802356--6/29/2010--PARLUX_FRAGRANCES

related topics

{customer, product, revenue}

{property, intellectual, protect}

{condition, economic, financial}

{personnel, key, retain}

{product, liability, claim}

{loan, real, estate}

{operation, international, foreign}

{cost, operation, labor}

{acquisition, growth, future}

{debt, indebtedness, cash}

{competitive, industry, competition}

{financial, litigation, operation}

{stock, price, operating}

The Paris Hilton line is our primary source of revenue following the expiration of our GUESS? license. If we are unable to acquire or license additional brands, secure additional distribution arrangements, or obtain the required financing for these agreements and arrangements, the growth of our business could be impaired. The development of new products by us involves considerable costs and any new product may not generate sufficient consumer interest and sales to become a profitable brand or to cover the costs of its development. We depend on a relatively small number of customers for most of our revenue, therefore if any of our significant customers reduced their demand for our products or became financially unstable it may have a material adverse effect on our business. The loss of or interruption in our arrangements with our manufacturers, suppliers and customers could have a material adverse affect on our sales, profitability, and operating cash flow. The fragrance and cosmetic industry is highly competitive, and if we are unable to compete effectively it could have a material adverse effect on our sales, profitability, operating cash flow, and many other aspects of our business, prospects, results of operations and financial condition. Our net sales, operating income and inventory levels fluctuate on a seasonal basis and a decrease in sales or margins during our peak seasons could have a disproportionate effect on our overall financial condition and results of operations. The continued consolidation of the U.S. department store segment could have a material adverse effect on our sales and profitability. Our customers inability to pay their accounts payable balance due to us could have an adverse effect on our financial condition and results of operations. Consumers have reduced discretionary purchases of our products as a result of the general economic downturn, and may further reduce discretionary purchases of our products in the event of further economic decline, terrorism threats or other external factors. Our New Loan Agreement contains restrictive and financial covenants that could adversely affect our ability to borrow funds under the New Loan Agreement or adversely affect our business by limiting our flexibility. Failure to manage inventory effectively could negatively impact our operations. The value of our long-lived assets, including brand licenses and trademarks, may be adversely affected if we experience declines in operating results or experience significant negative industry or economic trends. If we are unable to protect our intellectual property rights, specifically trademarks and trade names, our ability to compete could be negatively impacted. The accessories market, specifically, watches, handbags, and sunglasses, is also highly competitive and if we are unable to compete effectively it 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 and our relationships with our customers. Our success depends, in part, on the quality and safety of our fragrance and related products. We are subject to risks related to our international operations. Reductions in worldwide travel could hurt sales volumes in our duty-free related business. If we lose the services of our executive officers and senior management, it could have a negative impact on our business. If we lose our key personnel, or fail to attract and retain additional qualified experienced personnel, we will be unable to continue to develop our prestige fragrance products and attract and obtain new licensing partners. We may unknowingly infringe on others intellectual property rights which could result in litigation. We are involved in litigation from time to time in the ordinary course of business, which, if the outcome of such litigation is adverse to us, could materially adversely affect our business, results of operations, financial condition, and cash flows. Our quarterly results of operations could fluctuate significantly due to retailing peaks related to gift giving seasons and delays in new product launches, which could adversely affect our stock price. Our business is subject to regulation in the United States and internationally. Our stock price has been volatile.

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802356--6/29/2010--PARLUX_FRAGRANCES_INC