.10 par value, 1,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 6,250,000 shares
authorized; 3,834,684 and 3,285,758 shares issued
in fiscal years 2004 and 2003, respectively 38,347 32,858
Additional paid-in capital 75,347,588 73,666,193
Treasury stock, at cost, 898,249 shares
in fiscal years 2004 and 2003 (8,576,944) (8,576,944)
Accumulated deficit (51,748,982) (54,900,263)
------------- -------------
Total shareholders' equity 15,060,009 10,221,844
------------- -------------
Total liabilities and shareholders' equity $ 107,817,044 $ 92,463,398
============= =============
See accompanying notes to consolidated financial statements.
26
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED
--------------------------------------------------------------
January 29, 2005 January 31, 2004 February 1, 2003
----------------- ------------------ ------------------
Net sales $ 225,003,201 $ 212,567,569 $ 201,513,897
Cost of goods sold 133,666,605 129,190,549 116,919,385
------------- ------------- -------------
Gross profit 91,336,596 83,377,020 84,594,512
------------- ------------- -------------
Operating expenses:
Selling, general and administrative expenses 78,521,215 82,297,031 76,177,549
Change of control expenses -- 4,931,221 --
Provision for receivables from
an affiliate -- -- 1,961,355
Provision for impairment of
assets and store closings 313,888 593,109 663,391
Depreciation and amortization 5,874,591 6,102,823 6,024,400
------------- ------------- -------------
Total operating expenses 84,709,694 93,924,184 84,826,695
------------- ------------- -------------
Income (loss) from operations 6,626,902 (10,547,164) (232,183)
------------- ------------- -------------
Other income (expense):
Interest expense:
Affiliates (248,124) (109,217) (43,049)
Other (3,079,695) (2,070,034) (2,029,290)
------------- ------------- -------------
(3,327,819) (2,179,251) (2,072,339)
------------- ------------- -------------
Interest income:
Affiliates -- 15,707 173,526
Other 2,198 10,687 16,176
------------- ------------- -------------
2,198 26,394 189,702
------------- ------------- -------------
Realized loss on investments -- (171,679) (710,880)
------------- ------------- -------------
Total other expense -- (171,679) (710,880)
------------- ------------- -------------
Income (loss) before income taxes 3,301,281 (12,871,700) (2,825,700)
Provision for income taxes 150,000 -- --
------------- ------------- -------------
Net income (loss) $ 3,151,281 $ (12,871,700) $ (2,825,700)
============= ============= =============
Basic income (loss) per common share $ 1.11 $ (5.24) $ (1.12)
============= ============= =============
Diluted income (loss) per common share $ 1.06 $ (5.24) $ (1.12)
============= ============= =============
Weighted average number of shares outstanding:
Basic 2,832,107 2,454,340 2,528,326
============= ============= =============
Diluted 3,001,844 2,454,340 2,528,326
============= ============= =============
See accompanying notes to consolidated financial statements.
27
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 29, 2005, JANUARY 31, 2004
AND FEBRUARY 1, 2003
Common Stock Additional Treasury Stock
------------------------------- Paid-In -------------------------------
Shares Amount Capital Shares Amount
------------ ------------ ------------ ------------ ------------
Balance at February 2, 2002 2,980,305 $ 29,803 $ 71,455,401 766,802 $ (7,038,638)
Components of comprehensive loss:
Net loss -- -- -- -- --
Unrealized gain
on investments -- -- -- -- --
Total comprehensive loss -- -- -- -- --
Exercise of stock options 59,808 598 112,949 -- --
Purchase of treasury stock -- -- -- 13,150 (47,302)
Conversion of debt and
accrued interest to
common stock 175,648 1,757 515,277 -- --
Net change in notes and
interest receivable from
shareholder and officer -- -- -- -- --
Premium repayment of
convertible notes payable -- -- (695,833) -- --
------------ ------------ ------------ ------------ ------------
Balance at February 1, 2003 3,215,761 32,158 71,387,794 779,952 (7,085,940)
Components of comprehensive loss:
Net loss -- -- -- -- --
Unrealized loss
on investments -- -- -- -- --
Total comprehensive loss -- -- -- -- --
Exercise of stock options 69,997 700 235,805 -- --
Purchase of treasury stock -- -- -- 118,297 (1,491,004)
Stock Compensation -- -- 2,285,640 -- --
Net change in notes and
interest receivable from
shareholder and officer -- -- -- -- --
Premium repayment of
convertible notes payable -- -- (243,046) -- --
------------ ------------ ------------ ------------ ------------
Balance at January 31, 2004 3,285,758 32,858 73,666,193 898,249 (8,576,944)
Net income and
comprehensive income -- -- -- -- --
Exercise of stock options 548,926 5,489 1,681,395 -- --
------------ ------------ ------------ ------------ ------------
Balance at January 29, 2005 3,834,684 $ 38,347 $ 75,347,588 898,249 $ (8,576,944)
============ ============ ============ ============ ============
Accumulated Notes and
Other Interest Receivable
Comprehensive Accumulated From Shareholders
Income (Loss) Deficit and Officers Total
------------ ------------ ------------ ------------
Balance at February 2, 2002 $ 241,334 $(39,202,863) $ (2,881,624) $ 22,603,413
------------
Components of comprehensive loss:
Net loss -- (2,825,700) -- (2,825,700)
Unrealized gain
on investments (381,738) -- -- (381,738)
------------
Total comprehensive loss -- -- -- (3,207,438)
------------
Exercise of stock options -- -- -- 113,547
Purchase of treasury stock -- -- -- (47,302)
Conversion of debt and
accrued interest to
common stock -- -- -- 517,034
Net change in notes and
interest receivable from
shareholder and officer -- -- 2,570,020 2,570,020
Premium repayment of
convertible notes payable -- -- -- (695,833)
------------ ------------ ------------ ------------
Balance at February 1, 2003 (140,404) (42,028,563) (311,604) 21,853,441
------------
Components of comprehensive loss:
Net loss -- (12,871,700) -- (12,871,700)
Unrealized loss
on investments 140,404 -- -- 140,404
------------
Total comprehensive loss -- -- -- (12,731,296)
------------
Exercise of stock options -- -- -- 236,505
Purchase of treasury stock -- -- -- (1,491,004)
Stock Compensation -- -- -- 2,285,640
Net change in notes and
interest receivable from
shareholder and officer -- -- 311,604 311,604
Premium repayment of
convertible notes payable -- -- -- (243,046)
------------ ------------ ------------ ------------
Balance at January 31, 2004 -- (54,900,263) -- 10,221,844
------------
Net income and
comprehensive income -- 3,151,281 -- 3,151,281
------------
Exercise of stock options -- -- -- 1,686,884
------------ ------------ ------------ ------------
Balance at January 29, 2005 $ -- $(51,748,982) $ -- $ 15,060,009
============ ============ ============ ============
References to share amounts in the schedule above for periods ended prior to
March 20, 2002 reflect the effect of the one for four reverse stock-split.
See accompanying notes to consolidated financial statements.
28
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED
----------------------------------------------------------
January 29, 2005 January 31, 2004 February 1, 2003
------------------ ----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ 3,151,281 $(12,871,700) $ (2,825,700)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Provision for receivables from affiliate -- -- 1,961,355
Provision for impairment of assets and store closings 313,388 593,109 663,391
Writeoff of inventories 188,035 897,874 1,189,734
Depreciation and amortization 5,874,591 6,102,823 6,024,400
Writeoff of discontinued inventory 185,088 2,558,805 --
Realized loss on investments -- 171,679 710,880
Stock compensation -- 2,285,640 --
Change in operating assets and liabilities:
Trade receivables 81,374 (32,730) (109,215)
Inventories (18,425,311) 4,383,033 (1,519,327)
Prepaid expenses and other current assets 311,770 1,507,259 1,778,353
Due from affiliate -- -- (1,150,186)
Other assets (309,799) 368,363 216,091
Accounts payable, non-affiliate 1,651,410 (4,446,040) (4,593,171)
Accounts payable, affiliate 5,537,833 4,258,774 4,138,159
Accrued expenses and other liabilities (2,928,793) 4,445,653 (788,111)
------------ ------------ ------------
Net cash (used in) provided by operating activities (4,369,133) 10,222,542 5,696,653
------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment (4,148,335) (5,907,018) (1,893,664)
Proceeds from investments available for sale -- 179,332 10,515
------------ ------------ ------------
Net cash used in investing activities (4,148,335) (5,727,686) (1,883,149)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings and (repayments) under bank line
of credit and notes payable 1,056,185 (1,641,664) 892,950
Principal payments under capital lease obligations (264,679) (1,143,767) (1,771,037)
Net advances to shareholders and officers -- -- (400,000)
Proceeds from note and interest receivable,
shareholder and officer 327,311 -- 2,970,020
Proceeds from subordinated secured demand loan, affiliate 5,000,000 -- --
Repayments of convertible notes payable -- (1,458,261) (4,207,824)
Proceeds from exercise of stock options 1,686,884 236,505 113,547
Purchases of treasury stock -- (1,491,004) (47,302)
------------ ------------ ------------
Net cash provided by (used in) financing activities 7,805,701 (5,498,191) (2,449,646)
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents (711,767) (1,003,335) 1,363,858
Cash and cash equivalents at beginning of period 1,961,310 2,964,645 1,600,787
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,249,543 $ 1,961,310 $ 2,964,645
============ ============ ============
Cash paid during the period for:
Interest $ 3,139,425 $ 2,034,666 $ 2,196,062
============ ============ ============
See accompanying notes to consolidated financial statements.
29
E COM VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 29, 2005, JANUARY 31, 2004
AND FEBRUARY 1, 2003
NOTE 1 - NATURE OF BUSINESS
E Com Ventures, Inc., a Florida corporation ("ECOMV" or the "Company"),
performs all of its operations through two wholly-owned subsidiaries,
Perfumania, Inc. ("Perfumania"), a Florida corporation, which is a specialty
retailer and wholesaler of fragrances and related products and perfumania.com,
inc., a Florida corporation which is an Internet retailer of fragrances and
other specialty items.
Perfumania's retail stores are located in regional malls, manufacturers'
outlet malls, airports and on a stand-alone basis in suburban strip shopping
centers. The number of retail stores in operation at January 29, 2005, January
31, 2004, and February 1, 2003 were 223, 232 and 238, respectively.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Significant accounting principles and practices used by the Company in the
preparation of the accompanying consolidated financial statements are as
follows:
FISCAL YEAR END
The Company's fiscal year ends the Saturday closest to January 31 to
enable the Company's operations to be reported in a manner which more closely
coincides with general retail reporting practices and the financial reporting
needs of the Company. In the accompanying notes, fiscal year 2004, 2003 and 2002
refer to the years ended January 29, 2005, January 31, 2004 and February 1,
2003, respectively. The fiscal years presented each contain fifty-two weeks.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The most significant estimates made by
management in the accompanying consolidated financial statements relate to the
allowance for doubtful accounts, inventory reserves, self-insured health care
reserves, long-lived asset impairments and estimated useful lives of property
and equipment. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include accounts of E Com Ventures,
Inc. and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue from wholesale transactions is recorded upon shipment of inventory
when risk of ownership and title transfers to the buyer. Revenue from store
sales is recorded net of discounts when the customer pays at the register.
Revenue from Internet sales is recognized at the time products are delivered to
customers. Returns of store and Internet sales are allowed within 30 days of
purchase and are limited to exchanges. Because returns are primarily exchanged,
there is no significant effect on revenue.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of cost
or market, cost being determined on a weighted average cost basis. The cost of
inventory includes product cost and freight charges. Writeoffs of potentially
slow moving or damaged inventory are recorded based on management's analysis of
inventory levels, future sales forecasts and through specific identification of
obsolete or damaged merchandise. The Company's writeoffs were approximately $0.4
million and $3.5 million for the years ended January 29, 2005 and January 31,
2004, respectively.
30
In fiscal year 2003 management had identified approximately 3,400 of the
Company's 25,000 stock keeping units ("skus"). The Company intends to sell
through its existing on hand inventory of these skus during fiscal year 2005.
The total cost of this inventory as of January 31, 2004 was approximately $9.4
million. The Company recorded an income statement charge of approximately $2.6
million in fiscal 2003, which represented the difference between the estimated
selling value and the weighted average cost of this inventory. These charges
were included in cost of goods sold on the accompanying consolidated statement
of operations for the year ended January 31, 2004.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the related assets. Leasehold improvements are
amortized over the shorter of the term of the lease including renewal periods
that are reasonably assured, or the estimated useful lives of the improvements,
generally ten years. Costs of major additions and improvements are capitalized
and expenditures for maintenance and repairs which do not extend the useful life
of the asset are expensed when incurred. Gains or losses arising from sales or
retirements are included in income currently.
GOODWILL
Goodwill represents the excess purchase price paid over net assets of
businesses acquired resulting from the application of the purchase method of
accounting. Goodwill is tested annually for impairment at the end of the
Company's fiscal year. No impairment occurred as a result of the annual tests.
OTHER INTANGIBLE ASSETS
Intangible assets include store design, real estate leases and non-compete
agreements based upon their relative fair values at the date of acquisition as
determined by management with the assistance of an independent valuation
consultant. Intangible assets do not include goodwill. The amortization of
intangible assets amounted to approximately $0.2 million in fiscal years 2004
and 2003. Amortization of intangible assets in the amount of approximately
$140,000 is anticipated during fiscal year 2005, which is the remaining life of
these assets.
INCOME TAXES
Income tax expense is based principally on pre-tax financial income.
Deferred tax assets and liabilities are recognized for the differences between
the financial reporting carrying values and the tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance is
recognized to reduce net deferred tax assets to amounts that management believes
are more likely than not expected to be realized.
BASIC AND DILUTED INCOME (LOSS) PER SHARE
Basic income (loss) per common share is computed by dividing income (loss)
attributable to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted income (loss) per common share
includes, in periods in which they have a dilutive effect, the dilutive effect
of those common stock equivalents where the average market price of the common
shares exceeds the exercise prices for the respective years. For fiscal years
2003 and prior in the accompanying consolidated statements of operations,
incremental shares attributed to common stock equivalents and convertible notes
were not included because the results would be anti-dilutive.
31
Basic and diluted loss per share are computed as follows:
FISCAL YEAR
---------------------------------------------------
2004 2003 2002
------------ ------------ ------------
Numerator:
Net income (loss) - basic $ 3,151,281 $(12,871,700) $ (2,825,700)
Add: interest on convertible note 44,131 -- --
------------ ------------ ------------
Net income (loss) - diluted $ 3,195,412 $(12,871,700) $ (2,825,700)
============ ============ ============
Denominator:
Weighted average number of shares
for basic income (loss) per share 2,832,107 2,454,340 2,528,326
Options to purchase common stock 105,024 -- --
Convertible note 64,713 -- --
------------ ------------ ------------
Denominator for dilutive income (loss)
per share 3,001,844 2,454,340 2,528,326
============ ============ ============
Basic income (loss) per share $ 1.11 $ (5.24) $ (1.12)
============ ============ ============
Diluted income (loss) per share $ 1.06 $ (5.24) $ (1.12)
============ ============ ============
Antidilutive securities not included
in the diluted income (loss) per share
computation:
Options to purchase common stock 86,256 696,436 666,501
Range of exercise prices $12.52 - $1.64 - $1.64 -
$21.52 $21.52 $21.52
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107 "Disclosures about
Fair Value of Financial Instruments" ("SFAS 107"), requires disclosure of the
fair value of financial instruments held by the Company. SFAS 107 defines the
fair value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties. The following
methods and assumptions were used to estimate fair value:
- - The carrying amounts of cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short-term nature;
- - The fair value of investments are based on quoted market prices, if
available, and;
- - The fair value of the Company's bank line of credit, convertible notes
payable, obligations under capital leases and loans payable are based on
current interest rates and repayment terms of the individual notes.
ASSET IMPAIRMENT
The Company reviews long-lived assets and makes a provision for impairment
whenever events or changes in circumstances indicate that the projected cash
flows of related activities may not provide for cost recovery. An impairment
loss is generally recorded when the net book value of assets exceeds projected
undiscounted future cash flows. The impairment loss is determined based on the
difference between the net book value and the fair value of the assets. The
estimated fair value is based on anticipated discounted future cash flows. Any
impairment is charged to operations in the period in which it is identified.
STOCK BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and provides proforma
disclosure of net income and earnings per share as if the fair value based
method prescribed by Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation," ("SFAS 123") as amended, had been
applied in measuring compensation expense for options granted to employees and
directors in fiscal years 2004, 2003 and 2002. In accordance with APB 25,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee or director must pay to acquire the stock. Had compensation
cost for options granted been determined in accordance with the fair value
provisions of SFAS No. 123, the Company's net loss and net loss per share would
have been increased to the proforma amounts presented below for fiscal years
2003 and 2002:
32
Basic and diluted loss per share are computed as follows:
FISCAL YEAR
----------------------------------------------------
2004 2003 2002
------------ ------------ ------------
Net income (loss) as reported $ 3,151,281 $(12,871,700) $ (2,825,700)
Add: Total fair value of stock based
employee compensation expense not
included in reported net income (loss) (94,731) (1,425,284) (478,449)
------------ ------------ ------------
Proforma net income (loss) $ 3,056,550 $(14,296,984) $ (3,304,149)
============ ============ ============
Proforma net income (loss) per share:
Basic $ 1.08 $ (5.83) $ (1.31)
============ ============ ============
Diluted $ 1.03 $ (5.83) $ (1.31)
============ ============ ============
UNREALIZED GAIN (LOSS) ON INVESTMENTS
Equity securities classified as available for sale are adjusted to fair
market value as of the balance sheet date based on quoted market prices. The
related unrealized gain (loss) on investments is reflected in other
comprehensive income (loss) and accumulated other comprehensive income (loss) on
the consolidated statements of changes in shareholders' equity and consolidated
balance sheets, respectively. Realized losses on investments resulting from the
sale or other-than-temporary declines in fair market values of securities
classified as available for sale are included in the results of operations.
PRE-OPENING EXPENSES
Pre-opening expenses related to opening new stores are expensed as
incurred.
SHIPPING AND HANDLING FEES AND COSTS
Income generated from shipping and handling fees is classified as
revenues. The Company classifies the costs related to shipping and handling as
cost of goods sold.
ADVERTISING COSTS
Advertising expense for the fiscal years 2004, 2003 and 2002 was
approximately $1,441,000, $1,876,000 and $1,286,000, respectively, and charged
to expense when incurred. Cooperative advertising amounts received from vendors
for fiscal years 2004, 2003 and 2002 were $0, $200,000 and $200,000,
respectively, and recorded as an offset to advertising expense.
RECLASSIFICATION
Certain fiscal year 2003 and 2002 amounts have been reclassified to
conform with the fiscal 2004 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 16, 2004 the Financial Accounting Standards Board ("FASB")
issued Statement No. 123 (revised 2004)("SFAS 123(R)"), "Share-Based Payment,"
which is effective for reporting periods beginning after June 15, 2005. SFAS
123(R) requires an entity to recognize compensation expense in an amount equal
to the fair value of share-based payments granted to employees. On April 14,
2005, the Securities and Exchange Commission ("SEC") amended the compliance date
for SFAS 123(R). The SEC's new rule allows implementation of SFAS 123(R) at the
beginning of an entity's next fiscal year that begins after June 15, 2005.
Accordingly, we will adopt SFAS 123(R) at the beginning of fiscal year 2006 and
apply the standard using the modified prospective method, which requires
compensation expense to be recorded for new and modified awards. For any
unvested portion of previously issued and outstanding awards, compensation
expense is required to be recorded based on the previously disclosed SFAS 123
methodology and amounts. Prior periods presented are not required to be
restated. We are in the process of assessing the impact on our results of
operations and financial position on the adoption of SFAS 123(R).
33
NOTE 3 - NON-CASH TRANSACTIONS
Supplemental disclosures of non-cash investing and financing activities:
FISCAL YEAR ENDED
--------------------------------------------------------------------
NON-CASH TRANSACTIONS January 29, 2005 January 31, 2004 February 1, 2003
- ---------------------------------------- -------------------- -------------------- --------------------
Equipment and building under capital
leases $ 463,525 $ 414,630 $ 7,764,203
Unrealized gain (loss) on investments -- 140,404 (381,738)
Subordinated debt issued to affiliate -- 5,000,000 3,000,000
Conversion of debt and accrued interest
payable in exchange for common stock -- -- 517,034
Subordinated debt exchanged for
convertible note payable, affiliate 5,000,000 -- --
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of:
FISCAL YEAR ENDED
---------------------------------------- Estimated Useful Lives
January 29, 2005 January 31, 2004 (In Years)
------------------ ------------------ -----------------------
Furniture, fixtures and equipment $ 24,945,705 $ 21,221,687 5-7
Leasehold improvements 27,055,275 25,369,583 10
Equipment under capital leases 521,161 6,774,897 shorter of 5 years or lease term
Building under capital lease 8,188,945 7,725,420 15
------------------ ------------------
60,711,086 61,091,587
Less:
Accumulated depreciation and
amortization (37,640,363) (36,676,963)
------------------ ------------------
$ 23,070,723 $ 24,414,624
================== ==================
See Note 11 for further discussion of capital leases.
Approximately $4,164,000 of point of sale registers were reclassified from
equipment under capital leases to furniture, fixtures and equipment in fiscal
year 2004 as the leases matured and the Company exercised its option to purchase
the registers. In addition, the Company disposed of approximately $2,090,000 of
equipment under capital leases in fiscal year 2004, on equipment that was fully
depreciated. There was no effect in the Company's consolidated statement of
operations.
Depreciation and amortization expense for fiscal years 2004, 2003, and
2002 was $5,874,591, $6,102,823 and $6,024,400, respectively. Accumulated
depreciation for building and equipment under capital leases was $1,238,231 and
$5,428,802 as of January 29, 2005 and January 31, 2004, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
Effective January 30, 2004, Ilia Lekach, the Company's then Chairman of
the Board and Chief Executive Officer, IZJD Corp. and Pacific Investment Group
Inc., each of which are wholly-owned by Mr. Lekach and Deborah Lekach, Mr.
Lekach's wife (collectively, "Lekach"), entered into the Nussdorf Option
Agreement, with Stephen Nussdorf and Glenn Nussdorf (the "Nussdorfs"), pursuant
to which the Nussdorfs were granted options to acquire up to an aggregate
720,954 shares of the Company's common stock beneficially owned by Lekach, for a
purchase price of $12.70 per share exercisable in specified installments.
34
Effective February 10, 2004, Mr. Lekach's employment with the Company was
terminated and Mr. Lekach ceased serving as an employee and officer of the
Company. In addition, on February 10, 2004, Mr. Lekach resigned from the Board
of Directors and Stephen L. Nussdorf was appointed the Company's Chairman of the
Board and Michael W. Katz was appointed the Company's President and Chief
Executive Officer.
As of April 26, 2004, Mr. Lekach exercised stock options to acquire
318,750 common shares resulting in proceeds to the Company of approximately
$851,000 and the Nussdorfs acquired 595,954 shares from Mr. Lekach pursuant to
the Nussdorf Option Agreement. Mr. Lekach had stock options for another 125,000
shares which were required to be issued to Mr. Lekach by the Company pursuant to
the terms of his employment agreement as a consequence of the change of control.
These 125,000 options were only to be issued by the Company to Mr. Lekach upon
approval of an amendment to the Company's 2000 Stock Option Plan. Such an
amendment was approved at a special meeting of the Company's shareholders on
April 29, 2004. Proceeds to the Company were $500,000 when Mr. Lekach exercised
the 125,000 options. The Nussdorfs exercised their option to acquire the
remaining 125,000 shares subject to the Nussdorf Option Agreement and the
Nussdorfs currently own an aggregate 1,113,144 shares of the Company's common
stock or approximately 38% of the total number of shares of the Company's common
stock as of January 29, 2005, excluding shares issuable upon conversion of the
Convertible Note discussed below in Note 6.
As a consequence of the change in control provisions set forth in the
employment agreements of Mr. Lekach, various executive officers and a
consultant, the Company issued a total of 244,252 options for the Company's
common stock in January 2004. Since the various exercise prices of the options
were less than the market price of the Company's common stock on the grant date,
the Company incurred a non-cash charge of approximately $2,286,000. In addition,
pursuant to the same employment and consulting agreements, the Company accrued
approximately $2,645,000 in January 2004, representing amounts subsequently paid
to said persons as a result of the change of control. These charges totaling
approximately $4,931,000 are included in "Change of control expenses" on the
accompanying consolidated statement of operations for the year ended January 31,
2004. See Note 6 for a discussion of the Convertible Note issued to the
Nussdorfs.
The Nussdorfs are officers and principals of Quality King Distributors,
Inc. ("Quality King"). During fiscal year 2004, the Company purchased
approximately $39,317,000 of merchandise from Quality King and sold
approximately $23,570,000 of different merchandise to Quality King. In fiscal
year 2003, there were approximately $5,960,000 of purchases from Quality King
and approximately $11,366,000 of merchandise sold to Quality King. The amounts
due to Quality King and its affiliates at January 29, 2005 and January 31, 2004,
were approximately $13,234,000 and $797,000 respectively.
Notes receivable from Ilia Lekach, the Company's former Chairman of the
Board of Directors and Chief Executive Officer, was $327,311 as of January 31,
2004. The notes were unsecured, matured in five years and bore interest at prime
plus 1% per annum. Principal and interest were payable in full at maturity.
Total interest income recognized during fiscal years 2004 and 2003 was
approximately $2,000 and $16,000, respectively. Accrued interest receivable was
approximately $27,000 and $12,000 as of January 31, 2004 and February 1, 2003.
The notes and all accrued interest were fully paid in March 2004.
Parlux Fragrances, Inc. ("Parlux") owns approximately 13% of the Company's
outstanding common stock. Purchases of products from Parlux, whose Chairman of
the Board of Directors and Chief Executive Officer is Ilia Lekach, amounted to
approximately $38,360,000, $27,701,000 and $11,613,000 in fiscal years 2004,
2003 and 2002, representing approximately 20%, 23% and 10%, respectively, of the
Company's total purchases. The amount due to Parlux on January 29, 2005 and
January 31, 2004, was approximately $9,994,000 and $14,506,000, respectively.
Accounts payable due to Parlux are non-interest bearing. The amounts due to
Parlux, exclusive of the secured note payable described below, are included in
the accounts payable affiliates in the accompanying consolidated balance sheets.
On June 30, 2003, Perfumania signed a $5,000,000 subordinated note
agreement with Parlux. The note was in consideration for the reduction of
$5,000,000 in trade payables due to Parlux in the same year. The note was due on
February 29, 2004, with various periodic principal payments, bore interest at
prime plus 1% and was subordinated to all bank related indebtedness. As of
January 31, 2004 the outstanding principal balance due on the note was $250,000
and included in the amount due Parlux of $14,506,000 at January 31, 2004. The
note was paid in full in February 2004, in accordance with its terms.
The Company purchased approximately $6,368,000 and $10,562,000 of
merchandise in fiscal years 2003 and 2002, respectively, from a company owned by
Zalman Lekach, a former director of the Company, and a brother of Ilia Lekach.
The amount due to Zalman Lekach's company at January 31, 2004 was approximately
$1,617,000, and is included in accounts payable affiliates in the accompanying
consolidated balance sheets.
35
The Company purchased approximately $4,305,000 and $6,021,000 of
merchandise in fiscal years 2003 and 2002, respectively, from a company owned by
another brother of Ilia Lekach. The amount due to this company was approximately
$771,000 at January 31, 2004 and is included in accounts payable affiliates in
the accompanying consolidated balance sheets.
NOTE 6 - BANK LINE OF CREDIT AND NOTES PAYABLE
The bank line of credit and notes payable consist of the following:
January 29, 2005 January 31, 2004
------------------- -------------------
Bank line of credit, which is classified as
a current liability, interest payable
monthly, secured by a pledge of substantially all
of Perfumania's assets (see below) $ 31,528,212 $ 30,472,027
=================== ===================
Convertible note payable affiliate - long term $ 5,000,000 $ --
=================== ===================
In May 2004, Perfumania entered into a three-year amended and restated
senior secured credit facility with GMAC Commercial Finance LLC and Congress
Financial Corporation. The line of credit provides for borrowings of up to $60
million, increased from $40 million in the previous credit facility, of which
$31.5 million was outstanding under the line of credit and $12.6 million was
available as of January 29, 2005, to support normal working capital requirements
and other general corporate purposes. Advances under the line of credit are
based on a formula of eligible inventories and bears interest at a floating rate
ranging from (a) prime to prime plus 1.25% or (b) LIBOR plus 2.5% to 3.75%
depending on a financial ratio test. Advances are secured by a first lien on all
assets of Perfumania. The credit facility contains limitations on additional
borrowings, capital expenditures and other items, and contains various covenants
including a fixed charge coverage ratio, a leverage ratio and capital
expenditure limits as defined. The credit facility expires in May 2007. As of
January 29, 2005, Perfumania was in compliance with its covenant requirements.
In March 2004, the Nussdorfs made a $5,000,000 subordinated secured demand
loan to Perfumania. The demand loan bears interest at the prime rate plus 1%,
requires quarterly interest payments and is secured by a security interest in
Perfumania's assets pursuant to a Security Agreement, by and among Perfumania
and the Nussdorfs. There are no prepayment penalties and the loan is subordinate
to all bank related indebtedness. On December 9, 2004, the Company issued a
Subordinated Convertible Note (the "Convertible Note") in exchange for the
$5,000,000 subordinated secured demand loan. The Convertible Note bears interest
at the prime rate plus 1%, requires quarterly interest payments and is secured
by a security interest in the Company's assets pursuant to a Security Agreement,
by and among the Company and the Nussdorfs. There are no prepayment penalties
and the Convertible Note is subordinate to all bank related indebtedness. The
Convertible Note is payable in January 2007 and allows the Nussdorfs to convert
the Convertible Note into shares of the Company's common stock at a conversion
price of $11.25, which equals the closing market price of the Company's common
stock on December 9, 2004.
NOTE 7 - IMPAIRMENT OF ASSETS
Based on a review of the Company's retail store locations with negative
cash flows, the Company recognized non-cash impairment charges relating to its
retail operation of approximately $0.3 million, $0.6 million and $0.7 million
during fiscal years 2004, 2003 and 2002, respectively. These charges were
determined based on the difference between the carrying amounts of the assets,
representing primarily fixtures and leasehold improvements, at particular store
locations and the fair values of the assets on a store-by-store basis. The
estimated fair values are based on anticipated future cash flows discounted at a
rate commensurate with the risk involved. These impairment losses are included
in provision for impairment of assets and store closings in the accompanying
consolidated statements of operations.
36
NOTE 8 - INCOME TAXES
The provision for income taxes is comprised of the following amounts:
FISCAL YEAR ENDED
-------------------------------------------------------
January 29, 2005 January 31, February 1,
2004 2003
----------------- ---------------- --------------
Current:
Federal $ (75,000) $ -- $ --
State (75,000) -- --
--------- --------- ---------
(150,000) -- --
--------- --------- ---------
Deferred:
Federal -- -- --
State -- -- --
--------- --------- ---------
Provision for
income taxes $(150,000) $ -- $ --
--------- --------- ---------
The income tax benefit (expense) differs from the amount obtained by
applying the statutory Federal income tax rate to pretax income as follows:
FISCAL YEAR ENDED
--------------------------------------------------------
January 29, 2005 January 31, 2004 February 1, 2003
----------------- ----------------- ----------------
Benefit (expense) at federal statutory
rates $(1,122,436) $ 4,376,378 $ 960,738
Non-deductible expenses (1,527,156) (1,504,335) (283,319)
Change in the valuation allowance 3,101,821 (3,224,513) (584,247)
Other (602,229) 352,470 (93,172)
----------- ----------- -----------
Provision for income taxes $ (150,000) $ -- $ --
----------- ----------- -----------
Net deferred tax assets reflect the tax effect of the following
differences between financial statement carrying amounts and tax basis of assets
and liabilities:
FISCAL YEAR ENDED
----------------------------------
January 29, January 31,
2005 2004
------------ ------------
Assets:
Net operating loss & tax credit
carryforwards $ 6,482,224 $ 5,962,433
Capital loss carryforward 1,571,773 1,455,119
Inventories 1,257,747 1,708,735
Property and equipment 733,777 3,291,432
Reserves 143,911 167,436
Goodwill 296,382 306,002
Deferred compensation -- 715,983
Other 392,037 372,532
------------ ------------
Total deferred tax assets 10,877,851 13,979,672
Valuation allowance (10,877,851) (13,979,672)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
A valuation allowance is provided for deferred tax assets in accordance
with SFAS No. 109, Accounting for Income Taxes as management believes it is more
likely than not that the benefit of the deferred tax asset will not be realized.
Realization of future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss carryforward period. Management has
considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes. As of January 29, 2005, the Company
has net operating loss carryforwards of approximately $17.0 million, which begin
to expire in the year 2019.
37
NOTE 9 - SHAREHOLDERS' EQUITY
REVERSE STOCK SPLIT
The Company's Board of Directors authorized a one-for-four reverse stock
split of the Company's outstanding shares of common stock for shareholders of
record as of March 20, 2002. Accordingly, all data shown in the accompanying
consolidated financial statements and notes for periods ended prior to that date
have been retroactively adjusted to reflect this change.
INVESTMENTS AVAILABLE FOR SALE
The Company's former Chairman of the Board and Chief Executive Officer,
Ilia Lekach, was also Chairman and interim CEO of Nimbus Group, Inc. ("Nimbus"),
a public company previously committed to the development of a private jet air
taxi network.
From fiscal year 2000 through fiscal year 2003 the Company acquired
approximately 1,003,000 shares of Nimbus common stock. The Company subsequently
disposed of its holding in Nimbus in open market transactions at a loss of
approximately $172,000 in fiscal 2003.
As of February 1, 2003, the market price for Nimbus' common stock was
below the Company's average cost per share of $4.13. In consideration of
accounting guidance that considers a six to nine month decline in stock price to
be other than temporary, the Company recorded a non-cash-charge of approximately
$700,000 in realized loss on investments in the consolidated statement of
operations for fiscal year 2002.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of up to
1,000,000 shares of preferred stock. The preferred stock may be issued from time
to time at the discretion of the Board of Directors without shareholders'
approval. The Board of Directors is authorized to issue these shares in
different series and, with respect to each series, to determine the dividend
rate, and provisions regarding redemption, conversion, liquidation preference
and other rights and privileges. As of January 29, 2005, no preferred stock had
been issued.
TREASURY STOCK
As of February 2, 2001, the Company's Board of Directors had approved the
repurchase by the Company of up to 625,000 shares of the Company's common stock,
reflecting management's belief that the Company's common stock represented a
significant value at its then current trading price. In February 2002, the Board
approved an increase in the stock repurchase program by an additional 250,000
shares and in April 2002, the Board approved an additional increase in the stock
repurchase program of 100,000 shares. Pursuant to these authorizations, the
Company has repurchased approximately 898,000 shares of common stock for
approximately $8.6 million as of January 31, 2004, including approximately
118,000 shares for $1.5 million in fiscal year 2003. There were no additional
repurchases during fiscal year 2004.
STOCK OPTION PLANS
Under the Company's 2000 Stock Option Plan (the "Stock Option Plan") and
2000 Directors Stock Option Plan (the "Directors Plan") (collectively, the
"Plans"), both of which superseded the previously existing plans effective
October 2000, 375,000 shares of common stock and 30,000 shares of common stock,
respectively, were initially reserved for issuance upon exercise of options.
Additionally, the number of shares available under the Stock Option Plan shall
automatically increase each year by 3% of the shares of common stock of the
Company outstanding at the end of the immediate preceding year. The Company's
Board of Directors, or a committee thereof, administers and interprets the Stock
Option Plan. The Stock Option Plan provides for the granting of both "incentive
stock options" (as defined in Section 422A of the Internal Revenue Code) and
non-statutory stock options. Options can be granted under the Stock Option Plan
on such terms and at such prices as determined by the Board, except that the per
share exercise price of options will not be less than the fair market value of
the common stock on the date of grant. Only non-employee directors are eligible
to receive options under the Directors Plan. The Directors Plan provides for an
automatic grant of an option to purchase 500 shares of common stock upon
election as a director of the Company and an automatic grant of 1,000 shares of
common stock upon such person's re-election as a director of the Company, in
both instances at an exercise price equal to the fair value of the common stock
on the date of grant.
38
Due to the transaction described in Note 5, a change in control occurred
which resulted in the issuance of 244,252 options which were immediately
exercisable. The Company incurred a charge of approximately $2,286,000 in
non-cash compensation expense in fiscal 2003 as a result of the issuance of
these options which represent the difference between the market price and
exercise price on the issuance date of these options.
In calculating the proforma net income (loss) per share for 2004, 2003 and
2002, as shown in Note 2, the fair value of each option grant is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in fiscal years 2004,
2003 and 2002:
2004 2003 2002
--------------- -------------- --------------
Expected life (years) 7 years 7 years 7 years
Interest rate 4.08% 3.68% 4.88%
Volatility 168% 165% 148%
Dividend yield 0% 0% 0%
Options granted under the Stock Option Plan are exercisable after the
period or periods specified in the option agreement, and options granted under
the Directors Plan are exercisable immediately. Options granted under the Plans
are not exercisable after the expiration of 10 years from the date of grant.
A summary of the Company's option activity, and related information for
each of the three fiscal years ended January 29, 2005 is as follows:
2004 2003 2002
----------------------- ----------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercisable Exercisable Exercisable
Shares Price Shares Price Shares Price
------- -------- ------- -------- -------- --------
Outstanding at beginning of year 809,238 $ 4.99 666,501 $ 5.32 606,594 $ 5.60
Granted 5,334 11.12 254,252 4.79 160,000 3.67
Exercised (551,222) 3.08 (69,996) 3.38 (59,807) 1.90
Cancelled (51,318) 7.65 (41,519) 11.93 (40,286) 8.19
------- ------- --------
Outstanding at end of year 212,032 $ 9.46 809,238 $ 4.99 666,501 $ 5.32
======= ======= ========
Options exercisable at end of year 212,032 $ 9.46 696,436 $ 5.10 449,714 $ 5.80
Weighted-average fair value of
options granted during the year 5,334 $ 11.12 254,252 $ 4.79 160,000 $ 3.31
The following table summarizes information about stock options outstanding
at January 29, 2005:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted Weighted
Weighted Average Average
Average Remaining Remaining
RANGE OF NUMBER Exercise Contractual NUMBER Exercise
EXERCISE PRICES OUTSTANDING Price Life EXERCISABLE Price
- ------------------- ------------------ --------------- ------------ --------------- -----------
$2.00 - $3.36 10,816 $ 2.47 5.17 10,816 $ 2.47
$3.52 - $3.52 47,832 3.52 7.32 47,832 3.52
$3.60 - $8.24 42,876 7.57 7.26 42,876 7.57
$10.02 - $11.24 24,252 10.93 5.61 24,252 10.93
$12.52 - $21.52 86,256 14.16 5.42 86,256 14.16
------------------ ---------------
212,032 $ 9.46 6.23 212,032 $ 9.46
================== ===============
39
NOTE 10- EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Savings and Investment Plan ("the Plan").
Pursuant to such Plan, participants may make contributions to the Plan up to a
maximum of 20% of total compensation or $13,000, whichever is less, and the
Company, at its discretion, may match such contributions to the extent of 25% of
the first 6% of a participant's contribution. The Company's matching
contributions vest over a 4-year period. In addition to matching contributions,
the Company may make additional contributions on a discretionary basis in order
to comply with certain Internal Revenue Code regulations prohibiting
discrimination in favor of highly compensated employees. The Company did not
match contributions during fiscal year 2004 and matching contributions during
fiscal years 2003 and 2002 were not significant.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company is self-insured for employee medical benefits under the
Company's group health plan. The Company maintains stop loss coverage for
individual medical claims in excess of $80,000 and for annual Company medical
claims which exceed approximately $2.1 million in the aggregate. While the
ultimate amount of claims incurred are dependent on future developments, in
management's opinion, recorded reserves are adequate to cover the future payment
of claims incurred as of January 29, 2005. However, it is possible that recorded
reserves may not be adequate to cover the future payment of claims. Adjustments,
if any, to estimates recorded resulting from ultimate claim payments will be
reflected in operations in the periods in which such adjustments are known. The
self-insurance reserve at January 29, 2005 and January 31, 2004 was
approximately $426,000 and $441,000, respectively, which is included in accrued
expenses and other liabilities in the accompanying consolidated balance sheets.
The Company leases space for its retail stores. The lease terms vary from
month to month leases to ten year leases, in some cases with options to renew
for longer periods. Various leases contain clauses which adjust the base rental
rate by the prevailing Consumer Price Index, as well as additional rent based on
a percentage of gross sales in excess of a specified amount.
Rent expense for fiscal years 2004, 2003, and 2002 was approximately
$15,417,000, $15,559,000, and $15,879,000, respectively. Future minimum lease
commitments under non-cancelable operating leases at January 29, 2005 are as
follows:
FISCAL YEAR
- ------------------------------------
2005 $ 11,495,511
2006 9,353,861
2007 7,251,154
2008 4,696,344
2009 3,836,922
Thereafter 8,233,977
--------------
Total future minimum lease payments $ 44,867,769
==============
The Company's capitalized leases consist of a corporate office and
distribution facility in Sunrise, Florida, as well as computer hardware and
software. The lease for the corporate office and distribution facility is for
approximately 15 years with monthly rent ranging from approximately $73,000 to
$104,000. The lease terms for the computer hardware and software vary from one
to three years. The following is a schedule of future minimum lease payments
under capital leases together with the present value of the net minimum lease
payments, at January 29, 2005:
FISCAL YEAR
- --------------------------------
2005 $ 1,165,086
2006 1,148,423
2007 1,137,116
2008 1,145,012
2009 1,231,779
Thereafter 10,415,633
---------------
Total future minimum lease payments 16,243,049
Less: Amount representing interest (8,039,241)
---------------
Present value of minimum lease 8,203,808
payments
Less: Current portion (231,353)
---------------
$ 7,972,455
===============
40
The depreciation expense relating to capital leases is included in
depreciation and amortization expense in the accompanying consolidated
statements of operations.
The Company is involved in various legal proceedings in the ordinary
course of business. Management cannot presently predict the outcome of these
matters, although management believes that the ultimate resolution of these
matters should not have a materially adverse effect on the Company's financial
position or result of operations.
NOTE 12 - SEGMENT INFORMATION
The Company operates in two industry segments, specialty retail sales and
wholesale distribution of fragrances and related products. Retail sales include
sales through our Internet site, perfumania.com. Financial information for these
segments is summarized in the following table.
FISCAL YEARS
--------------------------------------------------
2004 2003 2002
------------ ------------ ------------
Net sales:
Retail $201,424,708 $198,478,506 $199,369,331
Wholesale 23,578,493 14,089,063 2,144,566
------------ ------------ ------------
$225,003,201 $212,567,569 $201,513,897
============ ============ ============
Gross profit:
Retail $ 90,048,875 $ 81,923,375 $ 84,159,461
Wholesale 1,287,721 1,453,645 435,051
------------ ------------ ------------
$ 91,336,596 $ 83,377,020 $ 84,594,512
============ ============ ============
NOTE 13- QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial results for fiscal years 2004 and 2003
follows (in thousands, except for per share data):
2004 QUARTER FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net sales $ 43,571 $ 48,471 $ 50,803 $ 82,158
Gross profit 17,505 20,868 19,740 33,224
Net income (loss) (2,638) (529) (1,103) 7,421
Net income (loss) per basic
share (1.00) (0.18) (0.38) 2.54
Net income (loss) per diluted
share (1.00) (0.18) (0.38) 2.30
2003 QUARTER FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net sales $ 36,888 $ 50,748 $ 48,058 $ 76,874
Gross profit 16,815 20,573 17,980 30,442
Net loss (2,930) (924) (3,725) (5,293)
Net loss per basic share (1.19) (0.37) (1.51) (2.16)
Net loss per diluted share (1.19) (0.37) (1.51) (2.16)
The Company realizes higher sales, gross profit and net income in the
fourth fiscal quarter than the other three fiscal quarters due to increased
purchases of fragrances as gift items during the holiday season. Included in the
fourth quarter results for the year ended January 31, 2004 is approximately $4.9
million attributable to change of control expenses and $2.6 million attributable
to a write-down of inventory which the Company intended to discontinue offering
for sale in its stores.
41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation as of January 29, 2005, that our disclosure controls
and procedures are effective. There have been no changes in our internal control
over financial reporting during the quarter ended January 29, 2005 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as disclosed below, the information called for by this item is
incorporated by reference from E Com Ventures, Inc. Annual Meeting of
Shareholders - Notice and Proxy Statement - 2004 (to be filed pursuant to
Regulation 14A not later than 120 days after the close of the fiscal year) in
accordance with General Instruction 6 to the Annual Report on Form 10-K.
The Company has adopted a Code of Business Conduct and Ethics that applies
to all of the Company's officers, directors and employees. The Code of Business
Conduct and Ethics is filed as an exhibit to this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item is incorporated by reference from
E Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement
- - 2004 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction 6 to the Annual
Report on Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information is required by Item 403 of Regulation S-K relating to the
ownership of our common stock by certain beneficial owners and management and is
incorporated by reference from E Com Ventures, Inc. Annual Meeting of
Shareholders - Notice and Proxy Statement - 2004 (to be filed pursuant to
Regulation 14A not later than 120 days after the close of the fiscal year) in
accordance with General Instruction 6 to the Annual Report on Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information is incorporated by reference from E Com Ventures, Inc.
Annual Meeting of Shareholders - Notice and Proxy Statement - 2004 (to be filed
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year) in accordance with General Instruction 6 to the Annual Report on Form
10-K.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information is incorporated by reference from E Com Ventures, Inc.
Annual Meeting of Shareholders - Notice and Proxy Statement - 2004 (to be filed
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year) in accordance with General Instruction 6 to the Annual Report on Form
10-K.
42
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
(1) Financial Statements
An index to financial statements for the fiscal years ended January 29,
2005, January 31, 2004 and February 1, 2003 appears on page 24.
(2) Financial Statement Schedules
None
(3) Exhibits
PAGE NUMBER
OR INCORPORATED
BY REFERENCE
EXHIBIT DESCRIPTION FROM
------- ----------- ----
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (2)
10.5 1991 Stock Option Plan, as amended* (3)
10.6 1992 Directors Stock Option Plan, as amended* (3)
10.7 Series A Securities Purchase Agreement (4)
10.8 Series B Securities Purchase Agreement (5)
10.9 Series C Securities Purchase Agreement (6)
10.10 Series D Securities Purchase Agreement (6)
10.11 2000 Stock Option Plan* (7)
10.12 2000 Directors Stock Option Plan* (7)
10.13 Amended and Restated Revolving Credit and Security Agreement with GMAC (9)
Commercial Credit LLC, and Congress Financial Corporation (Florida),
date May 12, 2004
10.14 Nussdorf Subordinated Secured Demand Note (9)
10.15 Lease agreement with Victory Investment Group, LLC, dated October 21, (8)
2002
10.16 Waiver and Amendment to the Revolving Credit and Security Agreement
with GMAC Commercial Credit LLC, dated April 29,2004 (9)
10.17 Amendment to the 2000 Stock Option Plan* (10)
10.18 Nussdorf Subordinated Secured Convertible Note (11)
21.1 Subsidiaries of the Registrant (9)
23.1 Consent of Deloitte & Touche LLP (9)
31.1 Certification of the Chief Executive Officer pursuant to Section 302 of (9)
the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Section 302 of (9)
the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer pursuant to Section 906 of (9)
the Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer pursuant to Section 906 of (9)
the Sarbanes-Oxley Act of 2002
43
- ---------------------
* Management contract or compensatory plan or arrangement
(1) Incorporated by reference to the exhibit of the same description filed
with the Company's 1993 Form 10-K (filed April 28, 1994).
(2) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-1 (No 33-46833).
(3) Incorporated by reference to the exhibit of the same description filed
with the Company's 1995 Form 10-K (filed April 26, 1996).
(4) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-1 filed June 11, 1999
(No. 333-80525).
(5) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-1/A, filed August 31,
1999 (No. 333-80525).
(6) Incorporated by reference to the exhibit of the same description filed
with the Company's Registration Statement on Form S-3 filed April 25, 2000
(No. 333-35580).
(7) Incorporated by reference to the exhibit of the same description filed
with the Company's Proxy Statement (filed October 6, 2000).
(8) Incorporated by reference to the exhibit of the same description filed
with the Company's 2002 Form 10-K (filed April 30, 2003).
(9) Filed Herewith.
(10) Incorporated by reference to Appendix A to the Company's Proxy Statement
(filed April 16, 2004).
(11) Incorporated by reference to the exhibit of the same description filed
with the Company's Form 8-K (filed in December 14, 2004).
44
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, April 27, 2005.
E Com Ventures, Inc.
By: /s/ MICHAEL W. KATZ
-------------------------------------
Michael W. Katz,
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ A. MARK YOUNG
-------------------------------------
A. Mark Young,
Chief Financial Officer
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ MICHAEL W. KATZ President and Chief Executive April 27, 2005
- ------------------------------ Officer
Michael W. Katz (Principal Executive Officer)
/s/ STEPHEN NUSSDORF Chairman of the Board of Directors April 27, 2005
- ------------------------------
Stephen Nussdorf
/s/ A. MARK YOUNG Chief Financial Officer, April 27, 2005
- ------------------------------ (Principal Accounting Officer)
A. Mark Young
/s/ DONOVAN CHIN Chief Financial Officer April 27, 2005
- ------------------------------ Perfumania, Inc.,
Donovan Chin
/s/ CAROLE ANN TAYLOR Director April 27, 2005
- ------------------------------
Carole Ann Taylor
/s/ JOSEPH BOUHADANA Director April 27, 2005
- ------------------------------
Joseph Bouhadana
/s/ PAUL GARFINKLE Director April 27, 2005
- ------------------------------
Paul Garfinkle
45