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 April 29, 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: 0-19714
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 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 number of shares outstanding of the registrant's common stock, as of the
latest practicable date: At June 9, 2006 there were 2,990,291 outstanding shares
of its common stock, $0.01 par value.
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.......................10
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.....................................12
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................12
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)
ASSETS: April 29, 2006 January 28, 2006
---------------- ----------------
Current assets:
Cash and cash equivalents $ 1,201,121 $ 1,260,444
Trade receivables, no allowance required 1,001,365 819,072
Deferred tax asset 5,831,744 5,343,839
Inventories, net 83,416,117 72,976,845
Prepaid expenses and other current assets 1,116,523 950,146
---------------- ----------------
Total current assets 92,566,870 81,350,346
Property and equipment, net 25,691,490 25,308,899
Goodwill 1,904,448 1,904,448
Deferred tax asset 4,935,161 4,935,161
Other assets, net 418,479 457,627
---------------- ----------------
Total assets $ 125,516,448 $ 113,956,481
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank line of credit $ 33,531,195 $ 20,147,978
Accounts payable, non-affiliates 16,921,845 13,470,670
Accounts payable, affiliates 24,968,274 26,905,433
Accrued expenses and other liabilities 5,722,154 7,973,168
Current portion of obligations under capital leases 318,776 322,284
---------------- ----------------
Total current liabilities 81,462,244 68,819,533
Subordinated convertible note payable - affiliate 5,000,000 5,000,000
Long-term portion of obligations under capital leases 7,823,489 7,898,354
---------------- ----------------
Total liabilities 94,285,733 81,717,887
---------------- ----------------
Commitments and 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; 3,885,040 and 3,857,216 shares issued
in fiscal years 2006 and 2005, respectively 38,851 38,572
Additional paid-in capital 78,547,828 78,260,686
Treasury stock, at cost, 898,249 shares (8,576,944) (8,576,944)
Accumulated deficit (38,779,020) (37,483,720)
---------------- ----------------
Total shareholders' equity 31,230,715 32,238,594
---------------- ----------------
Total liabilities and shareholders' equity $ 125,516,448 $ 113,956,481
================ ================
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
Ended Ended
April 29, 2006 April 30, 2005
-------------- --------------
Net sales $ 46,068,987 $ 43,277,885
Cost of goods sold 26,910,203 25,414,410
-------------- --------------
Gross profit 19,158,784 17,863,475
-------------- --------------
Operating expenses:
Selling, general and administrative 18,782,037 17,662,419
Depreciation and amortization 1,134,047 1,408,507
-------------- --------------
Total operating expenses 19,916,084 19,070,926
-------------- --------------
Loss from operations (757,300) (1,207,451)
Interest expense, net (972,000) (858,463)
-------------- --------------
Loss before income taxes (1,729,300) (2,065,914)
Income tax benefit 434,000 --
-------------- --------------
Net loss $ (1,295,300) $ (2,065,914)
============== ==============
Net loss per common share:
Basic $ (0.44) $ (0.70)
============== ==============
Diluted $ (0.44) $ (0.70)
============== ==============
Weighted average number of common shares outstanding:
Basic 2,960,199 2,938,594
============== ==============
Diluted 2,960,199 2,938,594
============== ==============
See accompanying notes to condensed consolidated financial statements.
4
E COM VENTURES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirteen Weeks Thirteen Weeks
Ended Ended
April 29, 2006 April 30, 2005
-------------- --------------
Cash flows from operating activities:
Net loss $ (1,295,300) $ (2,065,914)
Adjustments to reconcile net loss to net cash
used in operating activities:
Addition to deferred tax assets (487,905) --
Depreciation and amortization 1,134,047 1,408,507
Change in operating assets and liabilities:
Trade receivables (182,293) (491,812)
Inventories (10,439,272) (4,581,398)
Prepaid expenses and other assets (127,399) (107,537)
Accounts payable, non-affiliates 3,451,175 (666,250)
Accounts payable, affiliates (1,937,159) 5,115,902
Accrued expenses and other liabilities (2,251,014) (1,169,138)
-------------- --------------
Net cash used in operating activities (12,135,120) (2,557,640)
-------------- --------------
Cash flows from investing activities:
Additions to property and equipment (1,516,468) (1,745,776)
-------------- --------------
Net cash used in investing activities (1,516,468) (1,745,776)
-------------- --------------
Cash flows from financing activities:
Net borrowings under bank line of credit 13,383,217 4,803,298
Principal payments under capital lease obligations (78,373) (67,646)
Proceeds from exercise of stock options 287,421 17,040
-------------- --------------
Net cash provided by financing activities 13,592,265 4,752,692
-------------- --------------
(Decrease) increase in cash and cash equivalents (59,323) 449,276
Cash and cash equivalents at beginning of period 1,260,444 1,249,543
-------------- --------------
Cash and cash equivalents at end of period $ 1,201,121 $ 1,698,819
============== ==============
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 April 29, 2006,
Perfumania operated a chain of approximately 240 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 (collectively, the "Company"). 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 28, 2006, filed
with the SEC on April 28, 2006.
NOTE 2 - ACCOUNTING FOR SHARE-BASED PAYMENT
The Company has two stock option plans which provide for equity-based
awards to its employees and directors (collectively, the "Plans"). Under the
Plans, the Company has reserved approximately 1,000,000 shares of common stock,
of which approximately 582,000 options have been granted and 212,000 options are
outstanding. All stock options have an exercise price that is equal to the fair
market value of the Company's stock on the date the options were granted. The
term of the stock option awards is ten years from the date of grant. All options
are fully vested. Prior to the January 29, 2006 adoption of Statement of
Financial Accounting Standards ("SFAS") No. 123R "Share Based Payment" ("SFAS
123R"), the Company accounted 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"). Accordingly, because the
stock option price equaled the market price on the date of grant, no
compensation expense was recognized by the Company for stock-based compensation.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"), stock-based compensation was included as a pro forma disclosure in
the notes to the consolidated financial statements. SFAS No. 123R revises SFAS
No. 123 and supersedes APB 25.
Effective January 29, 2006, the beginning of the Company's first fiscal
quarter of 2006, the Company adopted the fair value recognition provisions of
SFAS No. 123R, using the modified-prospective transition method. Under this
transition method, share based compensation expense is required to be recognized
in the consolidated financial statements for stock options which are granted,
modified or vested subsequent to January 29, 2006. The compensation expense
recognized will include the estimated expense for stock options granted on and
subsequent to January 29, 2006, based on the grant date fair value estimated in
accordance with the provisions of SFAS No. 123R, and the estimated expense for
the portion vesting in the period for options granted prior to, but not vested
as of January 28, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS No. 123. Results for prior
periods have not been restated, as provided for under the modified-prospective
method.
6
The following is a summary of stock-based activity during the thirteen weeks
ended April 29, 2006:
Weighted
Weighted Average
Average Remaining Aggregate
Number of Exercise Contractual Intrinsic
Shares Price Life Value
----------- ----------- ----------- -----------
Outstanding as of January 28, 2006 239,788 $ 10.27 7.29 $ 1,549,028
Granted -- -- -- --
Exercised 27,824 $ 10.33 7.36 304,582
Forfeited -- -- -- --
----------- ----------- ----------- -----------
Outstanding as of April 29, 2006 211,964 $ 10.26 7.22 $ 2,470,760
=========== =========== =========== ===========
----------- ----------- ----------- -----------
Exercisable as of April 29, 2006 211,964 $ 10.26 7.22 $ 2,470,760
=========== =========== =========== ===========
During the thirteen weeks ended April 29, 2006, the Company did not
recognize any share based compensation expense in the consolidated financial
statements since no stock options were granted nor were there any modifications
of outstanding stock options during the thirteen week period. In addition, all
stock options outstanding as of January 28, 2006 were fully vested.
The following table shows the effect on net loss and net loss per common
share for the thirteen week period ended April 30, 2005 had compensation cost
been recognized based upon the estimated fair value on the grant date of stock
options in accordance with SFAS No 123, as amended by SFAS No. 148 "Accounting
for Stock-Based Compensation - Transition and Disclosure".
Thirteen Weeks
Ended
April 30, 2005
--------------
Net loss $ (2,065,914)
Deduct: Total stock based employee compensation
expense determined under fair market value
based method, net of tax (19,604)
--------------
Proforma net loss $ (2,085,518)
==============
Proforma net loss per share:
Basic $ (0.70)
==============
Diluted $ (0.70)
==============
7
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:
Thirteen Weeks
Ended
April 30, 2005
--------------
Expected life (years) 7
Expected volatility 164%
Risk-free interest rates 3.97%
Dividend yield 0%
The expected life of the options represents the estimated period of time
until exercise and is based on historical experience of similar awards, giving
consideration to the contractual terms, vesting schedules and expectations of
future employee behavior. The expected volatility is estimated using the
historical volatility of the Company's stock. The risk-free interest rate is
based on the implied yield available on U.S. Treasury zero coupon issues with an
equivalent term. The Company has not paid dividends in the past and does not
intend to in the foreseeable future.
NOTE 3 - BANK LINE OF CREDIT AND CONVERTIBLE NOTE PAYABLE, AFFILIATE
The bank line of credit and convertible note payable, affiliate consists
of the following:
April 29, 2006 January 28, 2006
---------------- ----------------
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 $ 33,531,195 $ 20,147,978
================ ================
Subordinated 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 depending on the Company's levels of eligible inventories. As
April 29, 2006, $33.5 million was outstanding under the line of credit and $13.8
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 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 April 29, 2006,
Perfumania was in compliance with its covenant requirements. The Company's
management is currently negotiating an extension of this credit facility.
In the fourth quarter of fiscal year 2004, the Company issued a
Subordinated Convertible Note (the "Note") in exchange for a $5,000,000
subordinated secured demand loan made to the Company in the first quarter of
fiscal year 2004 by Glenn and Stephen Nussdorf (the "Nussdorfs"). 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. The
initial maturity of the Note was January 2007; however the Note was modified in
April 2006 to extend the due date. 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 is payable in January
2009 and allows the Nussdorfs to convert the 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.
8
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 will 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 $14.2 million and $10.5 million for the
first thirteen weeks of fiscal years 2006 and 2005, respectively, representing
approximately 38% and 36%, respectively, of the Company's total inventory
purchases. The amount due to related parties at April 29, 2006 is approximately
$25.0 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. Related party accounts are historically
brought closer to terms at the end of the holiday season, however, we are
dependent upon these extended terms for much of our liquidity during the year.
During the first thirteen weeks of fiscal 2006 and 2005, respectively, the
Company sold approximately $3.9 million and $3.3 million of wholesale
merchandise to Quality King. The amount due from Quality King at April 29, 2006
was approximately $1,500 and is included in trade receivables, in the
accompanying condensed consolidated balance sheets.
NOTE 7 - 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. Substantially all wholesale sales are to Quality King. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies in Note 2 of the Notes to our
Consolidated Financial Statements included in our 2005 Annual Report on Form
10-K. The Company does not allocate operating and other expenses to its
segments. Financial information for these segments is summarized in the
following table.
Thirteen Weeks Thirteen Weeks
Ended Ended
April 29, 2006 April 30, 2005
-------------- --------------
Net sales:
Retail $ 42,208,247 $ 39,936,425
Wholesale 3,860,740 3,341,460
-------------- --------------
$ 46,068,987 $ 43,277,885
============== ==============
Gross profit:
Retail $ 18,901,564 $ 17,652,601
Wholesale 257,220 210,874
-------------- --------------
$ 19,158,784 $ 17,863,475
============== ==============
9
NOTE 8 - NON CASH TRANSACTIONS
Supplemental disclosures of non-cash investing and financing activities
are as follows:
For the Thirteen Weeks Ended
--------------------------------
April 29, 2006 April 30, 2005
--------------------------------
Accrued compensation for President and
Chief Executive Officer contributed to capital $ -- $ 406,000
Cash paid during the period for interest $ 879,347 $ 787,654
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of the Thirteen Weeks Ended April 29, 2006 with the Thirteen Weeks
Ended April 30, 2005.
Net sales increased 6.5% from $43.3 million in the first thirteen weeks of
fiscal year 2005 to $46.1 million in the first thirteen weeks of fiscal year
2006. The increase in sales was primarily due to a $2.3 million increase in
retail store sales combined with a $0.5 million increase in wholesale sales.
Retail sales were $42.2 million for the first thirteen weeks of fiscal
year 2006 compared to $39.9 million for the first thirteen weeks of fiscal year
2005. This 5.7% increase was partially due to the increase in the number of
stores operated. The average number of stores operated was 239 in the first
quarter of fiscal year 2006, versus 224 in the prior year's comparable period.
Retail sales also increased as a result of Perfumania's comparable store sales
improvement of 2% in the first thirteen weeks of fiscal year 2006 over the
corresponding period in the prior year. Comparable store sales measure sales
from stores that have been open for one year or more. The increase in comparable
store sales is due to improved selection and quality of inventory, with the
resultant increase in sales volume, during the first quarter of fiscal year 2006
compared to the first quarter of fiscal year 2005.
Wholesale sales were $3.9 million for the first thirteen weeks of fiscal
year 2006 compared to $3.3 million for the first thirteen weeks of fiscal year
2005. All wholesale sales during the first quarter of fiscal year 2006 and 2005
were made to Quality King, an affiliate of the Company. The Company, through its
supplier relationships, is able to obtain certain merchandise at better prices
and quantities than Quality King.
Gross profit increased 7.3% from $17.9 million in the first thirteen weeks
of fiscal year 2005 (41.3% of total net sales) to $19.2 million in the first
thirteen weeks of fiscal year 2006 (41.6% of total net sales). The increase in
gross profit was due to the increase in retail sales. As a percentage of net
sales, total gross profit in the first thirteen weeks of fiscal year 2006
increased as compared to the first thirteen weeks of fiscal year 2005 as a
result of reduced cost of inventory purchases driven by a greater availability
of merchandise in the fragrance industry.
Selling, general and administrative expenses increased 6.3% from $17.7
million in the first thirteen weeks of fiscal year 2005 to $18.8 million in the
first thirteen weeks of fiscal year 2006. The increase was largely attributable
to increased occupancy and compensation costs resulting from an increase in the
number of stores operated. There were an average of 15 additional stores
operated in the first quarter of fiscal year 2006, versus the prior year's
comparable period. Depreciation and amortization were approximately $1.1 million
in the first thirteen weeks of fiscal year 2006 compared to $1.4 million for the
first thirteen weeks of fiscal year 2005. The reduction in depreciation and
amortization was largely due to software costs associated with year 2000
upgrades that are now fully amortized.
Interest expense, net was $972,000 for the first thirteen weeks of fiscal
year 2006 compared with approximately $858,000 in the first thirteen weeks of
fiscal year 2005. The increase in interest expense was primarily due to higher
interest rates.
10
An income tax benefit of $434,000 was recorded as a result of the
Company's net loss during the first quarter of fiscal year 2006. The amount
represents net operating loss carryforwards that management has determined is
more likely than not to be utilized to offset future taxable income.
As a result of the foregoing, our net loss decreased to $1.3 million in
the first thirteen weeks of fiscal year 2006 compared to a net loss of $2.1
million in the first thirteen weeks of fiscal year 2005. Net loss per share for
the first thirteen weeks of fiscal year 2006 and fiscal year 2005 was ($0. 44)
and ($0.70), respectively.
LIQUIDITY AND CAPITAL RESOURCES
Our principal capital requirements are to fund Perfumania's inventory
purchases, renovate existing stores, and selectively open new stores. For the
first thirteen weeks of fiscal year 2006, these capital requirements generally
were satisfied through borrowings under our credit facility.
At April 29, 2006, we had working capital of approximately $11.1 million
compared to working capital of approximately $12.5 million at January 28, 2006
and $0.3 million at April 30, 2005. The change since January 28, 2006 was
primarily due to the net loss during the current period, increased spending on
store construction and renovation and an increase in borrowings due to the
seasonality of our business.
Net cash used in operating activities during the thirteen weeks ended
April 28, 2006 was approximately $12.1 million compared with approximately $2.6
million for the same period of the prior year. We began the current fiscal year
with approximately $6.0 million less in inventory than in the prior year. The
increase in cash used in operating activities was primarily to increase our
inventory levels in anticipation of certain planned promotions during the second
quarter compared with our inventory needs of the prior year.
Net cash used in investing activities was approximately $1.5 million in
the first thirteen weeks of fiscal year 2006 compared to $1.7 million in the
first thirteen weeks of fiscal year 2005. The current period's investing
activities primarily represented spending for store remodels and renovations,
new store completions and construction in progress on new stores scheduled for
completion during the second quarter of fiscal year 2006. There were
approximately 25 stores remodeled during the first quarter of fiscal year 2006
compared to 2 stores in the first fiscal quarter of the prior year. During the
thirteen weeks ended April 29, 2006, Perfumania opened 2 new stores and
relocated an existing store compared to 4 new stores in the first quarter of the
prior year. Our focus is on improving the profitability of existing stores and
selectively opening new stores. We plan to open approximately 30 new stores and
close approximately 5 stores during the remainder of fiscal year 2006.
Net cash provided by financing activities during the thirteen weeks ended
April 28, 2006 was approximately $13.6 million compared with approximately $4.8
million for the same period of the prior year. We borrowed an additional $8.6
million on our bank line of credit to satisfy several inventory accounts payable
and accrued expenses that came due.
We believe that our cash balances, the available borrowing capacity under
our credit facility, continued extended credit terms from our affiliates 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.
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 2005 Annual Report on Form 10-K.
11
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. Those forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements of those of our industry to be materially different from any
future results, performance or achievements expressed or implied by those
forward-looking statements. Among the factors that could cause actual results,
performance or achievement to differ materially from those described or implied
in the forward-looking statements are our ability to service our obligations and
refinance our credit facility on acceptable terms, our ability to comply with
the covenants in our credit facility, general economic conditions including a
continued decrease in discretionary spending by consumers, competition,
potential technology changes, changes in or the lack of anticipated changes in
the regulatory environment in various countries, the ability to secure
partnership or joint-venture relationships with other entities, the ability to
raise additional capital to finance expansion, the risks inherent in new product
and service introductions and the entry into new geographic markets and other
factors included in our filings with the Securities and Exchange Commission (the
"SEC"), including the Risk Factors included in our 2005 Annual Report on From
10-K filed with the SEC. Those Risk Factors contained in our 2005 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 April 29, 2006, there have been no material
changes in the information about our market risks as of January 28, 2006 as set
forth in Item 7A of the 2005 Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded,
based on their evaluation as of April 29, 2006, that our disclosure controls and
procedures are effective. During the preparation of the financial statements for
the fiscal year ended January 28, 2006, 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. In addition, during the preparation of the
financial statements for the first quarter of fiscal year 2006, the Company
enhanced the design and operating effectiveness of controls relating to the
determination of accounting for modifications of its debt instruments. There
have been no additional changes in our internal control over financial reporting
during the quarter ended April 29, 2006 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.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS
Exhibits
Index to Exhibits
Exhibit No.
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.
13
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: June 9, 2006 By: By: /S/ Michael W. Katz
-------------------------------------
Michael W. Katz
President and Chief Executive Officer
(Principal Executive Officer)
By: By: /S/ A. Mark Young
-------------------------------------
A. Mark Young
Chief Financial Officer
(Principal Financial and
Accounting Officer)
14