UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the Quarterly Period Ended July 30, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________.
Commission file number: 0-19714
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
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes |_| No |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 number of shares outstanding of the registrant's common stock, as of the
latest practicable date: At September 2, 2005 there were 2,953,092 outstanding
shares of its common stock, $0.01 par value.
1
TABLE OF CONTENTS
E COM VENTURES, INC. AND SUBSIDIARIES
PART I
FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (unaudited)...................................3
Condensed Consolidated Balance Sheets..............................3
Condensed Consolidated Statements of Operations....................4
Condensed Consolidated Statements of Cash Flows....................5
Notes to Condensed Consolidated Financial Statements...............6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................9
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.......................................................12
ITEM 4 CONTROLS AND PROCEDURES...........................................12
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.................................................12
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS..........................................................12
ITEM 3 DEFAULTS UPON SENIOR SECURITIES...................................13
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............13
ITEM 5 OTHER INFORMATION.................................................13
ITEM 6 EXHIBITS..........................................................13
SIGNATURES....................................................................14
CERTIFICATIONS................................................................15
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
E COM VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
July 30, 2005 January 29, 2005
--------------- ---------------
ASSETS:
Current assets:
Cash and cash equivalents $ 1,583,619 $ 1,249,543
Trade receivables, net 1,286,826 695,812
Inventories 77,445,754 78,929,639
Prepaid expenses and other current assets 663,027 1,149,723
--------------- ---------------
Total current assets 80,979,226 82,024,717
Property and equipment, net 24,811,581 23,070,723
Goodwill 1,904,448 1,904,448
Other assets, net 587,784 817,156
--------------- ---------------
Total assets $ 108,283,039 $ 107,817,044
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank line of credit $ 35,952,934 $ 31,528,212
Accounts payable 12,834,293 18,111,196
Accounts payable, affiliates 26,977,720 23,228,325
Accrued expenses and other liabilities 6,217,306 6,685,494
Current portion of obligations under capital leases 216,532 231,353
--------------- ---------------
Total current liabilities 82,198,785 79,784,580
Convertible note payable- affiliate 5,000,000 5,000,000
Long-term portion of obligations under capital leases 7,861,945 7,972,455
--------------- ---------------
Total liabilities 95,060,730 92,757,035
--------------- ---------------
Contingencies (see Note 5)
Shareholders' equity:
Preferred stock, $.10 par value, 1,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 6,250,000 shares
authorized; 3,848,851 and 3,834,684 shares issued
in fiscal years 2005 and 2004, respectively 38,489 38,347
Additional paid-in capital 75,798,084 75,347,588
Treasury stock, at cost, 898,249 shares in fiscal
years 2005 and 2004 (8,576,944) (8,576,944)
Accumulated deficit (54,037,320) (51,748,982)
--------------- ---------------
Total shareholders' equity 13,222,309 15,060,009
--------------- ---------------
Total liabilities and shareholders' equity $ 108,283,039 $ 107,817,044
=============== ===============
See accompanying notes to condensed consolidated financial statements.
3
E COM VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Weeks Thirteen Weeks Twenty-Six Weeks Twenty-Six Weeks
Ended Ended Ended Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
--------------- --------------- --------------- ---------------
Net sales $ 54,198,660 $ 48,470,731 $ 97,476,545 $ 92,042,197
Cost of goods sold 32,677,293 27,602,927 58,091,703 53,669,507
--------------- --------------- --------------- ---------------
Gross profit 21,521,367 20,867,804 39,384,842 38,372,690
--------------- --------------- --------------- ---------------
Operating expenses:
Selling, general and administrative 19,416,479 19,092,761 37,078,898 37,042,226
Depreciation and amortization 1,361,059 1,480,585 2,769,566 3,032,897
--------------- --------------- --------------- ---------------
Total operating expenses 20,777,538 20,573,346 39,848,464 40,075,123
--------------- --------------- --------------- ---------------
Income (loss) from operations 743,829 294,458 (463,622) (1,702,433)
Interest expense, net (966,254) (824,123) (1,824,716) (1,464,780)
--------------- --------------- --------------- ---------------
Net loss $ (222,425) $ (529,665) $ (2,288,338) $ (3,167,213)
=============== =============== =============== ===============
Net loss per common share:
Basic $ (0.08) $ (0.18) $ (0.78) $ (1.15)
=============== =============== =============== ===============
Diluted $ (0.08) $ (0.18) $ (0.78) $ (1.15)
=============== =============== =============== ===============
Weighted average number of common
shares outstanding:
Basic 2,949,378 2,866,544 2,943,986 2,758,348
=============== =============== =============== ===============
Diluted 2,949,378 2,866,544 2,943,986 2,758,348
=============== =============== =============== ===============
See accompanying notes to condensed consolidated financial statements.
4
E COM VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 30, 2005 July 31, 2004
--------------- ---------------
Cash flows from operating activities:
Net loss $ (2,288,338) $ (3,167,213)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Provision for impairment of assets and store closing 47,104 55,328
Depreciation and amortization 2,769,566 3,032,897
Change in operating assets and liabilities:
Trade receivables (591,014) (1,306,473)
Inventories 1,483,885 (19,899,253)
Prepaid expenses and other assets 599,958 (778,787)
Accounts payable, non-affiliates (5,276,903) (407,375)
Accounts payable, affiliates 3,749,395 11,463,893
Accrued expenses and other liabilities (109,292) (3,961,023)
--------------- ---------------
Net cash provided by (used in) operating activities 384,361 (14,968,006)
--------------- ---------------
Cash flows from investing activities:
Additions to property and equipment (4,394,314) (1,639,262)
--------------- ---------------
Net cash used in investing activities (4,394,314) (1,639,262)
--------------- ---------------
Cash flows from financing activities:
Net borrowings under bank line of credit 4,424,722 9,569,587
Principal payments under capital lease obligations (125,331) (130,785)
Proceeds from note and interest receivable,
shareholder and officer -- 327,311
Proceeds from subordinated secured demand loan, affiliate -- 5,000,000
Proceeds from exercise of stock options 44,638 1,500,070
--------------- ---------------
Net cash provided by financing activities 4,344,029 16,266,183
--------------- ---------------
Increase (decrease) in cash and cash equivalents 334,076 (341,085)
Cash and cash equivalents at beginning of period 1,249,543 1,961,310
--------------- ---------------
Cash and cash equivalents at end of period $ 1,583,619 $ 1,620,225
=============== ===============
See accompanying notes to condensed consolidated financial statements.
5
E COM VENTURES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - OPERATIONS AND BASIS OF PRESENTATION
E Com Ventures, Inc., a Florida corporation ("ECOMV" or the "Company"),
performs all of its operations through two wholly-owned subsidiaries,
Perfumania, Inc. ("Perfumania"), a Florida corporation, which is a specialty
retailer and wholesaler of fragrances and related products, and perfumania.com,
Inc., ("perfumania.com"), a Florida corporation, which is an Internet retailer
of fragrances and other specialty items.
Perfumania is a leading specialty retailer and wholesale distributor of a
wide range of brand name and designer fragrances. As of July 30, 2005,
Perfumania operated a chain of 235 retail stores specializing in the sale of
fragrances at discounted prices up to 75% below the manufacturers' suggested
retail prices. Perfumania's wholesale division distributes fragrances and
related products primarily to an affiliate. Perfumania.com offers a selection of
the Company's more popular products for sale over the Internet and serves as an
alternative shopping experience to the Perfumania retail stores.
The condensed consolidated financial statements include the accounts of
ECOMV and subsidiaries. All material intercompany balances and transactions have
been eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission (the "SEC"). Certain information and note
disclosures normally included in annual financial statements, prepared in
accordance with accounting principles generally accepted in the United States of
America, have been condensed or omitted pursuant to those rules and regulations.
The financial information presented herein, which is not necessarily indicative
of results to be expected for the current fiscal year, reflect all adjustments
which, in the opinion of management, are necessary for a fair presentation of
the interim unaudited condensed consolidated financial statements. It is
suggested that these condensed consolidated financial statements be read in
conjunction with the financial statements and the notes thereto included in our
Annual Report on Form 10-K for the fiscal year ended January 29, 2005, filed
with the SEC on April 29, 2005.
SEASONALITY AND QUARTERLY RESULTS
Our operations historically have been seasonal, with higher sales in the
fourth 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 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.
RECLASSIFICATIONS
Certain fiscal year 2004 amounts have been reclassified to conform with
the fiscal year 2005 presentation.
NOTE 2 - ACCOUNTING FOR STOCK-BASED COMPENSATION
In December 2004, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment, ("FAS 123(R)"). This Statement requires companies to expense the
estimated fair value of stock options and similar equity instruments issued to
employees. Currently, companies are required to calculate the estimated fair
value of these share-based payments and can elect to either include the
estimated cost in earnings or disclose the pro forma effect in the footnotes to
their financial statements. We have chosen to disclose the proforma effect. The
fair value concepts were not changed significantly in FAS 123(R); however, in
adopting this Standard, companies must choose among alternative valuation models
and amortization assumptions. The valuation model and amortization assumption we
have used continues to be available, but we have not yet completed our
assessment of the alternatives.
6
In April 2005, the SEC announced a deferral of the effective date of FAS
123(R) for calendar year companies until the beginning of 2006. Had compensation
cost for options granted been determined in accordance with the fair value
provisions of SFAS No. 123, the Company's net loss and net loss per shares would
have been increased to the proforma amounts presented below.
Thirteen Weeks Thirteen Weeks Twenty-Six Weeks Twenty-Six Weeks
Ended Ended Ended Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
--------------- --------------- --------------- ---------------
Net loss as reported $ (222,425) $ (529,665) $ (2,288,338) $ (3,167,213)
Add: Total fair value of stock based
employee compensation expense not included
in reported net loss, net (5,904) (6,357) (11,278) (18,529)
--------------- --------------- --------------- ---------------
Proforma net loss $ (228,329) $ (536,022) $ (2,299,616) $ (3,185,742)
=============== =============== =============== ===============
Proforma net loss per share:
Basic $ (0.08) $ (0.18) $ (0.78) $ (1.15)
=============== =============== =============== ===============
Diluted $ (0.08) $ (0.18) $ (0.78) $ (1.15)
=============== =============== =============== ===============
When the Company adopts Statement of Financial Accounting Standards No.
123 (revised 2004) "Share Based Payments" ("SFAS 123(R)") at the beginning of
fiscal year 2006, compensation expense will be recorded for new and modified
awards.
NOTE 3 - BANK LINE OF CREDIT AND CONVERTIBLE NOTE PAYABLE, AFFILIATE
The bank line of credit and convertible note payable, affiliate consist of
the following:
July 30, 2005 January 29, 2005
--------------- ---------------
Bank line of credit, which is classified as a
current liability, interest payable monthly,
secured by a pledge of substantially all of
Perfumania's assets (see below) $ 35,952,934 $ 31,528,212
=============== ===============
Convertible note payable affiliate - long term $ 5,000,000 $ 5,000,000
=============== ===============
Perfumania's senior secured credit facility provides for borrowings of up
to $60 million, of which $10.4 million was available as of July 30, 2005, to
support normal working capital requirements and other general corporate
purposes. Advances under the line of credit are based on a formula of eligible
inventories and bear interest at a floating rate ranging from (a) prime to prime
plus 1.25% or (b) LIBOR plus 2.5% to 3.75% depending on a financial ratio test.
Advances are secured by a first lien on all assets of Perfumania. The credit
facility contains limitations on additional borrowings, capital expenditures and
other items, and contains various covenants including a fixed charge coverage
ratio, a leverage ratio and capital expenditure limits as defined. The credit
facility expires in May 2007. As of July 30, 2005, Perfumania was in compliance
with its covenant requirements.
7
Glenn and Stephen Nussdorf (the "Nussdorfs") own approximately 39% of the
Company's outstanding common stock and they are officers and principals of
Quality King Distributors, Inc. ("Quality King"). Stephen Nussdorf is the
Chairman of the Company's Board of Directors. In first quarter of fiscal 2004
the Nussdorfs made a $5,000,000 subordinated secured demand loan to Perfumania.
The demand loan bore interest at the prime rate plus 1%, had no prepayment
penalties, 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. The loan was subordinate to all bank related
indebtedness.
In the fourth quarter of fiscal year 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 has the same
interest and security terms as the subordinated secured demand loan but is
payable in January 2007 and allows the Nussdorfs to convert the Convertible Note
into shares of the Company's common stock at a conversion price of $11.25.
NOTE 4 - BASIC AND DILUTED LOSS PER COMMON SHARE
Basic loss per common share has been computed by dividing net loss by the
weighted average number of common shares outstanding during the period. For all
periods presented in the accompanying condensed consolidated statements of
operations, incremental shares attributed to outstanding stock options and
convertible notes were not included because the results would be anti-dilutive.
NOTE 5 - CONTINGENCIES
The Company is involved in various legal proceedings in the ordinary
course of business. Management cannot presently predict the outcome of these
matters, although management believes that the ultimate resolution of these
matters should not have a materially adverse effect on the Company's financial
position.
NOTE 6 - RELATED PARTY TRANSACTIONS
Parlux Fragrances, Inc. ("Parlux") owns 378,102 shares, or approximately
13%, of the Company's outstanding common stock. Purchases of product from Parlux
and Quality King were approximately $22.2 million and $38.1 million for the
first twenty-six weeks of fiscal 2005 and 2004 respectively, representing
approximately 40% and 52% of the Company's total inventory purchases,
respectively. The amount due to related parties at July 30, 2005 is
approximately $27.2 million resulting from inventory purchases, is non-interest
bearing and is included in accounts payable, affiliates in the accompanying
condensed consolidated balance sheets. Purchases from related parties are
generally payable in 90 days, however, due to the seasonality of the Company's
business, these terms are sometimes extended.
The Company sold approximately $8.6 million and $6.7 million of wholesale
merchandise to Quality King for the first twenty-six weeks of fiscal 2005 and
2004, respectively.
NOTE 7 - SEGMENT INFORMATION
The Company operates in two industry segments, specialty retail sales and
wholesale distribution of fragrances and related products. Retail sales include
sales through our Internet site, perfumania.com. Substantially all wholesale
sales during fiscal 2005 were to Quality King. The Company, through its supplier
relationships, is able to obtain certain merchandise at better prices and
quantities than Quality King. Financial information for these segments is
summarized in the following table.
8
Thirteen Weeks Thirteen Weeks Twenty-Six Weeks Twenty-Six Weeks
Ended Ended Ended Ended
July 30, 2005 July 31, 2004 July 30, 2005 July 31, 2004
--------------- --------------- --------------- ---------------
Net sales:
Retail $ 48,964,595 $ 44,884,432 $ 88,901,020 $ 83,083,089
Wholesale 5,234,065 3,586,299 8,575,525 8,959,108
--------------- --------------- --------------- ---------------
$ 54,198,660 $ 48,470,731 $ 97,476,545 $ 92,042,197
=============== =============== =============== ===============
Gross profit:
Retail $ 21,190,818 $ 20,673,744 $ 38,843,419 $ 37,824,145
Wholesale 330,549 194,060 541,423 548,545
--------------- --------------- --------------- ---------------
$ 21,521,367 $ 20,867,804 $ 39,384,842 $ 38,372,690
=============== =============== =============== ===============
NOTE 8 - NON CASH TRANSACTIONS
Supplemental disclosures of non-cash investing and financing activities
are as follows:
For the Twenty-Six Weeks Ended
----------------------------------
July 30, 2005 July 31, 2004
----------------------------------
Building under capital lease $ -- $ 463,525
Accured compensation for President and
Chief Executive Officer contributed to capital $ 406,000 $ --
Cash paid during the period for:
Interest $ 1,705,123 $ 1,351,084
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the Thirteen Weeks Ended July 30, 2005 with the Thirteen Weeks
Ended July 31, 2004.
Net sales increased 11.8% from $48.5 million in the thirteen weeks ended
July 31, 2004 to $54.2 million in the thirteen weeks ended July 30, 2005. The
increase in sales was due to an increase of $1.6 million in wholesale sales
combined with a $4.1 million increase in retail store sales.
Wholesale sales were $5.2 million for the thirteen weeks ended July 31,
2005 compared to $3.6 million for the thirteen weeks ended July 31, 2004 as
product sales requests were received earlier than in the prior year.
Substantially all wholesale sales during the second quarter of fiscal 2005 were
made to Quality King.
Retail sales were $49.0 million for the thirteen weeks ended July 30, 2005
compared to $44.9 million for the thirteen weeks ended July 31, 2004. The
overall increase in retail sales and a 6.9% increase in comparable store sales
over the same period of the prior year resulted from additional price reduction
promotional events, improvement in our inventory product mix and depth, and
general improvements in the retail industry. Comparable store sales measure
sales from stores that have been open for one year or more. The average number
of stores operated was 234 in the second quarter of fiscal 2005, versus 231 in
the prior year's comparable period.
9
Gross profit increased 3.1% from $20.9 million in the thirteen weeks ended
July 31, 2004 (43.1% of total net sales) to $21.5 million in the thirteen weeks
ended July 30, 2005 (39.7% of total net sales). The increase in gross profit was
due to the increase in sales volume. As a percentage of net sales, total gross
profit in the thirteen weeks ended July 30, 2005 decreased versus the thirteen
weeks ended July 31, 2004 due to more promotional events with price reductions.
Selling, general and administrative expenses increased 1.7% from $19.1
million in the thirteen weeks ended July 31, 2004 to $19.4 million in the
thirteen weeks ended July 30, 2005. The increase was largely attributable to the
increase in new stores and the resulting increased spending for marketing,
advertising, occupancy and staffing needs to open these stores. Depreciation and
amortization was approximately $1.4 million in the thirteen weeks ended July 31,
2005 compared to $1.5 million for the thirteen weeks ended July 31, 2004.
Interest expense, net was approximately $966,000 for the thirteen weeks
ended July 30, 2005 compared with $824,000 in the same period for 2004. The
increase in interest expense was due to a higher average balance outstanding on
the Company's line of credit and higher interest rates.
As a result of the foregoing, our net loss decreased to approximately
($222,000) in the thirteen weeks ended July 30, 2005 compared to a net loss of
($530,000) in the thirteen weeks ended July 31, 2004. Net loss per share for the
second fiscal quarter of 2005 and 2004 was ($0.08) and ($0.18), respectively.
Comparison of the Twenty-six weeks Ended July 30, 2005 with the Twenty-six weeks
Ended July 31, 2004.
Net sales increased 5.9% from $92.0 million in the twenty-six weeks ended
July 31, 2004 to $97.5 million in the twenty-six weeks ended July 30, 2005. The
increase in sales was primarily due to a 7.0% increase in Perfumania's retail
sales. Retail sales increased as a result of additional price reduction
promotional events, higher average inventories, improvement in the product mix
and depth of inventories, and general improvements in the retail industry. In
addition, comparable store sales increased by 6.2% in the first twenty-six weeks
of fiscal 2005. During the twenty-six weeks ended July 30, 2005, the average
number of stores operated was 229 versus 231 in the prior year's comparable
period.
Wholesale sales were $8.6 million for the twenty-six weeks ended July 31,
2005 compared to $9.0 million for the twenty-six weeks ended July 31,2004.
Substantially all wholesale sales during the twenty-six weeks ended July 31,
2005 were to Quality King.
Gross profit increased 2.6% from $38.4 million in the twenty-six weeks
ended July 31, 2004 (41.7% of total net sales) to $39.4 million in the
twenty-six weeks ended July 30, 2005 (40.4% of total net sales). The increase in
gross profit was due to the increase in sales volume. As a percentage of net
sales, gross profit in the twenty-six weeks ended July 30, 2005 decreased versus
the twenty-six weeks ended July 31, 2004, due to price reduction promotional
events.
Selling, general and administrative expenses were not significantly
changed from $37.0 million in the twenty-six weeks ended July 31, 2004 to $37.1
million in the twenty-six weeks ended July 30, 2005. Depreciation and
amortization was approximately $2.8 million in the twenty-six weeks ended July
30, 2005 and $3.0 million in the twenty-six weeks ended July 31, 2004. Reduction
in amortization expenses were largely due to fully amortized software costs
associated with year 2000 upgrades.
Interest expense, net was approximately $1.8 million for the twenty-six
weeks ended July 30, 2005 compared with $1.5 million in the comparable period of
2004. The increase in interest expense was due to higher interest rates and
higher average borrowings outstanding for the twenty-six weeks ended July 30,
2005 versus the comparable period of 2004.
As a result of the foregoing, our net loss decreased from ($3.2) million
in the twenty-six weeks ended July 31, 2004, to a net loss of ($2.3) million in
the twenty-six weeks ended July 30, 2005. Net loss per share for the twenty-six
weeks ended July 30, 2005 and July 31, 2004 was ($0.78) and ($1.15),
respectively.
10
LIQUIDITY AND CAPITAL RESOURCES
Our principal funding requirements are for inventory purchases, renovation
of existing stores, and selectively opening new stores. For the first twenty-six
weeks of fiscal 2005, these capital requirements generally were satisfied
through borrowings under our credit facility.
At July 30, 2005, we had a seasonal negative working capital of
approximately $1.2 million compared to working capital of approximately $2.2
million at January 29, 2005. The change was primarily due to the net loss during
the current period, increased spending on store construction and increased
borrowings due to the seasonality of our business.
Net cash provided by operating activities during the twenty-six weeks
ended July 30, 2005 was approximately $0.4 million compared with approximately
$15.0 million used in operating activities during the same period of the prior
year. The increase in cash provided by operating activities was primarily due to
a reduction in our need for an inventory build up during the current period
compared with our inventory needs for the same period during the prior year.
During the prior year our average inventory balances were lower and our
operating cash was used to increase inventories. Our purchases from related
parties are generally payable in 90 days, however due to the seasonality of our
business these terms are sometimes extended, enhancing our liquidity.
Net cash used in investing activities was approximately $4.4 million in
the first twenty-six weeks ended July 30, 2005 compared to $1.6 million in the
twenty-six weeks ended July 31, 2004. The current period's investing activities
primarily represented spending for new stores and construction in progress on
other new stores scheduled for completion during the second half of fiscal year
2005.
During the twenty-six weeks ended July 30, 2005, Perfumania opened 13 new
stores and relocated 2 existing stores. At July 30, 2005, Perfumania operated
235 stores compared to 231 stores as of July 31, 2004. Our focus is on improving
the profitability of existing stores and selectively opening new stores. We plan
to open approximately 8 new stores and close approximately 3 stores during the
remainder of fiscal year 2005.
Net cash provided by financing activities during the first twenty-six
weeks of fiscal 2005 was approximately $4.3 million, primarily from borrowings
under our line of credit, compared with approximately $16.3 million for the same
period in the prior year. In the prior year $5 million in proceeds were received
from a subordinated secured note payable to an affiliate, along with
approximately $9.6 million in additional borrowings from our line of credit.
Perfumania's senior secured credit facility provides for borrowings of up
to $60 million, of which $10.4 million was available as of July 30, 2005, to
support normal working capital requirements and other general corporate
purposes. Advances under the line of credit are based on a formula of eligible
inventories and bear interest at a floating rate ranging from (a) prime to prime
plus 1.25% or (b) LIBOR plus 2.5% to 3.75% depending on a financial ratio test.
Advances are secured by a first lien on all assets of Perfumania. The credit
facility contains limitations on additional borrowings, capital expenditures and
other items, and contains various covenants including a fixed charge coverage
ratio, a leverage ratio and capital expenditure limits as defined. The credit
facility expires in May 2007. As of July 30, 2005, Perfumania was in compliance
with its covenant requirements.
We believe that our cash balances, the available borrowing capacity under
our credit facility and the projected future operating results will generate
sufficient liquidity to support the Company's needs for the next twelve months,
however there can be no assurance that our plans will be successful.
11
CRITICAL ACCOUNTING POLICIES
Our condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim information. Presentation 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 those critical accounting policies can be
found in our 2004 Annual Report on Form 10-K.
FORWARD LOOKING STATEMENTS
Some of the statements in this quarterly report, including those that
contain the words "anticipate," "believe," "plan," "estimate," "expect,"
"should," "intend," and other similar expressions, are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These 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,
our ability to comply with the covenants in our credit facility, general
economic conditions including a decrease in discretionary spending by consumers,
competition, potential technology changes, changes in or the lack of anticipated
changes in the regulatory environment in various countries, the ability to 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 our 2004 Annual Report on From
10-K filed with the SEC. Those Risk Factors contained in our 2004 Annual Report
on Form 10-K are incorporated herein by this reference to them. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
During the quarter ended July 30, 2005, there have been no material
changes in the information about our market risks as of January 29, 2005 as set
forth in Item 7A of the 2004 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation as of July 30, 2005, that our disclosure controls and
procedures are effective. There have been no changes in our internal control
over financial reporting during the quarter ended July 30, 2005 that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Exhibits
Index to Exhibits
Exhibit No.
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31.1 Certification by Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification by Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
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E COM VENTURES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the report to be signed on its behalf by the
undersigned, thereunto duly authorized.
E COM VENTURES, INC.
(Registrant)
Date: September 2, 2005 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 Financial and Accounting Officer)
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