| E COM VENTURES INC 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 |
| 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 |
| 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 |
| 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 &apos 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 |
| Perfumaniaapstas 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 Perfumaniaapstas 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 Perfumaniaapstas 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 40prca and 53prca, respectively, of Perfumaniaapstas 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 |
| Perfumaniaapstas 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 Perfumaniaapstas 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 Perfumaniaapstas business and results of operations |
| 7 Our stock price volatility could result in securities class action litigation, substantial cost, and diversion of managementapstas 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 Perfumaniaapstas 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 |
| Perfumaniaapstas 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 managementapstas 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 |