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 28, 2006
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 if the Registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No|X|
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 12 or Section 15(d) of the Exchange Act. Yes |_| No|X|
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 a large accelerated
filer, an accelerated filer or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2) of the Exchange
Act.
Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|
Indicate by check mark whether the Registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No|X|
The aggregate market value of the voting stock held by non-affiliates of
the Registrant was approximately $17.7 million as of July 30, 2005, based on a
market price of $15.50 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 24, 2006: 2,959,791 shares
Documents Incorporated By Reference
Portions of the Registrant's definitive proxy statement for its 2006
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 28,
2006, are hereby incorporated by reference in Part III of this Annual Report on
Form 10-K.
TABLE OF CONTENTS
ITEM PAGE
---- ----
PART I
1. Business 3
1A. Risk Factors 6
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 11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
7A. Quantitative and Qualitative Disclosures About Market Risk 22
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 41
9A. Controls and Procedures 41
9B. Other Information
41
PART III
10. Directors and Executive Officers of the Registrant 42
11. Executive Compensation 42
12. Security Ownership of Certain Beneficial Owners and
Management 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. Perfumania operates a chain of
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
Perfumania retail customers.
Perfumania operates its wholesale business directly. The retail business
is operated 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, life style centers, airports and on a
stand-alone basis in suburban strip shopping centers. The number of retail
stores in operation at January 28, 2006, January 29, 2005, and January 31, 2004
were 239, 223 and 232, 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 segments. See further discussion in Note
12 to our Consolidated Financial Statements.
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. These reports and amendments are also
available at www.sec.gov. 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 2005 ended on January 28, 2006, fiscal year 2004 ended on January
29, 2005 and fiscal year 2003 ended on January 31, 2004. Each of the fiscal
years presented contain fifty-two weeks.
RETAIL DIVISION
STRATEGY
Each of Perfumania's retail stores generally offers approximately 300
different fragrance brands 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), Yves Saint Laurent(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), Cartier(R),
and Paris Hilton(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 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 in and around its stores
and in the malls in which its stores are located. Radio and television
advertising is done occasionally in certain geographic regions that have a
cluster of stores. The amount of advertising varies due to the seasonality of
the business with the greatest portion in the fourth fiscal quarter. See further
discussion at Note 13 to our Consolidated Financial Statements.
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. Regional and 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. Perfumania's point of sale system is standard in all its
stores. The system enables communication, pricing and promotion programs, time
and attendance reporting, and inventory control.
STORE LOCATION AND EXPANSION
Perfumania's stores are located in 34 states, the District of Columbia and
Puerto Rico, with the highest concentration consisting of 40 locations in
Florida, 23 in Texas, 21 in California, 18 in New York and 16 in Puerto Rico.
Perfumania's current business strategy focuses on maximizing sales by raising
the average dollar sale per transaction, increasing transactions per hour,
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, lifestyle centers 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 and demographics to support a cluster of stores.
In fiscal years 2005, 2004 and 2003, Perfumania opened 26 stores, 14
stores and 11 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 2005, 2004 and 2003, Perfumania closed 5 stores, 27 and 17 stores,
respectively. For fiscal year 2006, Perfumania will continue to focus on
improving the profitability of its existing stores and management expects to
open approximately 30 stores and close approximately 5 stores.
WHOLESALE DIVISION
During fiscal years 2005 and 2004 Perfumania distributed fragrances on a
wholesale basis to Quality King Distributors, Inc. ("Quality King"). Quality
King distributes pharmaceuticals, health and beauty care products and
fragrances. Our President and Chief Executive Officer, Michael Katz is an
executive of Quality King and our principal shareholders, Stephen Nussdorf, the
Chairman of our Board of Directors and Glenn Nussdorf, his brother, are
shareholders and executives of Quality King. Quality King accounted for 100% of
net wholesale sales during fiscal years 2005 and 2004 and 81% of net wholesale
sales in 2003. 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.
Internet fragrance sales are highly competitive and we compete on the basis of
selling price, merchandise variety, ease of selection and cost of delivery. 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, the Nussdorfs had acquired all
720,954 shares pursuant to the Nussdorf Option Agreement. See further discussion
in Note 5 to our Consolidated Financial Statements.
SOURCES OF SUPPLY
During fiscal years 2005 and 2004, Perfumania purchased fragrances from
approximately 120 suppliers, including national and international manufacturers,
distributors, wholesalers, importers and retailers. Perfumania generally makes
its purchases based on an optimal 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.
Perfumania's purchases generally peak in the third quarter in anticipation of
the December Holiday season, which results in higher retail sales in the fourth
quarter than in the first three quarters. As is customary in the fragrance
industry, Perfumania has no long-term or exclusive contracts with suppliers.
Approximately 22% and 27% of Perfumania's total merchandise purchased in
fiscal years 2005 and 2004, respectively, was from our affiliate, Quality King.
Approximately 18% and 26% of Perfumania's total merchandise purchased in fiscal
years 2005 and 2004, respectively, was from another affiliate, Parlux
Fragrances, Inc. ("Parlux"), a manufacturer and distributor of prestige
fragrances and related beauty products. Ilia Lekach is the Chairman of the Board
and Chief Executive Officer of Parlux. Parlux owns 378,102 shares or
approximately 13% of our outstanding common stock and Lekach separately owns
300,000 or 10% of our outstanding common stock. Besides Quality King and Parlux,
no other supplier accounted for more than 10% of our merchandise purchases
during 2005 or 2004.
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. No litigation or administrative proceedings related to "gray
market" merchandise were brought against us in fiscal years 2005, 2004 or 2003
and no such matters, to our knowledge, are pending.
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 its wholesale 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, drug stores, supermarkets, 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.
EMPLOYEES
At January 28, 2006, we had 1,420 employees, of whom 1,247 were employed
in Perfumania's retail stores, 62 were employed in Perfumania's warehouse and
distribution operations and 111 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,
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.
ITEM 1A. RISK FACTORS
The following set forth risk factors that may materially affect the
Company and results of 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 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 or may be required to accelerate repayment. 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. Our credit facility expires on May
12, 2007. We are currently negotiating an extension of this facility. We cannot
assure we will obtain an extension or replacement credit facilities on favorable
terms or be successful in selling additional securities. Without a source of
financing, we could experience cash flow difficulties and be forced to curtail
our then current operations.
6
Perfumania may have problems raising money needed in the future, which could
adversely impact operations
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 might issue additional common stock which could
dilute our existing shareholders' ownership interest or 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,
general economic conditions and other factors beyond our control. 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 adversely affected.
Perfumania purchases merchandise from related parties, which may cause a
conflict of interest
Approximately 40% and 53%, respectively, of Perfumania's total merchandise
purchased in fiscal years 2005 and 2004 were from our affiliates Quality King
and Parlux. 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.
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 might be
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.
7
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;
o news reports relating to trends in our markets; and
o the amount of shares constituting our public float.
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.
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, including hurricanes,
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.
8
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 or 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
common area expenses, 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 will not have
a materially adverse effect on our financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 14, 2005, 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 registered public accounting firm. The following
table reflects the results of the meeting:
ELECTION OF DIRECTORS:
---------------------
SHARES SHARES VOTED ABSTAIN/
TOTAL VOTED FOR WITHHELD NON-VOTES
--------------------- ----- -------------- --------- ---------
Michael W. Katz 2,044,921 2,020,458 24,463 908,170
Stephen Nussdorf 2,044,921 2,015,884 29,037 908,170
Carole Ann Taylor 2,044,921 2,042,500 2,421 908,170
Joseph Bouhadana 2,044,921 2,044,121 800 908,170
Paul Garfinkle 2,044,921 2,044,121 800 908,170
RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
-------------------------------------------------------------
SHARES SHARES VOTED SHARES VOTED ABSTAIN/
TOTAL VOTED FOR AGAINST WITHHELD NON-VOTES
--------------------- ----- -------------- --------- --------- ---------
Ratify Appointment of 2,044,921 2,044,171 750 -- 908,170
Deloitte & Touche LLP
9
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 2005 HIGH LOW
----------------- ------------ ------------
First Quarter $14.51 $9.52
Second Quarter 15.99 11.00
Third Quarter 15.50 10.04
Fourth Quarter 17.94 11.39
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
As of April 10, 2006, there were 54 holders of record which excluded
common stock held in street name. The closing sales price for the common stock
on April 10, 2006 was $19.27 per share.
DIVIDEND POLICY
We have not declared or paid any dividends on our common stock and do not
currently intend to declare or pay cash dividends in the foreseeable future.
Payment of dividends, if any, will be at the discretion of the Board of
Directors after taking into account various factors, including our financial
condition, results of operations, current and anticipated cash needs and plans
for expansion. Perfumania is prohibited from paying cash dividends under its
line of credit agreement with GMAC Commercial Finance LLC and Wachovia Capital
Finance.
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information as of January 28, 2006, 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 under equity
to be issued upon Weighted-average compensation plans
exercise of exercise price of (excluding securities
outstanding options, outstanding options, reflected in column
warrants and rights warrants and rights (a)(1))
-------------------- -------------------- ---------------------
Plan Category: (a) (b) (c)
Equity compensation plans
approved by stockholders 239,788 $ 10.27 509,970
Equity compensation plans
not approved by
stockholders -- -- --
----------- ----------- ---------
Total 239,788 $ 10.27 509,970
=========== =========== =========
10
(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.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the
consolidated financial statements of the Company. The data below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Risk Factors" and the Company's consolidated
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 2005 refers to the fiscal year that began on January
30, 2005 and ended on January 28, 2006. All fiscal years presented below contain
fifty-two weeks. Fiscal year 2006 will contain fifty-three weeks.
FISCAL YEAR ENDED
-------------------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 31, FEBRUARY 1, FEBRUARY 2,
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Net sales, retail division $ 215,841 $ 201,425 $ 198,479 $ 199,369 $ 184,142
Net sales, wholesale division 17,853 23,578 14,089 2,145 9,210
----------- ----------- ----------- ----------- -----------
Total net sales 233,694 225,003 212,568 201,514 193,352
----------- ----------- ----------- ----------- -----------
Gross profit, retail division 95,354 90,049 81,923 84,159 78,468
Gross profit, wholesale division 1,147 1,288 1,454 435 1,767
----------- ----------- ----------- ----------- -----------
Total gross profit 96,501 91,337 83,377 84,594 80,235
----------- ----------- ----------- ----------- -----------
Selling, general and administrative expenses 80,677 78,521 82,297 76,178 72,918
Provision for doubtful accounts -- -- -- -- 55
Provision for receivables from affiliate -- -- -- 1,961 --
Provision for impairment of assets
and store closings 162 314 593 663 727
Depreciation and amortization 5,156 5,875 6,103 6,024 6,825
Expenses incurred in connection with
change of control -- -- 4,931 -- --
----------- ----------- ----------- ----------- -----------
Total operating expenses 85,995 84,710 93,924 84,826 80,525
----------- ----------- ----------- ----------- -----------
Income (loss) from operations 10,506 6,627 (10,547) (232) (290)
Other income (expense)
Interest expense, net (3,878) (3,326) (2,153) (1,883) (3,095)
Realized loss on investments -- -- (172) (711) --
Miscellaneous expense, net -- -- -- -- (18)
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes 6,628 3,301 (12,872) (2,826) (3,403)
Income tax benefit (provision) 7,637 (150) -- -- 211
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 14,265 $ 3,151 $ (12,872) $ (2,826) $ (3,192)
=========== =========== =========== =========== ===========
Weighted average shares outstanding: --
Basic 2,949,146 2,832,107 2,454,340 2,528,326 2,420,467
Diluted 3,463,480 3,001,844 2,454,340 2,528,326 2,420,467
Basic income (loss) per share $ 4.84 $ 1.11 $ (5.24) $ (1.12) $ (1.32)
Diluted income (loss) per share $ 4.23 $ 1.06 $ (5.24) $ (1.12) $ (1.32)
BALANCE SHEET DATA:
Working capital (deficiency) $ 12,530 $ 2,240 $ (9,090) $ 1,804 $ 2,760
Total assets 113,956 107,817 92,463 103,423 102,559
Long-term debt, less current portion 12,898 12,972 7,746 7,752 5,204
Total shareholders' equity 32,239 15,060 10,222 21,853 22,603
SELECTED OPERATING DATA:
Number of stores open at end of period 239 223 232 238 247
Comparable store sales increase 5.8% 1.8% 1.1% 10.2% 2.5%
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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
purchase a wide assortment of merchandise at favorable prices, 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
2005 2004 2003
------- ------- -------
Net sales, retail division ................................. 92.4% 89.5% 93.4%
Net sales, wholesale division .............................. 7.6 10.5 6.6
------- ------- -------
Total net sales ....................................... 100.0 100.0 100.0
------- ------- -------
Gross profit, retail division .............................. 40.8 40.0 38.5
Gross profit, wholesale division ........................... 0.5 0.6 0.7
------- ------- -------
Total gross profit .................................... 41.3 40.6 39.2
------- ------- -------
Selling, general and administrative expenses ............... 34.5 34.9 38.7
Provision for impairment of assets and store closings ...... 0.1 0.1 0.3
Depreciation and amortization .............................. 2.2 2.6 2.9
Expenses incurred in connection with change of control ..... 0.0 0.0 2.3
------- ------- -------
Total operating expenses .............................. 36.8 37.6 44.2
------- ------- -------
Income (loss) from operations before other expense ......... 4.5 2.9 (5.0)
------- ------- -------
Other expense:
Interest expense, net ................................. (1.7) (1.5) (1.0)
Realized loss on investments .......................... 0.0 0.0 (0.1)
------- ------- -------
Income (loss) before income taxes .......................... 2.8 1.5 (6.0)
Income tax benefit (provision) ............................. 3.3 (0.1) 0.0
------- ------- -------
Net income (loss) .......................................... 6.1% 1.4% (6.1)%
------- ------- -------
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 the
level of 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.
12
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 Writeoffs
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.
Valuation of Deferred Tax Assets
Statement of Financial Accounting Standard ("SFAS") No. 109, "Accounting
for Income Taxes," requires that deferred tax assets be evaluated for future
realization and reduced by a valuation allowance to the extent we believe a
portion will not be realized. We consider many factors when assessing the
likelihood of future realization of our deferred tax assets including our recent
cumulative earnings experience by taxing jurisdiction, expectations of future
taxable income, the carry-forward periods available to us for tax reporting
purposes, and other relevant factors.
We had a net tax benefit in fiscal year 2005 of approximately $7.6 million
resulting primarily from the effect of changes in our valuation assessment of
deferred tax assets. The range of possible judgments relating to the valuation
of our deferred tax assets is very wide. Significant judgment is required in
making this assessment, and it is very difficult to predict when, if ever, our
assessment may conclude that the remaining portion of our deferred tax assets is
realizable.
13
FISCAL YEAR 2005 COMPARED TO FISCAL YEAR 2004
Management Overview
During fiscal year 2005 the Company realized its second consecutive year
of net income. The Company has achieved this as a result of increasing sales,
improving product mix and selection, closing underperforming stores and
selectively opening new stores. In addition to the improvements resulting from
these actions, the Company has focused on increasing the average transaction per
hour, average dollar sale per transaction and number of units per transaction at
the retail level to generate increased sales and reduce expenses as a percentage
to total sales. Despite the improved results the Company has an accumulated
deficit of approximately $37.5 million.
The Company's goal is to continue to increase the number of its stores,
either by acquisition of smaller fragrance retailers or by opening new
locations. The Company believes there are numerous opportunities for retail
store locations domestically and is focused on expansion in markets where the
Company already has a presence or by expanding into new geographic regions where
the population density and demographics will support a cluster of stores.
Revenues:
For the year ended
--------------------------------------------------------------------------------
($ in thousands)
Percentage
Percentage Percentage Increase
January 28, 2006 of Revenues January 29, 2005 of Revenues (Decrease)
------------ ------------ ------------ ------------ ------------
Retail $ 215,841 92.4% $ 201,425 89.5% 7.2%
Wholesale 17,853 7.6% 23,578 10.5% (24.3%)
------------ ------------ ------------ ------------ ------------
Total Revenues $ 233,694 100.0% $ 225,003 100.0% 3.9%
------------ ------------ ------------ ------------ ------------
In fiscal year 2005 total revenue increased by $8.7 million or 3.9%. Total
retail sales increased by $14.4 million or 7.2%, which included comparable store
sales increases of 5.8%. Comparable store sales measure the sales from stores
that have been open for one year or more. The average number of stores operated
increased from 230 during fiscal year 2004 to 234 in fiscal year 2005. Retail
sales during fiscal year 2005 were improved by the greater availability of
merchandise brands, quantity of product and more competitive retail prices
offered to our customers. In addition, our average dollar sale per transaction
and transactions per hour were improved as a result of more efficient scheduling
of our retail store associates.
Wholesale sales decreased by $5.7 million or 24.3% as demand for certain
wholesale products were less than anticipated and less than the prior year. All
wholesale sales are made to Quality King. The Company, through its supplier
relationships, is able to obtain certain merchandise at better prices and
quantities than Quality King.
Cost of Goods Sold:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
Increase
January 28, 2006 January 29, 2005 (Decrease)
------------ ------------ ------------
Retail $ 120,487 $ 111,376 8.2%
Wholesale 16,706 22,291 (25.1%)
------------ ------------ ------------
Total cost of goods sold $ 137,193 $ 133,667 2.6%
------------ ------------ ------------
14
Gross Profit:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
Increase
January 28, 2006 January 29, 2005 (Decrease)
------------ ------------ ------------
Retail $ 95,354 $ 90,049 5.9%
Wholesale 1,147 1,288 (10.9%)
------------ ------------ ------------
Total gross profit $ 96,501 $ 91,337 5.7%
------------ ------------ ------------
Gross profit for the retail division increased principally from higher
sales as a result of the improvements in retail sales noted above offset in part
by lower gross margin percentages. Total gross profit increased as a result of
higher sales and gross profit in the retail division offset by the lower sales
and lower gross profit in the wholesale division.
Gross Profit Margin Percentages:
For the year ended
------------------------------------
January 28, 2006 January 29, 2005
------------ ------------
Retail 44.2% 44.7%
Wholesale 6.4% 5.5%
Gross profit margin 41.3% 40.6%
The decrease in gross margin on retail sales resulted principally from
price reductions during our promotional events which contributed to the increase
in our retail sales.
Operating Expenses:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
Increase
January 28, 2006 January 29, 2005 (Decrease)
------------ ------------ ------------
Selling, general and
administrative $ 80,677 $ 78,521 2.7%
Asset impairment charges 162 314 (48.4%)
Depreciation and
amortization 5,156 5,875 (12.2%)
------------ ------------ ------------
Total operating expenses 85,995 84,710 1.5%
------------ ------------ ------------
Income from operations $ 10,506 $ 6,627 58.5%
------------ ------------ ------------
15
The majority of our selling, general and administrative expenses relate to
the retail division. The increase in selling, general and administrative
expenses is attributable primarily to higher store operating costs and expenses
that are directly variable with sales volume. Additionally, occupancy costs for
stores increased from new stores opened during the year and the higher average
number of stores in operation compared to fiscal year 2004. During fiscal year
2005 we continued to improve our method of scheduling store associates, which
consequently reduced store compensation as a percentage of sales in comparison
to fiscal year 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 identified fewer stores
for closure in fiscal year 2006.
Depreciation and amortization expenses in fiscal year 2005 were reduced by
$0.7 million from fiscal year 2004 primarily as a result of software costs
associated with year 2000 upgrades being fully amortized.
Other Expenses, Income Tax Benefit (Provision) and Net Income:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
January 28, 2006 January 29, 2005 Increase
---------------- ---------------- -----------
Interest expense, net $ 3,877 $ 3,326 16.6%
The increase in interest expense, net is from the higher average loan
balance on our revolving line of credit used to fund quicker payments of
non-affiliates accounts payable to obtain better prices and to increase product
purchases to fulfill higher retail sales. In addition, the Company's average
effective interest rate in fiscal year 2005 was 6.6% compared with 4.7% in
fiscal year 2004.
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
January 28, 2006 January 29, 2005 Increase
---------------- ---------------- -----------
Income tax benefit
(provision) $ 7,637 $ (150) --
---------------- ---------------- -----------
Income tax benefits recorded in fiscal year 2005 result from management's
current assessment that it is now more likely than not that the Company will
realize the benefit of certain deferred tax assets. The prior year's valuation
allowance was reduced by approximately $11.9 million as of January 28, 2006 due
to management's determination that approximately $10.3 million of the Company's
deferred tax assets will be utilized. As a result of the reversal of the
valuation allowance from the prior fiscal year, $7.6 million has been reflected
as a current year tax benefit. We do not expect a benefit of this magnitude to
be realized in future periods. We presently expect that our provision for taxes
on income for fiscal year 2006 will be higher than expected based on federal
statutory rates as a result of state income taxes and the impact of losses from
our Puerto Rican operations for which we are less likely to be able to record a
tax benefit. See Note 8 to our Consolidated Financial Statements for further
discussion.
16
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
January 28, 2006 January 29, 2005 Increase
---------------- ---------------- -----------
Net Income $ 14,265 $ 3,151 353.7%
---------------- ---------------- -----------
As a result of our increase in sales and gross profit, the reduction in
expenses as a percentage of sales and the realization of the income tax benefits
described above our net income was increased by $11.1 million over the net
income realized in the prior year.
FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003
Revenues:
For the year ended
--------------------------------------------------------------------------------
($ in thousands)
Percentage Percentage of Percentage
January 29, 2005 of Revenues January 31, 2004 Revenues Increase
------------ ------------ ------------ ------------ ------------
Retail $ 201,425 89.5% $ 198,479 93.4% 1.5%
Wholesale 23,578 10.5% 14,089 6.6% 67.4%
------------ ------------ ------------ ------------ ------------
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 $2.9 million or 1.5% and comparable store sales increased by
1.8%. Comparable store sales measure the sales from stores that have been open
for one year or more. The average number of stores operated decreased from 235
during fiscal year 2003 to 230 in fiscal year 2004 primarily due to the closure
of older, underperforming stores. We believe that Perfumania's retail sales were
negatively impacted in fiscal year 2004 by the overall soft United States
economy earlier in the year and management transition following the change in
control. However, the later months of fiscal 2004 were improved due to greater
availability of merchandise brands, quantity of product and as new management
programs, which are discussed below, took effect.
Cost of Goods Sold:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
Increase
January 29, 2005 January 31, 2004 (Decrease)
------------ ------------ ------------
Retail $ 111,376 $ 116,556 (4.4%)
Wholesale 22,291 12,635 76.4%
------------ ------------ ------------
Total cost of goods sold $ 133,667 $ 129,191 3.5%
------------ ------------ ------------
17
Gross Profit:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
Increase
January 29, 2005 January 31, 2004 (Decrease)
------------ ------------ ------------
Retail $ 90,049 $ 81,923 9.9%
Wholesale 1,288 1,454 (11.4%)
------------ ------------ ------------
Total gross profit $ 91,337 $ 83,377 9.5%
------------ ------------ ------------
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
------------------------------------
($ in thousands)
January 29, 2005 January 31, 2004
------------ ------------
Retail 44.7% 41.3%
Wholesale 5.6% 10.3%
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 29, 2005 January 31, 2004 Decrease
------------ ------------ ------------
Selling, general and
administrative $ 78,521 $ 82,297 (4.6%)
Asset impairment charges 314 593 (47.1%)
Depreciation and amortization 5,875 6,103 (3.7%)
Expenses incurred in
connection with change
of control -- 4,931 --
------------ ------------ ------------
Total operating expenses 84,710 93,924 (9.8%)
------------ ------------ ------------
Income (loss) from operations $ 6,627 $ (10,547) --
------------ ------------ ------------
18
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 did not affect fiscal 2004. See further
discussion regarding the change of control in Note 5 to our Consolidated
Financial Statements. 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 expected
less store closures during fiscal year 2005.
Other Expense:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
January 29, 2005 January 31, 2004 Increase
------------ ------------ ------------
Interest expense $ 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 the interest
expense on our $5 million subordinated convertible note payable to the
Nussdorfs.
Provision for Income Taxes:
For the year ended
----------------------------------------------------
($ in thousands)
Percentage
January 29, 2005 January 31, 2004 Increase
------------ ------------ ------------
Income tax provision $ (150) $ -- --
------------ ------------ ------------
The tax provision resulted primarily from alternative minimum taxes due to
the utilization of net operating loss carry forwards which offset the taxes
which would otherwise have been provided for.
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 in fiscal year 2004 compared to
a net loss in fiscal year 2003.
19
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 2005 and 2004, we financed these requirements
primarily through cash flows from operations, borrowings under our line of
credit, credit terms from our vendors, including extended terms from our
affiliates, issuance of a convertible note and other short-term borrowings. We
believe we will have adequate liquidity in fiscal year 2006 to operate our
business and to meet our cash requirements.
A summary of our cash flows is as follows:
For the year ended
January 28, 2006
------------
($ in thousands)
Summary Cash Flow Information:
Cash provided by operating activities $ 18,524
Cash used in investing activities (7,143)
Cash used in financing activities (11,370)
------------
Increase in cash and cash equivalents 11
Cash and cash equivalents, January 29, 2005 1,250
------------
Cash and cash equivalents. January 28, 2006 $ 1,261
============
In May 2004, we entered into a three-year senior secured credit facility
with GMAC Commercial Finance LLC and Wachovia Capital Finance. The line of
credit provides for borrowings of up to $60 million, depending on the Company's
levels of eligible inventories. As of January 28, 2006, $20.1 million was
outstanding under the line of credit and $19.3 million was available 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 28,
2006, we were in compliance with all covenant requirements. We are currently
negotiating an extension to our credit facility.
In March 2004, the Nussdorfs provided 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. In December 2004, we issued a
Subordinated Convertible Note (the "Note") in exchange for the $5,000,000
subordinated secured demand loan. The 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 Note is
subordinate to all bank related indebtedness. The Note was payable in January
2007 and allows the Nussdorfs to convert the 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 the date the Note was issued. The Nussdorfs have
agreed to extend the due date of the Convertible Note to January 2009.
In fiscal year 2005, net cash provided by operating activities was
approximately $18.5 million and was generated primarily by net earnings adjusted
for non cash depreciation and amortization expenses, a tax benefit from exercise
of stock options in prior years, additional extended credit terms for
merchandise from our affiliates and a reduction in inventory purchases and
inventory levels. We delayed the receipt of certain inventory purchases during
the last month of our fiscal year in order to perform our physical inventory
counts which contributed to the reduction in our inventory levels. Net cash
provided by operating activities was reduced by approximately $4.6 million due
to a reduction in the accounts payable-nonaffiliates.
Net cash used in investing activities in fiscal year 2005 was
approximately $7.1 million. Investing activities generally represent spending
for the renovation of existing stores and new store openings. During fiscal year
2005 we opened 26 new stores and remodeled/relocated 53 stores. We intend to
continue improving the appearance of our existing stores and growing the number
of stores. We anticipate that we will open approximately 30 new stores and
remodel 50 stores in fiscal year 2006.
20
In fiscal year 2005, net cash used in financing activities was
approximately $11.4 million as a result of the reduction to our net bank
borrowings.
Management believes that Perfumania's borrowing capacity under its
current credit facility, projected cash flows from operations, other short term
borrowings and credit terms from vendors will be sufficient to support our
working capital needs, capital expenditures and debt service for at least the
next twelve months. There can be no assurance that management's plans and
expectations will be successful.
Payments due by period
------------------------------------------------------------------
($ in thousands)
less more
than 1 than 5
Contractual Obligations Total year 1-3 years 3-5 years years
--------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Bank line of credit (1) $ 20,148 $ 20,148 -- -- --
Subordinated convertible note payable affiliate (1) 5,000 -- 5,000 -- --
Capital lease obligations 15,352 1,249 2,455 2,472 9,176
Operating lease obligations 60,773 14,228 20,955 13,259 12,331
---------- ---------- ---------- ---------- ----------
Total $ 101,273 $ 35,625 $ 28,410 $ 15,731 $ 21,507
========== ========== ========== ========== ==========
(1) Debt amounts include principal maturities only.
OFF-BALANCE SHEET ARRANGEMENTS
We have no off-balance sheet arrangements as defined by Item 303 (a)(4) of
Regulation S-K.
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
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123R, "Share-Based Payment," ("SFAS No. 123R") which revises SFAS No.
123, "Accounting for Stock-Based Compensation," and supersedes Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees." This Statement focuses primarily on accounting for transactions in
which an entity obtains employee services in share-based payment transactions.
This Statement requires an entity to recognize the cost of employee services
received in share-based payment transactions and measure the cost on a
grant-date fair value of the award. That cost will be recognized over the period
during which an employee is required to provide service in exchange for the
award. The provisions of SFAS No. 123R will be effective for the Company's
financial statements issued for periods beginning after December 15, 2005. We do
not anticipate being significantly affected by this pronouncement as management
has no formal plans to issue a significant amount of additional options nor are
there any unvested options.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS No. 154"), which replaces APB Opinion No. 20, "Accounting
Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements." SFAS No. 154 changes the requirements for accounting and reporting
a change in accounting principle, and applies to all voluntary changes in
accounting principles, as well as changes required by an accounting
pronouncement in the unusual instance it does not include specific transition
provisions. Specifically, SFAS No. 154 requires retrospective application to
prior periods' financial statements, unless it is impracticable to determine the
period-specific effects or the cumulative effect of the change. When it is
impracticable to determine the effects of the change, the new accounting
principle must be applied to the balances of assets and liabilities as of the
beginning of the earliest period for which retrospective application is
practicable and a corresponding adjustment must be made to the opening balance
of retained earnings for that period rather than being reported in an income
statement. When it is impracticable to determine the cumulative effect of the
change, the new principle must be applied as if it were adopted prospectively
from the earliest date practicable. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. SFAS No. 154 does not change the transition provisions of any existing
pronouncements. The Company has evaluated the impact of SFAS No. 154 and does
not expect the adoption of this statement to have a significant impact on its
consolidated balance sheets or statements of operations. The Company will apply
SFAS No. 154 in future periods, when applicable.
21
CHANGES IN FOREIGN EXCHANGE RATES; INFLATION
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 denominated 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 28, 2006 and January 29, 2005, our primary
source of funds for working capital and other needs is a line of credit that
provides for borrowings up to $60 million.
Of the $33.4 million and $44.7 million of short-term and long-term
borrowings on our balance sheet as of January 28, 2006 and January 29, 2005,
respectively, approximately 24.6% and 18.4%, 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 2005, the credit facility bore interest
at an average rate of 6.6%. A hypothetical 10% adverse move in interest rates
would increase fiscal year 2005 interest expense by approximately $0.2 million.
22
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................. 24
Consolidated Balance Sheets as of January 28, 2006 and
January 29, 2005........................................................ 25
Consolidated Statements of Operations for the Fiscal
Years Ended January 28, 2006, January 29, 2005 and
January 31, 2004........................................................ 26
Consolidated Statements of Changes in Shareholders' Equity
for the Fiscal Years Ended January 28, 2006, January 29, 2005,
and January 31, 2004.................................................... 27
Consolidated Statements of Cash Flows for the Fiscal
Years Ended January 28, 2006, January 29, 2005, and
January 29, 2004........................................................ 28
Notes to Consolidated Financial Statements.............................. 29
Supplemental schedules have been omitted,
as all required information is disclosed or not applicable.
23
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 28, 2006 and January 29,
2005, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for each of the three fiscal years in the
period ended January 28, 2006. 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 has determined that it
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 28, 2006 and January 29, 2005, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 28, 2006, in conformity with accounting principles
generally accepted in the United States of America.
/s/ DELOITTE & TOUCHE LLP
-------------------------
Certified Public Accountants
Fort Lauderdale, Florida
April 28, 2006
24
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS: JANUARY 28, 2006 JANUARY 29, 2005
------------- -------------
Current assets:
Cash and cash equivalents $ 1,260,444 $ 1,249,543
Trade receivables, no allowance required 819,072 695,812
Deferred tax asset 5,343,839 --
Inventories, net 72,976,845 78,929,639
Prepaid expenses and other current assets 950,146 1,149,723
------------- -------------
Total current assets 81,350,346 82,024,717
Property and equipment, net 25,308,899 23,070,723
Goodwill, net 1,904,448 1,904,448
Deferred tax asset 4,935,161 --
Other assets, net 457,627 817,156
------------- -------------
Total assets $ 113,956,481 $ 107,817,044
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank line of credit $ 20,147,978 $ 31,528,212
Accounts payable- non affiliates 13,470,670 18,111,196
Accounts payable, affiliates 26,905,433 23,228,325
Accrued expenses and other liabilities 7,973,168 6,685,494
Current portion of obligations under capital leases 322,284 231,353
------------- -------------
Total current liabilites 68,819,533 79,784,580
Subordinated convertible note payable - affiliate 5,000,000 5,000,000
Long-term portion of obligations under capital leases 7,898,354 7,972,455
------------- -------------
Total liabilities 81,717,887 92,757,035
------------- -------------
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; 3,857,216 and 3,834,684 shares issued
at fiscal year-end 2005 and 2004, respectively 38,572 38,347
Additional paid-in capital 78,260,686 75,347,588
Treasury stock, at cost, 898,249 shares (8,576,944) (8,576,944)
Accumulated deficit (37,483,720) (51,748,982)
------------- -------------
Total shareholders' equity 32,238,594 15,060,009
------------- -------------
Total liabilities and shareholders' equity $ 113,956,481 $ 107,817,044
============= =============
See accompanying notes to consolidated financial statements.
25
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEAR ENDED
--------------------------------------------------------
January 28, 2006 January 29, 2005 January 31, 2004
------------- ------------- -------------
Net sales $ 233,694,081 $ 225,003,201 $ 212,567,569
Cost of goods sold 137,192,922 133,666,605 129,190,549
------------- ------------- -------------
Gross profit 96,501,159 91,336,596 83,377,020
------------- ------------- -------------
Operating expenses:
Selling, general and administrative expenses 80,677,406 78,521,215 82,297,031
Provision for impairment of
assets and store closings 162,370 313,888 593,109
Depreciation and amortization 5,155,645 5,874,591 6,102,823
Expenses incurred in connection with
change of control -- -- 4,931,221
------------- ------------- -------------
Total operating expenses 85,995,421 84,709,694 93,924,184
------------- ------------- -------------
Income (loss) from operations 10,505,738 6,626,902 (10,547,164)
------------- ------------- -------------
Other expenses:
Interest expense, net:
Affiliates (371,458) (248,124) (93,510)
Other (3,506,018) (3,077,497) (2,059,347)
------------- ------------- -------------
(3,877,476) (3,325,621) (2,152,857)
------------- ------------- -------------
Realized loss on investments -- -- (171,679)
------------- ------------- -------------
Income (loss) before income taxes 6,628,262 3,301,281 (12,871,700)
Income tax benefit (provision) 7,637,000 (150,000) --
------------- ------------- -------------
Net income (loss) $ 14,265,262 $ 3,151,281 $ (12,871,700)
============= ============= =============
Basic income (loss) per common share $ 4.84 $ 1.11 $ (5.24)
============= ============= =============
Diluted income (loss) per common share $ 4.23 $ 1.06 $ (5.24)
============= ============= =============
Weighted average number of shares
outstanding:
Basic 2,949,146 2,832,107 2,454,340
============= ============= =============
Diluted 3,463,480 3,001,844 2,454,340
============= ============= =============
See accompanying notes to consolidated financial statements.
26
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 28, 2006, JANUARY 29, 2005
AND JANUARY 31, 2004
Common Stock Additional Treasury Stock
------------------------------ Paid-In ------------------------------
Shares Amount Capital Shares Amount
------------ ------------ ------------ ------------ ------------
Balance at February 2, 2003 3,215,761 $ 32,158 $ 71,387,794 779,952 $ (7,085,940)
Components of comprehensive loss:
Net loss -- -- -- -- --
Unrealized gain
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 -- --
Reclass 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 -- -- -- -- --
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)
Net income -- -- -- -- --
Exercise of stock options 22,531 225 83,507 -- --
Repayment of profits
under Section 16(b) of
the Exchange Act -- -- 181,591 -- --
Tax benefit from exercise of
stock options -- -- 2,242,000 -- --
Executive compensation
contributed to
capital -- -- 406,000 -- --
------------ ------------ ------------ ------------ ------------
Balance at January 28, 2006 3,857,216 $ 38,572 $ 78,260,686 898,249 $ (8,576,944)
============ ============ ============ ============ ============
Accumulated Notes and
Other Interest Receivable
Comprehensive Accumulated From Shareholders
Income (Loss) Deficit and Officers Total
------------ ------------ ------------ ------------
Balance at February 2, 2003 $ (140,404) $(42,028,563) $ (311,604) $ 21,853,441
------------
Components of comprehensive loss:
Net loss -- (12,871,700) -- (12,871,700)
Unrealized gain
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 -- 3,151,281 -- 3,151,281
Exercise of stock options -- -- -- 1,686,884
------------ ------------ ------------ ------------
Balance at January 29, 2005 -- (51,748,982) -- 15,060,009
Net income -- 14,265,262 -- 14,265,262
Exercise of stock options -- -- -- 83,732
Receipt of profits
under Section 16(b) of
the Exchange Act -- -- -- 181,591
Tax benefit from exercise of
stock options -- -- -- 2,242,000
Executive compensation
contributed to
capital -- -- -- 406,000
------------ ------------ ------------ ------------
Balance at January 28, 2006 $ -- $(37,483,720) $ -- $ 32,238,594
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
27
E COM VENTURES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEAR ENDED
-------------------------------------------------------
January 28, 2006 January 29, 2005 January 31, 2004
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 14,265,262 $ 3,151,281 $(12,871,700)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Deferred income tax benefit (8,037,000) -- --
Provision for impairment of assets and store closings 162,370 313,388 593,109
(Recovery) write-off of inventories (184,547) 188,035 897,874
Depreciation and amortization 5,155,645 5,874,591 6,102,823
Write-off of discontinued inventory 228,427 185,088 2,558,805
Realized loss on investments -- -- 171,679
Stock compensation -- -- 2,285,640
Change in operating assets and liabilities:
Trade receivables (123,260) 81,374 (32,730)
Inventories 5,908,914 (18,425,311) 4,383,033
Prepaid expenses and other current assets 199,577 311,770 1,507,259
Other assets 218,281 (309,799) 368,363
Accounts payable, non-affiliate (4,640,526) 1,651,410 (4,446,040)
Accounts payable, affiliate 3,677,108 5,537,833 4,258,774
Accrued expenses and other liabilities 1,693,674 (2,928,793) 4,445,653
------------ ------------ ------------
Net cash provided by (used in) operating activities 18,523,925 (4,369,133) 10,222,542
------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment (7,143,201) (4,148,335) (5,907,018)
Proceeds from sale of investments -- -- 179,332
------------ ------------ ------------
Net cash used in investing activities (7,143,201) (4,148,335) (5,727,686)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings and (repayments) under bank line
of credit (11,380,234) 1,056,185 (1,641,664)
Principal payments under capital lease obligations (254,912) (264,679) (1,143,767)
Proceeds from note and interest receivable, shareholder and officer -- 327,311 --
Proceeds from subordinated secured demand loan, affiliate -- 5,000,000 --
Repayments of convertible notes payable -- -- (1,458,261)
Proceeds from exercise of stock options 83,732 1,686,884 236,505
Receipt of profits under
Section 16(b) of the Exchange Act 181,591 -- --
Purchases of treasury stock -- -- (1,491,004)
------------ ------------ ------------
Net cash provided by (used in) financing activities (11,369,823) 7,805,701 (5,498,191)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents 10,901 (711,767) (1,003,335)
Cash and cash equivalents at beginning of period 1,249,543 1,961,310 2,964,645
------------ ------------ ------------
Cash and cash equivalents at end of period $ 1,260,444 $ 1,249,543 $ 1,961,310
============ ============ ============
Cash paid during the period for:
Interest $ 3,612,573 $ 3,139,425 $ 2,034,666
============ ============ ============
See accompanying notes to consolidated financial statements.
28
E COM VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEARS ENDED JANUARY 28, 2006, JANUARY 29, 2005
AND JANUARY 31, 2004
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, life style centers, airports and on a stand-alone basis in
suburban strip shopping centers. The number of retail stores in operation at
January 28, 2006, January 29, 2005, and January 31, 2004 were 239, 223 and 232,
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 2005, 2004 and 2003
refer to the years ended January 28, 2006, January 29, 2005 and January 31,
2004, 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
inventory write-offs to reduce inventory, 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, at the point of sale. 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. Because returns
are primarily exchanged, there is no significant effect on revenue and returns
are considered immaterial for the three years ended January 28, 2006, January
29, 2005 and January 31, 2004.
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.
29
INVENTORIES
Inventories, consisting of finished goods, are stated at the lower of cost
or market with cost being determined on a weighted average method. 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.
In fiscal year 2003 management had identified approximately 3,400 of the
Company's 25,000 stock keeping units ("skus") that the Company intended to
discontinue selling. The total cost of this inventory as of January 31, 2004 was
approximately $9.4 million. The Company recorded a charge of approximately $2.6
million in fiscal year 2003, which represented the difference between the
estimated selling value and the weighted average cost of this inventory. Using a
similar analytical approach, the Company's inventory write-offs were
approximately $200,000 and $400,000 in fiscal years 2005 and 2004, respectively.
These charges are included in cost of goods sold in the accompanying
consolidated statements of operations.
PROPERTY AND EQUIPMENT
Property and equipment is carried at cost, less accumulated depreciation
and amortization. Depreciation for property and equipment, which includes assets
under capital leases, 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.
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 not amortized but is tested annually for impairment at
the end of the Company's fiscal year. No impairment occurred as a result of the
annual tests in fiscal years 2005, 2004, and 2003.
OTHER INTANGIBLE ASSETS
Other intangible assets include store design, real estate leases and
non-compete agreements which were recorded based upon their relative fair values
at the date of acquisition as determined by management with the assistance of an
independent valuation consultant. Other intangible assets do not include
goodwill. The amortization of intangible assets totaled approximately $140,000,
$232,000, and $229,000 in fiscal years 2005, 2004, and 2003, respectively. There
is no further amortization of intangible assets anticipated during fiscal year
2006 as all intangible assets with finite lives were fully amortized as of
January 28, 2006.
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 net income
(loss) by the weighted average number of common shares outstanding during the
period. Diluted net income (loss) per common share includes, in periods in which
they are dilutive, 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. As described below, for fiscal year 2003, incremental
shares attributed to common stock equivalents and convertible notes were not
included because the results would have been anti-dilutive.
30
Basic and diluted loss per share are computed as follows:
FISCAL YEAR
------------------------------------------------
2005 2004 2003
------------ ------------ ------------
Numerator:
Net income (loss) - basic $ 14,265,262 $ 3,151,281 $(12,871,700)
Add: interest on convertible note 371,458 44,131 --
------------ ------------ ------------
Net income (loss) - diluted $ 14,636,720 $ 3,195,412 $(12,871,700)
============ ============ ============
Denominator:
Weighted average number of shares
for basic net income (loss) per share 2,949,146 2,832,107 2,454,340
Options to purchase common stock 69,890 105,024 --
Convertible note 444,444 64,713 --
------------ ------------ ------------
Denominator for dilutive net income (loss) per share 3,463,480 3,001,844 2,454,340
============ ============ ============
Basic net income (loss) per share $ 4.84 $ 1.11 $ (5.24)
============ ============ ============
Diluted net income (loss) per share $ 4.23 $ 1.06 $ (5.24)
============ ============ ============
Excluded from the above computations of weighted-average shares for
diluted earnings per share were options to purchase 5,256 shares, 86,256 shares
and 696,436 shares of common stock for fiscal years 2005, 2004 and 2003,
respectively, because the exercise price was greater than the average market
price of the Company's common stock during the period and, therefore, the effect
is antidilutive.
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 recovery of the asset. 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"). In December 2004, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") No. 123R, "Share-Based Payment," which revises SFAS
No. 123, "Accounting for Stock-Based Compensation," and supersedes APB 25. This
Statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. This Statement
requires an entity to recognize the cost of employee services received in
share-based payment transactions and measure the cost on a grant-date fair value
of the award. That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award. The
provisions of SFAS No. 123R will be effective for the Company's financial
statements issued for periods beginning after December 15, 2005. The Company
does not anticipate being significantly affected by this pronouncement as
management has no formal plans to issue a significant amount of additional
options nor are there any unvested options. The pro-forma effects of our stock
based compensation are presented below (in thousands except for per share data):
31
FISCAL YEAR
-------------------------------------------------------
2005 2004 2003
-------------- -------------- --------------
Net income (loss) $ 14,265 $ 3,151 $ (12,872)
Add: Total stock-based employee compensation
expense included in reported net loss,
net of tax -- -- 2,286
Deduct: Total stock-based employee compensation
expense determined under fair market
value based method, net of tax (883) (95) (3,711)
-------------- -------------- --------------
Proforma net income (loss) $ 13,382 $ 3,056 $ (14,297)
============== ============== ==============
Net income (loss) per
common share-basic:
As reported $ 4.84 $ 1.11 $ (5.24)
Stock based compensation (0.30) (0.03) (0.59)
-------------- -------------- --------------
Proforma $ 4.54 $ 1.08 $ (5.83)
============== ============== ==============
Net income (loss) per
common share-diluted:
As reported $ 4.23 $ 1.06 $ (5.24)
Stock based compensation (0.26) (0.03) (0.59)
-------------- -------------- --------------
Proforma $ 3.97 $ 1.03 $ (5.83)
============== ============== ==============
The fair value for these stock options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions:
FISCAL YEAR
2005 2004 2003
-------- -------- --------
Expected life (years) 7 7 7
Expected volatility 164% 168% 165%
Risk-free interest rates 3.88% 4.08% 3.68%
Dividend yield 0% 0% 0%
For the purposes of the proforma presentation of employee stock-based
compensation expense, the Company currently amortizes the expense over the
related vesting period. The weighted average estimated fair values of options
granted during fiscal year 2005, 2004, and 2003 were $12.42, $11.12 and $4.79,
respectively.
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. The
Company had no equity security investments as of January 28, 2006 and January
29, 2005.
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. The income and cost associated with shipping and handling
when combined is immaterial.
32
ADVERTISING COSTS
Advertising expense for the fiscal years 2005, 2004 and 2003 was
approximately $1,650,000, $1,441,000 and $1,876,000, respectively, and is
charged to expense when incurred. There was no cooperative advertising amounts
received from vendors for fiscal years 2005 and 2004. In fiscal year 2003 the
Company received $200,000 in cooperative advertising amounts which was recorded
as an offset to advertising expense.
RECLASSIFICATION
Certain fiscal year 2004 and 2003 amounts have been reclassified to
conform with the fiscal 2005 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment,"
which revises SFAS No. 123, "Accounting for Stock-Based Compensation," and
supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This
Statement focuses primarily on accounting for transactions in which an entity
obtains employee services in share-based payment transactions. This Statement
requires an entity to recognize the cost of employee services received in
share-based payment transactions and measure the cost on a grant-date fair value
of the award. That cost will be recognized over the period during which an
employee is required to provide service in exchange for the award. The
provisions of SFAS No. 123R will be effective for the Company's financial
statements issued for periods beginning after December 15, 2005. The Company
does not anticipate being significantly affected by this pronouncement as
management has no formal plans to issue a significant amount of additional
options nor are there any unvested options.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections" ("SFAS No. 154"), which replaces APB Opinion No. 120, "Accounting
Changes," and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
Statements." SFAS No. 154 changes the requirements for accounting and reporting
a change in accounting principle, and applies to all voluntary changes in
accounting principles, as well as changes required by an accounting
pronouncement in the unusual instance it does not include specific transition
provisions. Specifically, SFAS No. 154 requires retrospective application to
prior periods' financial statements, unless it is impracticable to determine the
period-specific effects or the cumulative effect of the change. When it is
impracticable to determine the effects of the change, the new accounting
principle must be applied to the balances of assets and liabilities as of the
beginning of the earliest period for which retrospective application is
practicable and a corresponding adjustment must be made to the opening balance
of retained earnings for that period rather than being reported in an income
statement. When it is impracticable to determine the cumulative effect of the
change, the new principle must be applied as if it were adopted prospectively
from the earliest date practicable. SFAS No. 154 is effective for accounting
changes and corrections of errors made in fiscal years beginning after December
15, 2005. SFAS No. 154 does not change the transition provisions of any existing
pronouncements. The Company has evaluated the impact of SFAS No. 154 and does
not expect the adoption of this statement to have a significant impact on its
consolidated balance sheets or statements of operations. The Company will apply
SFAS No. 154 in future periods, when applicable.
NOTE 3 - NON-CASH TRANSACTIONS
Supplemental disclosures of non-cash investing and financing activities:
FISCAL YEAR
------------------------------------------
NON-CASH TRANSACTIONS 2005 2004 2003
---------------------------------------------------- ---------- ---------- ----------
Equipment and building acquired under capital leases $ 259,430 $ 463,525 $ 414,630
Unrealized gain (loss) on investments -- -- 140,404
Subordinated debt issued to affiliate -- -- 5,000,000
Subordinated debt exchanged for
subordinated convertible note payable, affiliate -- 5,000,000 --
Compensation cost for President
and Chief Executive Officer contributed
to capital 406,000 -- --
33
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of:
FISCAL YEAR ENDED
----------------------------------- Estimated Useful Lives
January 28, 2006 January 29, 2005 (In Years)
------------ ------------ ------------
Furniture, fixtures and equipment $ 27,595,254 $ 24,945,705 5-7
Leasehold improvements 30,307,293 27,055,275 shorter of 10 years or lease term
Equipment under capital leases 330,293 521,161 shorter of 5 years or lease term
Building under capital lease 8,188,945 8,188,945 15
------------ ------------
66,421,785 60,711,086
Less:
Accumulated depreciation and amortization (41,112,886) (37,640,363)
------------ ------------
$ 25,308,899 $ 23,070,723
============ ============
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 equipment under capital
leases with an original cost of approximately $2,090,000 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 2005, 2004, and
2003 was $5,155,645, $5,874,591, and $6,102,823, respectively. Accumulated
depreciation for building and equipment under capital leases was $1,475,817 and
$1,238,231 as of January 28, 2006 and January 29, 2005, 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.
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 own an aggregate 1,113,144 shares or approximately 38% of the
total number of shares of the Company's common stock as of January 28, 2006,
excluding shares issuable upon conversion of the Convertible Note discussed
below in Note 6. Lekach owns 300,000 shares or approximately 10% of the total
number of shares of the Company's common stock as of January 28, 2006.
34
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, which included the 125,000 options required to be
issued to Mr. Lekach. Since the 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 stock based compensation expense of approximately
$2,286,000. In addition, pursuant to the change of control provisions in the
same employment and consulting agreements, the Company accrued approximately
$2,645,000 in January 2004, representing amounts subsequently paid to these same
individuals as a result of the change of control. These charges totaling
approximately $4,931,000 are included in "Expenses incurred in connection with
change of control" on the accompanying consolidated statement of operations for
the year ended January 31, 2004.
The Nussdorfs are officers and principals of Quality King Distributors,
Inc. ("Quality King"). Quality King distributes pharmaceuticals, health and
beauty care products and fragrances. The Company's President and Chief Executive
Officer, Michael Katz is an executive of Quality King and the Company's
principal shareholders, Stephen Nussdorf, the Chairman of the Company's Board of
Directors and Glenn Nussdorf, his brother, are shareholders and executives of
Quality King. During fiscal year 2005, the Company purchased approximately
$30,547,000 of merchandise from Quality King and its affiliates, representing
approximately 23% of the Company's total purchases, and sold approximately
$17,853,000 of different merchandise to Quality King, which represented 100% of
the Company's wholesale sales. There were approximately $39,317,000 and
$5,960,000 of purchases from Quality King and approximately $23,570,000 and
$11,366,000 of merchandise sold to Quality King during fiscal years 2004 and
2003 respectively. The wholesale sales made to Quality King result from the
Company's supplier relationships and its ability to obtain certain merchandise
at better prices and quantities than Quality King. The amounts due to Quality
King at January 28, 2006 and January 29, 2005, were approximately $17,240,000
and $13,234,000 respectively. Accounts payable due to Quality King are
non-interest bearing and are included in the accounts payable affiliate in the
Company's consolidated balance sheets.
Parlux Fragrances, Inc. ("Parlux"), whose Chairman of the Board of
Directors and Chief Executive Officer is Ilia Lekach, owns approximately 13% of
the Company's outstanding common stock. Purchases of products from Parlux
amounted to approximately $23,004,000, $38,360,000, and $27,701,000 in fiscal
years 2005, 2004 and 2003, representing approximately 18%, 20% and 23%,
respectively, of the Company's total purchases. The amount due to Parlux on
January 28, 2006 and January 29, 2005, was approximately $9,666,000 and
$9,994,000, respectively. Accounts payable due to Parlux are non-interest
bearing. The amounts due to Parlux are included in the 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 28, 2006 January 29, 2005
------------ ------------
Bank line of credit, interest payable
monthly, secured by a pledge of substantially all
of Perfumania's assets $ 20,147,978 $ 31,528,212
============ ============
Subordinated convertible note payable affiliate - long term $ 5,000,000 $ 5,000,000
============ ============
In May 2004, Perfumania entered into a three-year senior secured credit
facility with GMAC Commercial Finance LLC and Wachovia Capital Finance. The line
of credit provides for borrowings of up to $60 million depending on the
Company's levels of eligible inventories. As of January 28, 2006, $20.1 million
was outstanding under the line of credit and $19.3 million was available 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. The effective interest rate on the line of credit was between 6.88% and
7.25% as of January 28, 2006. 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 28, 2006, Perfumania was in compliance with its covenant requirements.
Company's management is currently negotiating an extension to this credit
facility.
In March 2004, the Nussdorfs provided a $5,000,000 subordinated secured
demand loan to Perfumania. The demand loan required quarterly interest payments
at the prime rate plus 1%. There were no prepayment penalties and the loan was
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 was 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 the date of the exchange. The Nussdorfs have
agreed to extend the due date of the Convertible Note to January 2009.
35
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 operations of approximately $0.2 million, $0.3 million and $0.6 million
during fiscal years 2005, 2004 and 2003, 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.
NOTE 8 - INCOME TAXES (AS RESTATED)
Subsequent to the issuance of the Company's consolidated financial
statements for fiscal year 2004, the Company determined that it had incorrectly
excluded the after tax effects of temporary differences in the amount of
approximately $3.0 million related to capital lease obligations of property and
equipment and $2.4 million of Puerto Rican net operating loss carryforwards in
the computation of its deferred income tax accounts. The error understated the
related components of deferred tax assets, with an offsetting understated
valuation allowance, as of January 29, 2005 of approximately $5.4 million. Since
the Company had recorded a full valuation allowance related to its deferred tax
assets as of January 29, 2005 and prior to fiscal year 2003, the error had no
impact on the net deferred tax assets reflected in the balance sheet as of
January 29, 2005 or on the provision for income taxes in the accompanying
consolidated statements of operations for the years ended January 29, 2005 and
January 31, 2004. However, the below disclosures give effect to the correction
of the error from disclosures previously reported.
The income tax benefit (provision) is comprised of the following amounts:
FISCAL YEAR ENDED
----------------------------------------------------
January 28, 2006 January 29, 2005 January 31, 2004
------------ ------------ ------------
Current:
Federal $ (200,000) $ (75,000) $ --
State (200,000) (75,000) --
------------ ------------ ------------
(400,000) (150,000) --
------------ ------------ ------------
Deferred:
Federal 7,199,000 -- --
State 838,000 -- --
------------ ------------ ------------
8,037,000 -- --
------------ ------------ ------------
Income tax
benefit (provision) $ 7,637,000 $ (150,000) $ --
------------ ------------ ------------
The income tax benefit (provision) differs from the amount obtained by
applying the statutory Federal income tax rate to pretax income as follows:
FISCAL YEAR ENDED
---------------------------------------------------
January 28, 2006 January 29, 2005 January 31, 2004
------------ ------------ ------------
Benefit (expense) at federal statutory rates $ (2,253,609) $ (1,122,436) $ 4,376,378
Non-deductible expenses (18,000) (33,152) (906,512)
Change in valuation allowance 9,675,699 210,556 (2,607,176)
Other 232,910 795,032 (862,690)
------------ ------------ ------------
Income tax benefit (provision) $ 7,637,000 $ (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 as follows:
36
FISCAL YEAR ENDED
----------------------------------
January 28, 2006 January 29, 2005
------------ ------------
Assets:
Net operating loss & tax credit carryforwards $ 3,755,471 $ 6,482,224
Puerto Rican net operating loss carryforwards 2,730,392 2,352,642
Capital loss carryforward 1,571,773 1,571,773
Inventories 1,008,025 1,257,747
Property and equipment 4,688,345 3,723,148
Goodwill 246,816 296,382
Self insured reserves and other 580,343 535,948
------------ ------------
Total deferred tax assets 14,581,165 16,219,864
Valuation allowance (4,302,165) (16,219,864)
------------ ------------
Net deferred tax assets $ 10,279,000 $ --
============ ============
The Company previously recorded a full valuation allowance related to its
deferred tax assets as realization of these assets was not more likely than not.
Management has now determined that it is more likely than not that certain of
the Company's deferred tax assets will be realized. As a result, the reversal of
the valuation allowance of approximately $9.7 million has been reflected as a
benefit in the tax provision for fiscal year 2005. In addition, the reversal of
approximately $2.2 million of valuation allowance related to the exercise of
stock options has been recorded in the consolidated statements of changes in
shareholders' equity. The remaining valuation allowance of approximately $4.3
million relates to capital loss carryforwards and Puerto Rican net operating
loss carryforwards where management has determined that the benefit of those
deferred tax assets are not more likely than not to be realized. Puerto Rican
net operating loss carryforwards begin expiring in fiscal year 2007.
In evaluating the reasonableness of the valuation allowance, management
assesses whether it is more likely than not that some portion, or all, of the
deferred tax assets will not be realized. Ultimately, the realization of
deferred tax assets is dependant upon generation of future taxable income during
those periods in which temporary differences become deductible and/or credits
can be utilized. To this end, management considers the level of historical
taxable income, the scheduled reversal of deferred tax assets and projected
future taxable income. Based on these considerations, and the carry-forward
availability of the deferred tax assets, management believes it is more likely
than not that the Company will realize the benefit of the deferred tax asset,
net of the January 28, 2006 valuation allowance. The Company's net operating
loss carryforwards begin to expire in 2019.
NOTE 9 - SHAREHOLDERS' EQUITY
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 28, 2006, no preferred stock had
been issued.
TREASURY STOCK
From time to time the Company's Board of Directors has approved the
repurchase of the Company's common stock. As of January 28, 2006, the Company
had repurchased approximately 898,000 shares of common stock for approximately
$8.6 million. There were no repurchases during fiscal years 2005 or 2004.
37
STOCK OPTION PLANS
The Company currently has two plans which provide for equity-based awards
to its employees and directors. Pursuant to the 2000 Stock Option Plan (the
"Stock Option Plan") and 2000 Directors Stock Option Plan (the "Directors Plan")
(collectively, the "Plans"), 375,000 shares and 30,000 shares of common stock,
respectively, were initially reserved for issuance upon exercise of options
under the Stock Option Plan and the Directors Plan. Additionally, the number of
shares available under the Stock Option Plan automatically increases each year
by an amount equal to 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.
As a result of the change in control described in Note 5, 244,252 options
were issued in fiscal year 2003 which were immediately exercisable. The Company
incurred a charge of approximately $2,286,000 in non-cash compensation expense
as a result of the issuance of these options which represented the difference
between the market price and exercise price, on the issuance date of these
options.
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 28, 2006 is as follows:
2005 2004 2003
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- ---------- ---------- ---------- ---------- ---------
Outstanding at beginning of year 212,032 $ 9.46 809,238 $ 4.99 666,501 $ 5.32
Granted 110,666 12.42 5,334 11.12 254,252 4.79
Exercised (22,531) 3.71 (548,926) 3.08 (69,997) 3.38
Cancelled (60,379) 13.82 (53,614) 7.65 (41,518) 11.93
---------- ---------- ----------
Outstanding at end of year 239,788 $ 10.27 212,032 $ 9.46 809,238 $ 4.99
========== ========== =========
Options exercisable at end of year 239,788 $ 10.27 212,032 $ 9.46 696,436 $ 5.10
The following table summarizes information about stock options outstanding
at January 28, 2006:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted Weighted
Weighted Average Average
Average Remaining Remaining
RANGE OF NUMBER Exercise Contractual NUMBER Exercise
EXERCISE PRICES OUTSTANDING Price Life in Years EXERCISABLE Price
--------------- ----------- ---------- ------------- ----------- ---------
$2.00 - $7.76 72,344 $ 4.87 5.99 72,344 $ 4.87
$8.24 - $12.52 42,188 10.93 4.77 42,188 10.93
$12.99 100,000 12.99 9.42 100,000 12.99
$13.00 - $21.52 25,256 13.89 6.83 25,256 13.89
---------- -----------
239,788 $ 10.27 7.29 239,788 $ 10.27
========== ===========
38
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 2005 and 2004 and matching contributions
during fiscal year 2003 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 28, 2006. 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 determined.
The self-insurance reserve at January 28, 2006 and January 29, 2005 was
approximately $229,000 and $426,000, 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 requiring additional
rent based on a percentage of gross sales in excess of a specified amount.
Rent expense is as follows:
FISCAL YEAR
----------------------------------------------
2005 2004 2003
------------ ------------ ------------
Minimum rentals $ 14,635,031 $ 14,067,187 $ 14,297,451
Contingent rentals 1,449,216 1,349,318 1,261,577
------------ ------------ ------------
Total $ 16,084,247 $ 15,416,505 $ 15,559,028
------------ ------------ ------------
Future minimum lease commitments under non-cancelable operating leases at
January 28, 2006 are as follows:
FISCAL YEAR
-----------------------------------
2006 $ 14,228,433
2007 11,972,759
2008 8,982,443
2009 7,442,825
2010 5,815,649
Thereafter 12,330,830
------------
Total future minimum lease payments $ 60,772,939
============
39
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 14 years with monthly rent ranging from approximately $81,000 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 28, 2006:
FISCAL YEAR
-----------------------------------
2006 $ 1,249,082
2007 1,237,775
2008 1,217,482
2009 1,231,779
2010 1,239,766
Thereafter 9,175,867
------------
Total future minimum lease payments 15,351,751
Less: Amount representing interest (7,131,113)
------------
Present value of minimum lease payments 8,220,638
Less: Current portion (322,284)
------------
$ 7,898,354
============
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 will not have a materially adverse effect on the Company's financial
position.
NOTE 12 - SEGMENT INFORMATION
Segment information is prepared on the same basis that the Company's
management reviews financial 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. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies in Note 2. The
Company does not allocate operating and other expenses to its segments.
Financial information for these segments is summarized in the following table.
FISCAL YEAR
--------------------------------------------------
2005 2004 2003
-------------- -------------- --------------
Net sales:
Retail $ 215,841,101 $ 201,424,708 $ 198,478,506
Wholesale 17,852,980 23,578,493 14,089,063
-------------- -------------- --------------
$ 233,694,081 $ 225,003,201 $ 212,567,569
============== ============== ==============
Gross profit:
Retail $ 95,353,919 $ 90,048,875 $ 81,923,375
Wholesale 1,147,240 1,287,721 1,453,645
-------------- -------------- --------------
$ 96,501,159 $ 91,336,596 $ 83,377,020
============== ============== ==============
40
NOTE 13- QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial results for fiscal years 2005 and 2004
follows (in thousands, except for per share data):
2005 QUARTER FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
Net sales $ 43,278 $ 54,199 $ 43,657 $ 87,560
Gross profit 17,863 21,521 20,529 36,587
Net income (loss) (2,066) (222) (1,114) 17,667
Net income (loss) per basic share (0.70) (0.08) (0.38) 5.98
Net income (loss) per diluted share (0.70) (0.08) (0.38) 5.11
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
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.
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 28, 2006, that our disclosure controls
and procedures are effective. During the preparation of the financial statements
for fiscal year 2005, and as a result of updates in projected taxable income we
changed our assessment of the need for the valuation allowances on deferred tax
assets and enhanced the operating effectiveness of our reconciliation procedures
surrounding financial reporting related to accounting for deferred income taxes.
There have been no additional changes in our internal control over financial
reporting during the quarter ended January 28, 2006 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
41
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 - 2005 (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.
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
- 2005 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction G 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 - 2005 (to be filed pursuant to
Regulation 14A not later than 120 days after the close of the fiscal year) in
accordance with General Instruction G 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 - 2005 (to be filed
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year) in accordance with General Instruction G 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 - 2005 (to be filed
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year) in accordance with General Instruction G 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 28, 2006, January 29, 2005 and January 31,
2004 appears on page 23.
(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 GMACCommercial Credit LLC, and
Congress Financial Corporation (Florida), date
May 12, 2004 (11)
10.14 Nussdorf Subordinated Secured Demand Note (11)
10.15 Lease agreement with Victory Investment Group, LLC,
dated October 21, 2002 (8)
10.16 Waiver and Amendment to the Revolving Credit and
Security Agreement with GMAC Commercial Credit LLC,
dated April 29,2004 (11)
10.17 Amendment to the 2000 Stock Option Plan* (9)
10.18 Nussdorf Subordinated Secured Convertible Note (10)
21.1 Subsidiaries of the Registrant (12)
23.1 Consent of Deloitte & Touche LLP (12)
31.1 Certification of the Chief Executive Officer
pursuant to Section 302 ofthe Sarbanes-Oxley
Act of 2002 (12)
31.2 Certification of the Chief Financial Officer
pursuant to Section 302 ofthe Sarbanes-Oxley
Act of 2002 (12)
32.1 Certification of the Chief Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (12)
32.2 Certification of the Chief Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 (12)
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) Incorporated by reference to Appendix A to the Company's Proxy Statement
(filed April 16, 2004).
(10) Incorporated by reference to the exhibit of the same description filed
with the Company's Form 8-K (filed in December 14, 2004).
(11) Incorporated by reference to the exhibit of the same description filed
with the Company's 2004 Form 10-K (filed April 29, 2005).
(12) Filed Herewith.
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 28, 2006.
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 28, 2006
------------------------ Officer
Michael W. Katz (Principal Executive Officer)
/s/ STEPHEN NUSSDORF Chairman of the Board of Directors April 28, 2006
------------------------
Stephen Nussdorf
/s/ A. MARK YOUNG Chief Financial Officer, April 28, 2006
------------------------ (Principal Accounting Officer)
A. Mark Young
/s/ DONOVAN CHIN Chief Financial Officer April 28, 2006
------------------------ Perfumania, Inc.,
Donovan Chin
/s/ CAROLE ANN TAYLOR Director April 28, 2006
------------------------
Carole Ann Taylor
/s/ JOSEPH BOUHADANA Director April 28, 2006
------------------------
Joseph Bouhadana
/s/ PAUL GARFINKLE Director April 28, 2006
------------------------
Paul Garfinkle
45