10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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Form 10-K

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ý

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

For Fiscal Year Ended March 31, 2006

OR

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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from ___________ to ___________

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PARLUX FRAGRANCES, INC.

(Exact name of registrant as specified in its charter)

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DELAWARE	0-15491	22-2562955
(State or other jurisdiction of incorporation or organization)	(Commission File Number)	(I.R.S. Employer Identification No.)

3725 SW 30th Avenue, Ft. Lauderdale, FL  33312

(Address of principal executive offices)(zip code)

(954) 316-9008

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Name of Exchange on which registered
None	None
Securities registered pursuant to Section 12(g) of the Act:		Common Stock (par value $.01 per share)
		Title of Class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES ¨  NO ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. YES ¨  NO ý

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 ý  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. YES ¨  NO ý

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 ý     Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨  NO ý

As of September 30, 2005, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $170,585,000 based on a closing sale price of $29.14 [average bid and asked price] as reported on the National Association of Securities Dealers Automated Quotation System.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class	Outstanding at July 21, 2006
Common Stock, $ .01 par value per share	18,154,636 shares

DOCUMENTS INCORPORATED BY REFERENCE

Document	Parts Into Which Incorporated
Proxy Statement for the Annual Meeting of Shareholders to be held October 13, 2006	Part III

The information required by Part III (Items 10, 11, 12 & 13) is incorporated by reference from the registrant’s definitive proxy statement (to be filed pursuant to Regulation 14A).

TABLE OF CONTENTS

Page

PART I

PART II

PART III

PART IV

FORWARD-LOOKING STATEMENTS

Certain statements within this Form 10-K, which are not historical in nature, 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. All forward-looking statements are based on current expectations regarding important risk factors. Investors are cautioned that forward-looking statements involve such risks and uncertainties, which may affect our business and prospects, including economic, competitive, governmental, technological and other factors included in our filings with the Securities and Exchange Commission, including the Risk Factors included in this Annual Report of Form 10-K. Accordingly, actual results may differ materially from those expressed in th e forward-looking statements, and the making of such statements should not be regarded as a representation by the Company or any other person that the results expressed in the statements will be achieved. We do not undertake any obligation to update the information herein, which speaks only as of this date.

Item 1.

BUSINESS

Parlux Fragrances, Inc. (the “Company”), was incorporated in Delaware in 1984 and is engaged in the creation, design, manufacture, distribution and sale of prestige fragrances and beauty related products marketed primarily through specialty stores, national department stores and perfumeries on a worldwide basis. The fragrance market is generally divided into a prestige segment (distributed primarily through department and specialty stores) and a mass market segment (primarily chain drug stores, mass merchandisers, smaller perfumeries and pharmacies). Our fragrance products are positioned primarily in the prestige segment. Additionally, we distribute certain brands through Perfumania Inc. (“Perfumania”), a wholly-owned subsidiary of E Com Ventures, Inc. (“ECMV”), a company in which our Chairman and Chief Executive Officer (“CEO”) had a significant shareholder interest and held identical management positions until February 2004, when he sold most of his shares in ECMV to the new majority owners. Shortly thereafter, Mr. Lekach resigned from the ECMV board and was terminated as CEO, without cause, as a result of the change in management. Mr. Lekach currently maintains an approximate 9% ownership interest in ECMV. We currently maintain an approximate 13% ownership interest in ECMV and accordingly, all transactions with ECMV or Perfumania are treated as “Related Party” transactions. Perfumania is a specialty retailer of fragrances in the United States and Puerto Rico.

During the fiscal year ended March 31, 2006, we engaged in the manufacture (through sub-contractors), distribution and sale of PERRY ELLIS, PARIS HILTON, GUESS?, OCEAN PACIFIC, MARIA SHARAPOVA, and XOXO fragrances and grooming items on an exclusive basis as a licensee. We also have rights to distribute ROYAL COPENHAGEN fragrances in the U.S. department store market. See “Licensing Agreements” on pages 6-8 for further discussion. Additionally, we previously manufactured, distributed and sold our own brand, CHALEUR D’ANIMALE (“Animale”) fragrance, and FRED HAYMAN BEVERLY HILLS (“FHBH”) fragrances on a worldwide basis. See page 8 for further discussions of transactions relating to the FHBH and Animale brands.

As further discussed below, we have recently expanded our product offerings into cosmetics and the luxury goods market, specifically, watches, handbags, purses, small leather goods, and sunglasses. Such products, which have similar distribution channels to our fragrance products, could strengthen our position with our current customers and distributors while providing incremental sales volume.

Our executive offices are located at 3725 S.W. 30^th Avenue, Fort Lauderdale, Florida 33312, our telephone number is (954) 316-9008, and our business internet address is www.parlux.com. Through our business website, under “Corporate”, 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 are also available at www.sec.gov. In addition, we have made our Code of Business Conduct and Ethics available through our website under “Corporate Governance”. The reference to our website does not constitute incorporation by reference of the information contained on o ur website, and the information contained on the website is not part of this Form 10-K.

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Recent Developments

On May 17, 2006, we announced a two-for-one stock split of common stock in the form of a dividend, for shareholders of record on May 31, 2006 (the “Stock Split”). The Stock Split was effected on June 16, 2006 and did not include shares held in treasury. All discussions concerning common stock, earnings per share, and outstanding shares throughout this Annual Report as well as comparable share information, have been adjusted to reflect the Stock Split.

On June 30, 2006, we received a Nasdaq Staff Determination notice from the Nasdaq Stock Market Listing Qualifications Department that the Company’s failure to timely file its Annual Report on Form 10-K for the year ended March 31, 2006 violated Nasdaq Marketplace Rule 4310(c)(14). As a result, the Company’s common stock was subject to delisting from Nasdaq National Market at the opening of business on July 11, 2006, unless we requested a hearing in accordance with Nasdaq Marketplace Rules. We requested a hearing before the Nasdaq Listing Qualifications Panel to review the Staff Determination, which automatically deferred the delisting of our common stock pending the Panel’s review and determination. Parlux’s common stock will continue to be traded on The Nasdaq National Market until the Panel issues a determination and any exception granted by the Panel has expired.

On June 14, 2006, our Board of Directors received an unsolicited letter from our Chairman and CEO, Mr. Ilia Lekach, representing PF Acquisition of Florida LLC (“PFA”), pertaining to the possible acquisition of all of the outstanding common stock of the Company at a proposed price of $29.00 ($14.50 after the Stock Split) per share in cash (the “Proposal”), representing a premium of 55% over the closing price of our common stock on June 13, 2006. The Proposal was subject to financial and other contingencies, and was referred to the Special Committee of Independent Directors of the Parlux Board of Directors (the “Committee”). On June 20, 2006, the Committee, through their counsel, sent a response to the Proposal, which indicated that the Committee did not believe it was prudent for the Company to move forward to consider the Proposal due to the contingencies therein, and requested removal of such as well as a deposit to cover the Company’s expenses that may be required to evaluate the Proposal.

On July 12, 2006, the Committee received a letter from PFA stating that, due to corporate developments occurring with respect to the potential acquisition of certain of the Company’s brands, Mr. Lekach was withdrawing the Proposal.

On June 21, 2006, we were served with a shareholder’s class action complaint (the “Class Action”) filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida by Glen Hutton, purporting to act on behalf of himself and other public stockholders of the Company, and a stockholder derivative action (the “Derivative Action”) filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida by NECA-IBEW Pension Fund, purporting to act derivatively on behalf of the Company.

The Class Action names Parlux Fragrances, Inc. as a defendant, along with Ilia Lekach, Frank A. Buttacavoli, Glenn Gopman, Esther Egozi Choukroun, David Stone, Jaya Kader Zebede and Isaac Lekach, each of whom is a director of the Company. The Class Action relates to the Proposal. The Class Action seeks equitable relief for inadequate and unfair consideration, without full disclosure of all material information, to the detriment of the public shareholders, all in breach of defendants’ fiduciary duties. The Class Action alleges that the Proposal is solely designed to ensure that the Company’s management completes the Proposal despite the fact that the consideration called for in the Proposal is unfair to the public shareholders and the Company’s public shareholders have not been provided with all material information concerning the Proposal necessary for them to make an informed decision.

The Derivative Action names the identical defendants as the Class Action and also relates to the Proposal. The Derivative Action seeks to remedy the alleged breaches of fiduciary duties, waste of corporate assets, and other violations of law and seeks injunctive relief from the Court appointing a receiver or other truly neutral third party to conduct and/or oversee any negotiations regarding the terms of the Proposal, or any alternative transaction, on behalf of the Company and its public shareholders, and to report to the Court and plaintiff’s counsel regarding the same. The Derivative Action alleges that the unlawful plan to attempt to buy out the public shareholders of the Company without having proper financing in place, and for inadequate consideration, violates applicable law by directly breaching and/or aiding the other defendants’ breaches of their fiduciary duties of loyalty, candor, due care, independence, good faith a nd fair dealing, causing the complete waste of corporate assets, and constituting an abuse of control by the defendants.

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The Company and the other named defendants engaged experienced Florida securities counsel and intend to respond to the Class Action and the Derivative Action in due course, but based on the allegations in the complaints and the information presently known to the Company, we believe they are without merit.

On July 22, 2005, we finalized an agreement with SGII, Ltd. (an unrelated Florida limited partnership), to purchase for approximately $14 million certain real property in Sunrise, Florida (the “Sunrise Facility”),  approximately ten miles from our current office and distribution center location in Fort Lauderdale. The property, which we intended to use as our corporate headquarters and main distribution center, includes approximately 15 acres of land and a 150,000 square foot distribution center, with existing office space of 15,000 square feet. The purchase price included certain office furniture and warehouse packing and conveyor systems. At signing, we paid a deposit of $1 million. On December 29, 2005, we closed on the property acquisition, financing $12.75 million under a fifteen year conventional mortgage with GE Commercial Finance Business Property Corporation at a fixed interest rate of 5.87%.

As a result of various factors including our continuing growth, the increase in trucking costs resulting primarily from the increase in fuel prices and South Florida’s susceptibility to major storms, management and the Company’s Board of Directors determined that it would be more cost effective and prudent to relocate a significant part of our warehousing and distribution activities to the New Jersey area, close to where the Company’s products are filled and packaged. Accordingly, on April 17, 2006, we entered into a five-year lease, commencing approximately August 1, 2006, for 198,500 square feet of warehouse space in Keasbey, New Jersey, to also serve as a backup information technology site if the current Fort Lauderdale, Florida location were to encounter unplanned disruptions. See “Properties” for further discussion.

On May 15, 2006, we entered into an agreement to sell the Sunrise Facility for $15 million receiving a non-refundable deposit of $250,000 from the buyer. The sale was completed on June 21, 2006 and the mortgage was repaid.

During the fiscal year ended March 31, 2006, we entered into exclusive worldwide license agreements to develop, manufacture, and distribute cosmetics and handbags, purses, wallets and other small leather goods for Ms. Paris Hilton. We also recently entered into another exclusive license agreement with Ms. Hilton for sunglasses. See “Licensing Agreements” for further discussion. During December 2005, we commenced sales of watches, and during March 2006, we commenced sales of handbags, both under the Paris Hilton brand.

At September 30, 2005, the end of the second quarter of our current fiscal year, our market capitalization exceeded $75 million, and as such, we became an accelerated filer under Rule 12b-2 of the Exchange Act of 1934, as amended. Under Section 404 of the Sarbanes-Oxley Act of 2002, as an accelerated filer, we are required to perform an assessment of, and complete testing on, our internal controls over financial reporting and report our conclusions on the effectiveness of such controls for the first time at the end of our current fiscal year which ended March 31, 2006. In addition, our independent registered public accounting firm must assess management’s process for evaluating and testing its internal controls, as well as perform their own testing and report on their conclusions.  See Item 9A for further discussion.

The Products

At present, our principal products are fragrances, which are distributed in a variety of sizes and packaging. In addition, beauty-related products such as body lotions, creams, shower gels, deodorants, soaps, and dusting powders complement the fragrance line. Our basic fragrance products generally retail at prices ranging from $20 to $65 per item.

We design and create fragrances using our own staff and independent contractors. We supervise the design of our packaging by independent contractors to create products appealing to the intended customer base. The creation and marketing of each product line is closely linked with the applicable brand name, its positioning and market trends for the prestige fragrance industry. This development process usually takes twelve to eighteen months to complete. During fiscal 2006, we completed the design process for 360 BLACK, for both women and men (new products under the PERRY ELLIS brand), which launched in winter 2005, PARIS HILTON “Just Me” for both women and men, which launched in winter 2005, GUESS? for both women and men, which launched in summer 2005 and spring 2006, respectively, and Maria Sharapova for women, which launched in summer 2005.

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During the last three fiscal years, the following brands have accounted for 10% or more of our gross sales in a given year:

	Fiscal 2006	Fiscal 2005	Fiscal 2004
PERRY ELLIS	41%	75%	81%
PARIS HILTON	41%	11%	—
GUESS?	12%	—	—
OCEAN PACIFIC	4%	11%	13%

Under a separate license agreement, we developed a line of “limited edition” watches under the Paris Hilton brand which were introduced during the 2005 holiday season. We are working closely with several watch manufacturers to establish products at different price levels. The initial “limited edition” products retail at prices ranging from $100,000 to $150,000. A “fashion watch” is now available for sale, and retails at prices ranging from $85 to $200 per item. We anticipate selling the “fashion watch” directly to U.S. department store customers through our own sales force and will continue to enter into distribution agreements for international markets.

In addition, we entered into various distribution agreements in connection with our license with Ms. Hilton for handbags, purses, wallets, and other small leather goods, which recently commenced shipments in the U.S. Launches are anticipated internationally over the next few months. We are currently analyzing different options for cosmetics and sunglasses under agreements with Ms. Hilton, to determine the most efficient and profitable method to produce and distribute such products.

Marketing and Sales

In the United States, we have our own fragrance sales and marketing staff, and utilize independent commissioned sales representatives for sales to domestic U.S. military bases and mail order distribution. We sell directly to retailers, primarily national and regional department stores, whom we believe will maintain the image of our products as prestige fragrances. Our products are sold in over 2,000 retail outlets in the United States. Additionally, we sell a number  of our products to Perfumania, which is a specialty retailer of fragrances with approximately 240 retail outlets principally located in manufacturers’ outlet malls and regional malls in the U.S. and in Puerto Rico (see “Customers” section for further discussion).

We have a distribution agreement with an unrelated third party to market and distribute handbags in the United States, and we anticipate utilizing a combination of our own sales force and independent commissioned sales representatives to reach the market for watches and sunglasses.

Outside the United States, marketing and sales activities for all of our products are conducted through distribution agreements with independent distributors, whose activities are monitored by our international sales staff. We presently market our fragrances through distributors in Canada, Europe, the Middle East, Asia, Australia, Latin America, the Caribbean and Russia, covering over 80 countries. Sales to unrelated international customers amounted to approximately 69%, 67%, and 75% of our total net sales to unrelated customers during the fiscal years ended March 31, 2006, 2005 and 2004, respectively.

We advertise directly, and through cooperative advertising programs in association with major retailers, in fashion media on a national basis and through retailers’ statement enclosures and catalogues. We are required to spend certain minimum amounts for advertising under certain licensing agreements. See “Licensing Agreements” and Note 8(B) to the Consolidated Financial Statements.

Raw Materials

Raw materials and components (“raw materials”) for our fragrance products are available from sources in the United States, Europe, and the Far East. We source the raw materials, based on our estimates of anticipated needs for finished goods, from independent suppliers, which are delivered directly to third party contract manufacturers who produce and package the finished products. As is customary in our industry, we do not have long-term agreements with our contract manufacturers. We anticipate purchasing almost all of our watch and handbag finished products from the Far East. We believe we have good relationships with all of our manufacturers and that there are alternative sources available should one or more of these manufacturers be unable to produce at competitive prices.

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To date, we have had little difficulty obtaining raw materials at competitive prices. There is no reason to believe that this situation will change in the near future, but there can be no assurance this will continue.

Seasonality

Typical of the fragrance industry, we have our highest sales as our customers purchase our products in advance of the Mother’s and Father’s Day periods and the calendar year end holiday season.  Lower than projected sales during these periods could have a material adverse effect on our operating results.

Industry Practices

It is an industry practice in the United States for businesses that market fragrances to department stores to provide the department stores with rights to return merchandise. Our fragrance products are subject to such return rights. It is our practice to establish reserves and provide allowances for product returns at the time of sale based on historical return patterns. We believe that such reserves and allowances are adequate based on past experience; however, no assurance can be made that reserves and allowances will continue to be adequate or that returns will not increase. Consequently, if product returns are in excess of the reserves and allowances provided, net sales will be reduced when such fact becomes known.

Customers

We concentrate our fragrance sales efforts in the United States in a number of regional department store retailers including, among others, Belk, Bon Ton, Boscovs, Carson’s, Famous Barr, Filene’s, Foley’s, Hecht’s, J.C. Penney, Lord & Taylor, Macy’s, Parisians, Marshall Fields, Robinsons, and Stage Door. We also sell directly to perfumery and cosmetic retailers, including Perfumania, Sephora and Ulta, as well as the GUESS? And Perry Ellis retail stores. Retail distribution has been targeted by brand to maximize potential revenue and minimize overlap between each of these distribution channels.

Our international sales efforts are carried out through distributors in over 80 countries, the main focus of which has been in Latin America, Canada, Europe, Asia, Australia, the Middle East, the Caribbean and Russia, including a related party for the Mexican market. These distributors sell our products to the local department stores as well as to numerous perfumeries in the local markets. Some of these distributors will also sell our watches, handbags and sunglass products, and we continue to negotiate agreements with new distributors who specialize in such products.

During the fiscal years ended March 31, 2006, 2005 and 2004, we had net sales of $23,517,313, $35,330,772 and $31,964,407, respectively, to Perfumania, which represented 13%, 35% and 40%, respectively, of our net sales for the periods. Perfumania is one of our largest customers and transactions with them are closely monitored by our Audit Committee and Board of Directors. Perfumania offers us the opportunity to sell our products in approximately 240 retail outlets and our terms with Perfumania take into consideration the companies’ over 15 year relationship. Pricing and terms with Perfumania reflect (a) the volume of Perfumania’s purchases, (b) a policy of no returns from Perfumania, (c) minimal spending for advertising and promotion, (d) exposure of our products provided in Perfumania’s store windows, and (e) minimal distribution costs to fulfill Perfumania orders shipped directly to their distribution center.

While our invoice terms to Perfumania are net ninety days, for over ten years, the Board of Directors has granted longer payment terms taking into consideration the factors discussed above. Our Board of Directors evaluates the credit risk involved and imposes a specific dollar limit, which is determined based on Perfumania’s reported results and comparable store sales performance. Management monitors the account activity to ensure compliance with the Board limit.

Net trade accounts receivable owed by Perfumania to us amounted to $8,506,303, $8,566,939 and $10,890,338 at March 31, 2006, 2005 and 2004, respectively. Trade accounts receivable from Perfumania are non-interest bearing, and are paid in accordance with the terms established by our Board of Directors. See “Liquidity and Capital Resources” for further discussion of this receivable.

ECMV’s financial statements included in its Annual Report on Form 10-K for the year ended January 28, 2006, reflect pre-tax income of approximately $6.6 million compared to $3.3 million in the prior year. We continue to evaluate our credit risk and assess the collectibility of the Perfumania receivable. Perfumania’s reported financial information, as well as our payment history with Perfumania, indicates that, historically, their first quarter ending

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approximately April 30, is Perfumania’s most difficult operating quarter as is the case with most U.S. based retailers. We have, in the past, received significant payments from Perfumania during the last three months of the calendar year, and have no reason to believe that this will not continue. Based on our evaluation, no allowances have been recorded as of March 31, 2006 and 2005. We will continue to evaluate Perfumania’s financial condition on an ongoing basis and consider the possible alternatives and effects, if any, on the Company.

We own 378,101 shares of ECMV common stock, which is an available-for-sale security and is reflected as an “investment in affiliate” in the accompanying consolidated balance sheets. As of March 31, 2006, the fair market value of the investment was $6,900,343 or $18.25 per share ($4,764,073 or $12.60 per share as of March 31, 2005), based on the quoted market price of the shares. Our adjusted cost basis (after a non-cash charge to earnings during fiscal 2002 of $2,858,447, which was reported as another-than-temporary decline in the value of the investment) for the shares is $1,648,523 or $4.36 per share.

As of July 21, 2006, the fair market value of the investment in ECMV was $5,104,364 ($13.50 per share).

Foreign and Export Sales

During the years ended March 31, 2006, 2005, and 2004, gross sales to unrelated international customers were approximately $77,681,000, $31,619,000, and $28,356,000, respectively. During the fiscal year ended March 31, 2004, we increased our attention to the Mexican marketplace and engaged a distributor for Mexico in lieu of a commissioned representative. The Mexican distributor is owned and operated by individuals related to our Chairman and Chief Executive Officer. Sales to this distributor during the fiscal years ended March 31, 2006, 2005 and 2004, which are included in related party sales, amounted to approximately $12,734,000, $9,000,000 and $3,966,000, respectively, and are in addition to the sales to unrelated international customers noted above.

Licensing Agreements

See “The Products” on page 3 for further discussion of the relative importance of our license agreements.

PERRY ELLIS: We acquired the Perry Ellis license in December 1994. The license renews automatically every two years if average annual net sales in the preceding two-year license period exceed 75% of the average net sales of the previous four years. All minimum sales levels have been met; based on our current sales projections, management believes that this will continue. The license requires the payment of royalties, which decline as a percentage of net sales as net sales volume increases, and the spending of certain minimum amounts for advertising based upon net sales levels achieved in the prior year.

PARIS HILTON: On May 4, 2004, we entered into a letter of intent with Ms. Paris Hilton (“PH”), to develop, manufacture and distribute prestige fragrances and related products, on an exclusive basis, under her name. Effective June 1, 2004, we entered into a definitive license agreement with Paris Hilton Entertainment, Inc. (“PHEI”), which expires on June 30, 2009. The agreement is renewable for an additional five-year period. The first PH women’s fragrance was launched during November 2004, and was followed by a launch of a men’s fragrance in April 2005.

On January 26, 2005, we entered into an exclusive worldwide license agreement with PHEI, to develop, manufacture and distribute watches and other time pieces under the Paris Hilton name. The initial term of the agreement expires on June 30, 2010 and is renewable for an additional five-year period. The first “limited edition” watches under this agreement were launched during December 2005 and a line of “fashion watches” launched during spring 2006.

On May 11, 2005, we entered into an exclusive worldwide license agreement with PHEI, to develop, manufacture and distribute cosmetics under the Paris Hilton name. The initial term of the agreement expires on January 15, 2011 and is renewable for an additional five-year period. We anticipate the first cosmetics under this agreement will be launched during fall 2006.

On May 13, 2005, we entered into an exclusive worldwide license agreement with PHEI, to develop, manufacture and distribute handbags, purses, wallets and other small leather goods, under the Paris Hilton name. The initial term of the agreement expires on January 15, 2011 and is renewable for an additional five-year period. We anticipate the first products under this agreement will be launched during summer 2006.

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On April 5, 2006, we entered into an exclusive worldwide license agreement with PHEI, to develop, manufacture and distribute sunglasses under the Paris Hilton name. The initial term of the agreement expires on January 15, 2012 and is renewable for an additional five-year period. We anticipate the first sunglasses under this agreement will be launched during spring 2007.

Under all of the PHEI Agreements, we must pay a royalty and spend minimum amounts for advertising based on sales volume.

GUESS: Effective November 1, 2003, we entered into an exclusive license agreement with GUESS? And GUESS? IP HOLDER L.P., to develop, manufacture and distribute prestige fragrances and related products on a worldwide basis. The term of the agreement continues through December 2009, and is renewable for an additional five years if certain sales levels are met.

Under the GUESS? Agreement, we must pay a royalty and spend minimum amounts for advertising based on sales volume. The first GUESS? Women’s fragrance was launched during July 2005, which was followed by a launch of a men’s fragrance in March 2006.

OCEAN PACIFIC: In August 1999, we entered into an exclusive worldwide licensing agreement with Ocean Pacific Apparel Corp. (“OP”), to manufacture and distribute men’s and women’s fragrances and other related products under the OP label. The initial term of the agreement extended through December 31, 2003, and was automatically renewed for an additional three-year period. We have six additional three-year renewal options, of which the first two contain automatic renewals at our option, and the last four require the achievement of certain minimum net sales. The license requires the payment of royalties, which decline as a percentage of net sales as net sales volume increases, and the spending of certain minimum amounts for advertising based upon annual net sales of the products.

XOXO: Effective January 6, 2005, we entered into a purchase and sale agreement (the “Purchase Agreement”) with Victory International (USA), LLC (“Victory”), whereby we acquired the exclusive worldwide licensing rights, along with inventories, molds, designs and other assets, relating to the XOXO fragrance brand. As consideration, we paid Victory approximately $7.46 million, of which $2.55 million was in the form of a 60-day promissory note payable in two equal installments on February 6 and March 6, 2005. The payments were made as scheduled. The value allocated to the licensing rights was $5,800,000.

Victory had previously entered into a license agreement with Global Brand Holdings, LLC (the “Fragrance License”) to manufacture and distribute XOXO branded fragrances. The first XOXO fragrances were introduced by Victory during December 2004. The term of the Fragrance License continues through June 30, 2007, and is renewable for an additional three-year period. Under the Purchase Agreement, Victory assigned its rights, and we assumed the obligations, under the Fragrance License, which requires the payment of a royalty and minimum spending for advertising.

During June 2006, we extended the contract through June 30, 2010 and negotiated renewal terms which, among other items, reduced minimum royalty requirements.

MARIA SHARAPOVA: On September 15, 2004, we entered into an exclusive worldwide license agreement with Ms. Maria Sharapova, to develop, manufacture and distribute prestige fragrances and related products under her name. The initial term of the agreement expires on June 30, 2008 and is renewable for an additional three-year period. The first fragrance under this agreement was launched in September 2005. Under the Sharapova agreement, we must pay a royalty and spend minimum amounts for advertising based on sales volume.

ANDY RODDICK: On December 8, 2004, we entered into an exclusive worldwide license agreement with Mr. Andy Roddick, to develop, manufacture and distribute prestige fragrances and related products under his name. The initial term of the agreement, as amended, expires on September 30, 2009 and is renewable for an additional three-year period. We anticipate that the first fragrance under this agreement will be launched during fall 2006. Under the Roddick agreement, we must pay a royalty and spend minimum amounts for advertising based on sales volume.

babyGUND: Effective April 6, 2005, we entered into an exclusive license agreement with GUND, Inc., to develop, manufacture and distribute children’s fragrances and related products on a worldwide basis under the babyGund trademark. The agreement continues through June 2010, and is renewable for an additional two years if certain sales levels are met. We anticipate that the first products under this agreement will be launched during fall

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2006. Under the babyGund agreement, we must pay a royalty and spend minimum amounts for advertising based on sales volume.

FRED HAYMAN: In June 1994, we entered into an Asset Purchase Agreement with Fred Hayman Beverly Hills, Inc. (FHBH), purchasing substantially all of the assets and liabilities of the FHBH fragrance division. In addition, FHBH granted us an exclusive royalty free 55-year license to use FHBH’s United States Class 3 trademarks Fred Haymanâ, 273â, Touchâ, With Loveâ and Fred Hayman Personal Selectionsâ and the corresponding international registrations. There are no minimum sales or advertising requirements.

On March 28, 2003, we entered into an exclusive agreement to sublicense the FHBH rights to Victory for a royalty of 2% of net sales, with a guaranteed minimum annual royalty of $50,000 (the “Sublicense”). The initial term of the Sublicense is for five years, renewable every five years at the sublicensee’s option.

The Sublicense excluded the right to “273 Indigo” for men and women, the latest fragrance introduction for the FHBH brand, as well as all new FHBH product development rights.

On October 17, 2003, the parties amended the Sublicense, granting new FHBH product development rights to the sublicensee. In addition, the guaranteed minimum annual royalty increased to $75,000 and the royalty percentage on sales of new FHBH products was increased to 3% of net sales.

JOCKEY INTERNATIONAL: On March 23, 2001, we entered into an exclusive worldwide licensing agreement with Jockey International, Inc. (“Jockey”), to manufacture and distribute men’s and women’s fragrances and other related products under the Jockeyâ label. The initial term of the agreement extended through December 31, 2004, with three (3) three-year renewal options. The license required the payment of royalties, which declined as a percentage of net sales as net sales volume increases, and the spending of certain minimum amounts for advertising based upon annual net sales of the products. We launched Jockey fragrances for women and men during the first calendar quarter of 2002. We did not exercise the renewal option as market penetration of the brand did not meet our expectations. We have no further liability under the Jockey agreement.

ROYAL COPENHAGEN: On September 1, 2003, the Company entered into an agreement with Five Star Fragrances Company, Inc. (“Five Star”), to market and distribute Royal Copenhagen fragrance products to the U.S. department store market. The original term of the agreement is for three years, with an option to renew for one additional year. Five Star has elected to terminate the agreement as of July 31, 2006. There are no royalties, sales minimums or advertising commitments under this agreement. In accordance with the terms of the agreement, Five Star is required to repurchase all of our unsold Royal Copenhagen inventory at our cost.

We believe we are in compliance with all material obligations under the above agreements. There can be no assurance that we will be able to continue to comply with the terms of these agreements in the future.

Trademarks

We have exclusive licenses, as discussed above, to use trademark and tradename rights in connection with the packaging, marketing and distribution of our products, both in the United States and internationally where such products are sold. See “The Products” on page 3 for further discussion of the relative importance of these licenses.

In addition, we own the worldwide trademark and distribution rights to LIMOUSINE fragrances. There are no licensing agreements requiring the payment of royalties to us for this trademark. We have not distributed fragrance products under the LIMOUSINE brand since fiscal 1998, nor do we anticipate distribution in the near future.

On January 16, 2003, we entered into an agreement with the Animale Group, S.A., to sell the inventory, promotional materials, molds, and trademarks relating to the Animale brand (we owned the worldwide trademarks and distribution rights prior to the sale) for $4,000,000, which closely approximated the brand’s net book value at the date of sale. At closing, the purchaser paid $2,000,000 in cash and provided a $2,000,000 note payable in twelve equal monthly installments of $166,667, plus interest at prime plus 1%, through January 31, 2004. The note was repaid in full in accordance with its terms.

As part of the agreement we retained the right to sell Chaleur d’Animale, the Animale brand’s newest product introduction, and maintained the rights to manufacture and distribute this product line, on a royalty-free

8

basis, until January 2005, at which time we destroyed all remaining inventory (which amount was not significant) and wrote off intangibles relating to this brand, which had been fully amortized.

Product Liability

We have insurance coverage for product liability in the amount of $5 million per incident. We maintain an additional $5 million of coverage under an “umbrella” policy. We believe that the manufacturers of the products sold by us also carry product liability coverage and that we effectively are protected thereunder.

There are no pending and, to the best of our knowledge, no threatened product liability claims of a material nature.  Over the past ten years, we have not been presented with any significant product liability claims. Based on this historical experience, management believes that its insurance coverage is adequate.

In connection with our PH fashion watch business, we will provide a one-year warranty on the watch mechanism and anticipate that repair service would be handled by an outside third party, as necessary. We could also opt to replace the watch if we consider this action to be more cost beneficial.

Government Regulations

A fragrance is defined as a “cosmetic” under the Federal Food, Drug and Cosmetics Act (the “FDC Act”). A fragrance must comply with the labeling requirements of the FDC Act as well as the Fair Packaging and Labeling Act and its regulations. Under U.S. law, a product may be classified as both a cosmetic and a drug. If we produce such products, there would be additional regulatory requirements for products which are “drugs” including additional labeling requirements, registration of the manufacturer and the semi-annual update of a drug list.

Effective March 11, 2005, we were required to comply with the labeling, durability and non-animal testing guidelines from the European Cosmetic Toiletry and Perfumery Association (“COLIPA”) Amendment No. 7, to distribute our products in the European Union (“EU”). We have created “safety assessor approved” dossiers for all our products to be distributed in the EU, and have filed such documentation both domestically and with our agent in France. In addition to the EU specific requirements, we comply with all other significant international requirements.

Competition

The market for fragrance and beauty related products is highly competitive and sensitive to changing consumer preferences and demands. We believe that the quality of our fragrance products, as well as our ability to develop, distribute and market new products, will enable us to continue to compete effectively in the future and to continue to achieve positive product reception, position and inventory levels in retail outlets. We believe we compete primarily on the basis of product recognition and emphasis on providing in-store customer service. However, there are products, which are better known than the products distributed by us. There are also companies, which are substantially larger and more diversified (the September 2005 issue of “WWD Beauty Biz” lists the 70 largest companies in the world ranked by total beauty sales. The top 26 companies in the listing have sales levels exceeding $1 billion, with the 70^th largest at $128 million) and which have substantially greater financial and marketing resources than us, as well as greater name recognition, with the ability to develop and market products similar to, and competitive with, those distributed by us.

Employees

As of March 31, 2006, we had a total of 144 full-time and part-time employees, all of which were located in the United States. Of these, 57 were engaged in worldwide sales activities, 57 in operations, marketing, administrative and finance functions and 30 in warehousing and distribution activities. None of our employees are covered by a collective bargaining agreement and we believe that our relationship with our employees is satisfactory. We also use the services of independent contractors in various capacities, including sales representatives, as well as temporary agency personnel to assist with seasonal distribution requirements.

We have a 401-K Plan covering substantially all of our employees. We match 25% of the first 6% of employee contributions, within annual limitations established by the Internal Revenue Code.

9

Item 1A.

RISK FACTORS

The following is a discussion of some of the risk factors relating to 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 believe that our future success depends upon the continued contributions of our highly qualified sales, creative, marketing, and management personnel and on our ability to attract and retain those personnel. These individuals have developed strong reliable relationships with customers and suppliers. There can be no assurance that our current employees will continue to work for us or that we will be able to hire any additional personnel necessary for our growth. Our future success also depends on our continuing ability to identify, hire, train and retain other highly qualified managerial personnel. Competition for these employees can be intense. We may not be able to attract, assimilate or retain qualified managerial personnel in the future, and our failure to do so would limit the growth potential of our business and potential licensing partners may not be as attracted to our organization.

If the appeal of one of our celebrities would diminish, it could have a material adverse affect on future sales of that specific celebrity-branded fragrance.

During the last two fiscal years, we have entered into various license agreements with celebrities (entertainers or athletes) to develop, manufacture and distribute products under their names (see “Licensing Agreements” for further discussion). These agreements require substantial royalty commitments. During the year ended March 31, 2006, licensed Paris Hilton brand products generated approximately $76 million in gross sales. If a celebrities’ appeal would diminish, it could result in a material reduction in our sales of such products, adversely affecting our profitability and operating cash flows.

Consumers may reduce discretionary purchases of our products as a result of a general economic downturn, terrorism threats, or other external factors.

We believe that consumer spending on fragrance and other accessory products is influenced more than average by general economic conditions and the availability of discretionary income. Accordingly, we may experience sustained periods of declines in sales during economic downturns, or in the event of terrorism or diseases affecting customers’ purchasing patterns. In addition, a general economic downturn may result in reduced traffic in our customers’ stores which may, in turn, result in reduced net sales to our customers. Any resulting material reduction in our sales could have a material adverse effect on our business, its profitability or operating cash flows.

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 profitability, operating cash flow, and many other aspects of our business, prospects, results of operations and financial condition.

The fragrance and cosmetic industry is highly competitive and at times changes rapidly due to consumer preferences and industry trends. We compete primarily with global prestige fragrance companies, some of whom have significantly greater resources than we have. Our products compete for consumer recognition and shelf space with products that have achieved significant international, national and regional brand name recognition and consumer loyalty. Our products also compete with new products that often are accompanied by substantial promotional campaigns. In addition, 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 continued consolidation of the U.S. department store segment, and the transition period after such consolidation, could have a material adverse effect on our sales and profitability.

Over the last few years, the United States department store market has encountered a significant amount of consolidation, the most recent of which was the merger of Federated Department Stores and May Corp. Such mergers and consolidations have resulted in store closings, increased inventory management as well as changes in administrative responsibilities. This transition, if not completed smoothly, could have a material adverse effect on our sales and profitability.

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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.

Over the last few years, a significant number of new prestige fragrance products have been introduced on a worldwide basis. The beauty industry in general is highly competitive and consumer preferences change rapidly. The initial appeal of these new fragrances, launched for the most part in U.S. department stores, has fueled the growth of our industry. Department stores continue to lose sales to the mass market as a product matures. To counter the effect of lower department store sales, companies are required to introduce new products more quickly, which requires additional spending for development, advertising and promotional expenses. In addition, a number of the new launches are with celebrities (either entertainers or athletes) which require substantial royalty commitments and whose careers and/or appeal could change dramatically, either positively or negatively, based on a single event. If one or more of our new product introductions were to be unsuccessful, or the appeal of the celebrity were to diminish, it could result in a reduction in profitability and operating cash flows.

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.

As with fragrances and cosmetics, the accessories market is highly competitive and also changes rapidly due to consumer preferences and industry trends. In addition, we do not have the extent of experience in this market segment as we do in fragrances. We may have difficulty in sourcing these accessory items, all of which will be manufactured by independent third parties, and may not meet the quality standards expected by the licensor and/or the consumer. Additionally, the consumer awareness and positive imagery of the licensor could be impacted by adverse publicity, which could negatively impact retailer and consumer attitudes. Our lack of experience in this highly competitive market could result in a material adverse effect on our profitability, operating cash flow, and many other aspects of our business, prospects, results of operations and financial condition.

If we are unable to protect our intellectual property rights, specifically trademarks and trade names, our ability to compete could be negatively impacted.

The market for our products depends to a significant extent upon the value associated with our trademarks and trade names. We own, or have licenses or other rights to use, the material trademark and trade name rights used in connection with the packaging, marketing and distribution of our major products both in the United States and in other countries where such products are principally sold; therefore, trademark and trade name protection is important to our business. Although most of our brand names are registered in the United States and in certain foreign countries in which we operate, we may not be successful in asserting trademark or trade name protection. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States. The costs required to protect our trademarks and trade names may be substantial.

Other parties may infringe on our intellectual property rights or intellectual property rights which we are licensed to use and may thereby dilute our brands in the marketplace.

Any infringement of our intellectual property rights would likely result in a commitment of our time and resources to protect these rights through litigation or otherwise. Under our license agreement with GUESS?, we are responsible for monitoring for infringement of the GUESS? Intellectual property rights. We must take action, at our cost, to stop minor infringement, and may be liable to share a significant portion of the total cost, with GUESS?, to stop substantial infringement.

We may unknowingly infringe on others’ intellectual property rights which could result in litigation.

We may unknowingly produce and sell products in a country where another party has already obtained intellectual property rights. One or more adverse judgments with respect to these intellectual property rights could negatively impact our ability to compete and continue to sell products in the worldwide marketplace and may require the destruction of inventory produced under the infringed name, both of which would adversely affect profitability, and, ultimately operating cash flow.

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We depend on third parties for the manufacture and delivery of our products, and any disruption or interruption in this supply chain can affect production levels.

We do not own or operate any significant manufacturing facilities. We use third-party manufacturers and suppliers to manufacture most of our products. We currently obtain these products from a limited number of manufacturers and other suppliers. If we were to experience delays in the delivery of the finished products or the raw materials or components used to make such products, or if these suppliers were unable to supply product, or if there were transportation problems between the suppliers and our distribution center, our sales, profitability, and operating cash flow could be negatively impacted.

Our arrangements with our manufacturers, suppliers and customers are generally informal and if these arrangements were changed, interrupted, or terminated it could limit our supply of inventory and reduce sales, profitability and operating cash flow.

We do not have long-term or exclusive contracts with any of our customers and generally do not maintain long-term or exclusive contracts with our suppliers. Virtually all of our finished products are assembled from multiple components and manufactured by third parties. The loss of key suppliers or customers, Perfumania and other related parties (see Note 2 to the accompanying consolidated financial statements for further discussion), or a change in our relationship with them, could result in supply and inventory interruptions and reduced sales, profitability, and operating cash flows.

The loss of, or disruption in our distribution facility, could have a material adverse effect on our sales and our relationships with our customers.

We currently have one distribution facility, which is located in south Florida. We recently entered into an additional lease to relocate certain of our fragrance distribution functions to New Jersey, which is closer to where our fragrance products are filled and packaged. The loss of, or any damage to our current or future facilities, as well as the inventory stored therein, would require us to find replacement facilities and assets. In addition, weather conditions, such as hurricanes or other natural disasters, could disrupt our distribution operations. Certain of our components require purchasing lead times in excess of ninety days. 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, as well as damaging relationships with our customers who are relying on deliveries of our produ cts.

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.

We may experience variability in net sales and net income on a quarterly basis as a result of a variety of factors, including timing of customer orders and returns, sell-through of our products by the retailer to the ultimate consumer or gift giver, delays in new product launches, as well as additions or losses of brands or distribution rights. Any resulting material reduction in our sales could have an adverse effect on our business, its profitability and operating cash flows, and correspondingly, the price of our common stock.

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.

Our business strategy contemplates the continued increase of our portfolio of owned or licensed brands and distributed brands. Our future expansion through acquisitions or new product distribution arrangements, if any, will depend upon the capital resources and working capital available to us. We may be unsuccessful in identifying, negotiating, financing and consummating such acquisitions on terms acceptable to us, or at all, which could hinder our ability to increase revenues and build our business.

Reductions in worldwide travel could hurt sales volumes in our duty-free related business.

We depend on consumer travel for sales to our “duty free” customers in airports and other locations throughout the world. Any reductions in travel, including as a result of general economic downturns, or acts of war or terrorism, or epidemics such as Bird Flu or Severe Acute Respiratory Syndrome, could result in a material decline in sales and profitability for this channel of distribution, which could negatively affect our operating cash flow.

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Failure to comply with restrictive covenants in our existing credit facility will result in our inability to borrow additional funds under the facility, which would require us to obtain replacement financing, of which there is no assurance.

Our revolving 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 remain in compliance with the covenants and would not be allowed to borrow under the credit facility. If we are 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 stockholders. We may be unable to obtain replacement credit facilities on favorable terms or at all. Without a source of financing, we could experience cash flow difficulties and disruptions in our supply chain.

Complying with the Sarbanes-Oxley Act of 2002 may result in substantial costs and utilization of Company resources.

At September 30, 2005, the end of the second quarter of our current fiscal year, our market capitalization exceeded $75 million, and as such, the Company became an accelerated filer under Rule 12b-2 of the Exchange Act of 1934, as amended. Under Section 404 of the Sarbanes-Oxley Act of 2002, as an accelerated filer, the Company is required to perform an assessment of, and complete testing on, its internal controls over financial reporting  and report its conclusions on the effectiveness of such controls for the first time at the end of our current fiscal year which ended March 31, 2006. In addition, the Company’s independent registered public accounting firm must assess management’s process for evaluating and testing its internal controls, as well as perform their own testing and report on their conclusions. The cost of such compliance could result in a reduction in profitability as well as distraction t o management and employees from performing their day-to-day activities.

Item 2.

PROPERTIES

Our corporate headquarters and distribution center is located in a 100,000 square foot leased facility in Fort Lauderdale, Florida. The current annual lease cost of the facility is approximately $824,000, with the lease expiring on September 2006. During May 2006, we entered into a new five-year lease on the property, commencing October 1, 2006, at an initial annual cost of approximately $865,000, increasing approximately 2% per annum. We have an option to extend the lease for an additional five-year period with minimal rent escalations of approximately 2% per annum.

In May 2004, we leased an additional 38,000 square feet of warehouse space in Fort Lauderdale at a monthly cost of approximately $23,000. In June 2005, we leased an additional 23,000 square feet of warehouse space in the same building at a monthly cost of $21,600. Both leases expired on December 31, 2005, but were renewed through June 30, 2006, at a monthly cost of approximately $49,000 with the 38,000 square foot facility further renewed through November 2006 at a monthly cost of approximately $36,000.

In April 2005, we leased an additional 26,400 square feet of warehouse space in Fort Lauderdale at a monthly cost of approximately $17,000. The lease expired in June 2005 and we moved to the 23,000 square feet warehouse space discussed above.

On April 17, 2006, we leased an additional 198,500 square feet of warehouse space in Keasbey, New Jersey. The lease, which commences with the landlord’s obtaining a certificate of occupancy currently anticipated August 1, 2006, is for a five-year term, has an initial annual cost of approximately $1,443,000, with minimal increases after the second and fourth year of the lease. We anticipate relocating a significant part of our fragrance warehousing and distribution activities to this facility, as well as establishing a backup information technology site in case of an unplanned disruption in our South Florida facility.

See “Recent Developments” for discussion of the Sunrise facility which was sold on June 21, 2006.

Item 3.

LEGAL PROCEEDINGS

On June 21, 2006, we were served with a shareholder’s class action complaint (the “Class Action”) filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida by Glen Hutton, purporting to act on behalf of himself and other public stockholders of the Company, and a stockholder derivative action (the

13

“Derivative Action”) filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida by NECA-IBEW Pension Fund, purporting to act derivatively on behalf of the Company.

The Class Action names Parlux Fragrances, Inc. as a defendant, along with Ilia Lekach, Frank A. Buttacavoli, Glenn Gopman, Esther Egozi Choukroun, David Stone, Jaya Kader Zebede and Isaac Lekach, each of whom is a director of the Company. The Class Action relates to the proposal (previously disclosed in the Company’s June 14, 2006 Form 8-K) from PF Acquisition of Florida LLC, which is presently owned by Ilia Lekach, to acquire all of the outstanding shares of common stock of the Company for $29.00 ($14.50 after the stock split discussed below) per share in cash (the “Proposal”). The Class Action seeks equitable relief for inadequate and unfair consideration, without full disclosure of all material information, to the detriment of the public shareholders, all in breach of defendants’ fiduciary duties. The Class Action alleges that the Proposal is solely designed to ensure that the Company’s management completes the Proposal despite the fact that the consideration called for in the Proposal is unfair to the public shareholders and the Company’s public shareholders have not been provided with all material information concerning the Proposal necessary for them to make an informed decision.

The Derivative Action names the identical defendants as the Class Action and relates to the Proposal. The Derivative Action seeks to remedy the alleged breaches of fiduciary duties, waste of corporate assets, and other violations of law and seeks injunctive relief from the Court appointing a receiver or other truly neutral third party to conduct and/or oversee any negotiations regarding the terms of the Proposal, or any alternative transaction, on behalf of the Company and its public shareholders, and to report to the Court and plaintiff’s counsel regarding the same. The Derivative Action alleges that the unlawful plan to attempt to buy out the public shareholders of the Company without having proper financing in place, and for inadequate consideration, violates applicable law by directly breaching and/or aiding the other defendants’ breaches of their fiduciary duties of loyalty, candor, due care, independence, good faith and fa ir dealing, causing the complete waste of corporate assets, and constituting an abuse of control by the defendants.

The Special Committee of Independent Directors of the Board (the “Committee”), has responded to the Proposal. The Company and the other named defendants engaged experienced Florida securities counsel and intend to respond to the Class Action and the Derivative Action in due course, but based on the allegations in the complaints and the information presently known to the Company, we believe they are without merit.

On July 12, 2006, the Committee received a letter from PFA stating that, due to corporate developments occurring with respect to the potential acquisition of certain of the Company’s brands, Mr. Lekach was withdrawing the Proposal.

On December 8, 2003, we were served with a complaint (the “Complaint”) filed in the Circuit Court for the Eleventh Judicial Circuit in Miami-Dade County, which was amended on January 26, 2004. The Complaint was a derivative action, in which the nominal plaintiffs, the Macatee Family Limited Partnership and Chatham, Partners I, LP, purported to be suing for the benefit of the Company itself and all of its public shareholders. The Complaint named Parlux Fragrances, Inc. as the nominal defendant and all of the current members of the Board as the defendants. It sought damages allegedly arising out of breaches of fiduciary duties in connection with transactions involving the Company and Mr. Ilia Lekach, its Chief Executive Officer or companies in which he had an ownership interest. The Complaint sought to enjoin the Company from continuing to enter into such transactions, sought payment of costs and fees to Plaintiffs’ counsel and other unstated relief.

The Company and its Board of Directors engaged experienced Florida securities counsel to vigorously defend the action. A Motion to Dismiss the action was filed on February 27, 2004. A hearing on the Motion was held on April 14, 2004, and the Complaint was dismissed, without prejudice. The Court suggested that the Plaintiffs serve a demand upon the Company to examine the issues alleged in the Complaint rather than file an Amended Complaint, and gave the Plaintiffs thirty (30) days to file an Amended Complaint if they chose to do so. Following the order granting dismissal, the Company voluntarily furnished detailed information to Plaintiff’s counsel supporting the Company’s view that there was no legitimate basis for the claims previously asserted. Based on that submission, Plaintiffs requested additional time to consider their amendment. Additional exchanges of correspondence followed and additional extensions of time were g ranted. On June 25, 2004, the Plaintiffs filed an Amended Complaint, which was received by the Company’s counsel on June 29, 2004. The Amended Complaint, for the most part, contained similar allegations and requests for relief as included in the original Complaint. On August 12, 2004, the Company responded to the Amended Complaint denying the allegations and requesting

14

dismissal as well as reimbursement of legal fees and costs. The Plaintiffs’ initial deposition occurred on October 21, 2004.

On December 8, 2004, Plaintiff’s filed a Motion for an Interim Award of $168,824 in attorneys’ fees and reimbursement of expenses. Plaintiffs also noticed the depositions of three of our Board members, who agreed and provided dates for their appearances. Plaintiff’s counsel was informed of our rejection of their claim, which we believe was without merit.

On December 22, 2004, Plaintiffs filed for voluntary dismissal of the action against us, without prejudice. No payment was made to the Plaintiffs or Plaintiffs’ counsel by us or our insurance carrier.

To the best of our knowledge, there are no other proceedings pending against us or any of our properties which, if determined adversely to us, would have a material effect on our financial position or results of operation.

Item 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any actions for shareholders’ approval during the quarter ended March 31, 2006 or through July 21, 2006.

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PART II

Item 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our Common Stock, par value $0.01 per share, has been listed on the National Association of Securities Dealers Automatic Quotation System (“NASDAQ”) National Small Cap List market since February 26, 1987 and commenced trading on the NASDAQ National Market on October 24, 1995 (PARL).

We believe that the number of beneficial owners of our common stock is approximately 4,000, including owners of common stock whose shares are held in the names of banks, brokers, nominees or other fiduciaries.

On May 17, 2006, we announced a two-for-one stock split of common stock in the form of a dividend, for shareholders of record on May 31, 2006 (the “Stock Split”). The Stock Split was effected on June 16, 2006 and did not include shares held in treasury. All share and per share information has been retroactively adjusted to reflect the Stock Split.

The following chart, as reported by the National Association of Securities Dealers, Inc., shows the high and low bid prices for our securities available for each quarter of the last two years and the interim period from April 1, 2006 through June 30, 2006. The prices represent quotations by the dealers without adjustments for retail mark-ups, markdowns or commissions and may not represent actual transactions.

	Common Stock
Fiscal Quarter	High	Low
Fourth (Jan./Mar.) 2004	6.865	2.280
First (April/June) 2004	6.045	3.575
Second (July/Sept.) 2004	6.745	4.025
Third (Oct./Dec.) 2004	12.205	6.255
Fourth (Jan./Mar.) 2005	13.920	9.650
First (April/June) 2005	15.050	7.425
Second (July/Sept.) 2005	17.255	13.745
Third (Oct./Dec.) 2005	16.000	10.985
Fourth (Jan./Mar.) 2006	19.240	14.410
First (April/June) 2006	16.295	8.755

We have not paid a cash dividend on our common stock nor do we contemplate paying any dividend in the near future. Our loan agreement restricts payment of dividends without prior approval.

The following chart outlines the Company’s equity compensation plan information as of March 31, 2006.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders(1)		—		$   —		631,726
Equity compensation plans not approved by security holders(2)		3,440,000		$1.09		0
Total		3,440,000		$1.09		631,726

———————

⁽¹⁾

See Note 10 to the Company’s consolidated financial statements included with this filing for a discussion of the Company’s stock option plans.

⁽²⁾

See Note 8(D) to the Company’s consolidated financial statements included with this filing for a discussion of the Company’s options and warrants granted in connection with employment and consulting arrangements.

We did not repurchase any of our common stock during the quarter ended March 31, 2006. On August 16, 2004, the Company received approval from its lender to repurchase up to $8 million in share value. As of March 31, 2006, we had approximately $2.7 million remaining for repurchase. See “Liquidity” and “Capital Resources” for further discussion.

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Item 6.

SELECTED FINANCIAL DATA

The following data has been derived from audited consolidated financial statements, adjusted for the Stock Split. Consolidated balance sheets at March 31, 2006 and 2005, and the related consolidated statements of income and of cash flows for each of the three years in the period ended March 31, 2006 and notes thereto appear elsewhere in this Annual Report on Form 10-K.

				For the Year Ended March 31,
	2006			2005		2004		2003		2002
			(in thousands of dollars, except per share data)
Net sales	$	182,237		$	100,361	$	80,581	$	72,254	$	70,489
Costs/operating expenses		146,166			82,941		70,268		66,409		74,356
Operating income (loss)		36,071			17,420		10,313		5,845		(3,867	)
Net income (loss)		22,736			10,824		6,268		5,474		(5,655	)
Income (loss) per share:
Basic	$	1.27		$	0.61	$	0.40	$	0.28	$	(0.29	)
Diluted (1)	$	1.08		$	0.52	$	0.33	$	0.27	$	(0.29	)

———————

⁽¹⁾

The calculation of diluted loss per share was the same as the basic loss per share for fiscal 2002 since inclusion of potential common stock in the computation would be antidilutive.

					At March 31,
	2006		2005			2004		2003		2002
				(in thousands of dollars)
Current assets	$	153,940	$	73,762		$	63,385	$	54,875	$	61,531
Current liabilities		71,068		13,192			9,505		15,219		23,869
Working capital		82,872		60,570			53,880		39,656		37,662
Trademarks and licenses,  net		12,120		13,203			7,945		8,231		9,535
Long-term borrowings, net		—		—			—		102		962
Total assets		167,292		88,276			72,467		66,672		73,497
Total liabilities		73,578		14,895			11,226		16,379		25,573
Stockholders’ equity		93,714		73,381			61,240		50,293		47,924

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this annual report. Except for the historical matters contained herein, statements made in this annual report are forward looking and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995.

Critical Accounting Policies And Estimates

SEC Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggests companies provide additional disclosure and commentary on those accounting policies considered most critical. FRR 60 considers an accounting policy to be critical if it is important to the Company’s financial condition and results, and requires significant judgment and estimates on the part of management in its application. We believe the accounting policies described below represent our critical accounting policies as contemplated by FRR 60. See Note 1 to Consolidated Financial Statements for a detailed discussion on the application of these and other accounting policies.

Accounting for Intangible Assets. The value of our intangible assets, including brand licenses and trademarks, is exposed to future adverse changes if we experience declines in operating results or experience significant negative industry or economic trends. We review intangible assets for impairment using the guidance of applicable accounting literature. Indefinite-lived intangible assets are reviewed annually for impairment under the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets, during the Company’s fourth quarter of each fiscal year, or sooner, if events indicate a potential impairment. The identification and measurement of impairment of indefinite-lived intangible assets involves the estimation of the fair value of the related asset. The estimates of fair value are based on the best information available as of the date of

17

the assessment, which primarily incorporate management assumptions about discounted expected future cash flows. Future cash flows can be affected by changes in industry or market conditions.

Allowance for Sales Returns. As is customary in the prestige fragrance industry, we grant most of our unrelated U.S. department store customers the right to return product which does not “sell-through” to consumers. At the time of sale, we record a provision for estimated product returns based on our historical “sell-through” experience, economic trends and changes in customer demand. Based upon this information, we provide an allowance for sales returns. It is generally after the specific gift-giving season (Mother’s Day, Christmas, etc.) that our  customers request approval of the return for unsold items. We decide to accept returns on a case-by-case basis. There is considerable judgment used in evaluating the factors influencing the provision for returns and additional allowances in any particular period may be needed, if actual returns received exceeds estimates, reducing net income or increasing net lo ss.

Allowances for Doubtful Accounts Receivable. We maintain allowances for doubtful accounts to cover uncollectable accounts receivable, and we evaluate our accounts receivable to determine if they will ultimately be collected. This evaluation includes significant judgments and estimates, including a customer-by-customer review for large accounts. If the financial condition of our customers, or any one customer, deteriorates resulting in an impairment of their ability to pay, additional allowances may be required.

Inventory Write-downs. We record inventory write-downs for estimated obsolescence and shrinkage of inventory. Our estimates consider the cost of inventory, the estimated market value, the shelf life of the inventory and our historical experience. If there are changes to these estimates, or changes in consumer preferences, additional inventory write-downs may be necessary.

Property Held for Sale. We consider property to be held for sale when management and the Board of Directors approve and commit to a formal plan to actively market and dispose of the property. Upon designation as held for sale, the carrying value of the property is recorded at the lower of its carrying value or its estimated fair value, less costs to sell. We cease to record depreciation expense at that time. The asset, as well as any borrowings related thereto, is classified as current in the accompanying consolidated balance sheet.

Income Taxes and Valuation Reserves. If warranted, we record a valuation allowance to reduce deferred tax assets to the amount that is more likely than not to be realized. We consider projected future taxable income and ongoing tax planning strategies in assessing the valuation allowance. In the event we determine that we may not be able to realize all or part of our deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to earnings in the period of such determination.

Stock-Based Compensation. We account for our compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. Pro forma information regarding net income and net income per share is required in order to show our net income as if we had accounted for employee stock options under the fair value method of SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation - Transition Disclosure. This information is contained in Note 1(U) to our consolidated financial statements. The fair values of options and shares issued pursuant to our plans at each grant date were estimated using the Black-Scholes option pricing model.

In December 2004, the FASB issued SFAS No. 123 (Revised 2004) (“SFAS No. 123(R)”), Share-Based Payment. SFAS No. 123(R) 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. As discussed above, we have chosen to disclose the pro forma effect. The fair value concepts were not changed significantly in SFAS No. 123(R); however, in adopting SFAS N0. 123(R), companies must choose among alternative valuation models and amortization assumptions.

The valuation model and amortization assumption used by us continues to be available. SFAS No. 123(R) will be effective for the Company beginning with the year starting April 1, 2006. Transition options allow companies to choose whether to adopt prospectively, restate results to the beginning of the year, or to restate prior periods with the amounts that have been included in the footnotes. We have decided to adopt prospectively, and will continue to utilize the current Black-Scholes option-pricing model. There were no unvested options or warrants outstanding at March 31, 2006, and as such, the result of adopting SFAS No. 123(R) on April 1, 2006 was not

18

material to our results of operations or financial position. See Note 1(U) to our consolidated financial statements for the pro forma effect for the each of the years presented, using our existing valuation and amortization assumptions.

Since April 2005 we have not made any changes of these critical accounting policies, nor have we made any material changes in any of the critical accounting estimates underlying these accounting policies. The policy relating to “Property Held for Sale” was established in connection with the proposed sale of the Sunrise facility. See Note 5 to our consolidated financial statements for further discussion.

New Accounting Pronouncement

In May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS 154 replaces Accounting Principles Board (“APB”) Opinion No. 20, Accounting Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. APB No. 20 previously required that most voluntary changes in accounting principle be recognized by including in the current period’s net income the cumulative effect of changing to the new accounting principle. In contrast, SFAS 154 requires that a voluntary change in accounting principle be applied retrospectively to prior periods’ financial statements, unless this would be impracticable. In addition, SFAS 154 makes a distinction between retrospective application of an accounting principle and the restatement of financial statements to reflect the correction of an error. SFAS 154 is effective for acc ounting changes and correction of errors made in fiscal years beginning after December 15, 2005. We do not expect the adoption of SFAS 154 to have a material impact on the Company’s consolidated financial statements.

Significant Trends

Over the last few years, a significant number of new prestige fragrance products have been introduced on a worldwide basis. The beauty industry in general is highly competitive and consumer preferences often change rapidly. The initial appeal of these new fragrances, launched for the most part in U.S. department stores, has fueled the growth of our industry. Department stores continue to lose sales to the mass market as a product matures. To counter the effect of lower department store sales, companies are required to introduce new products more quickly, which requires additional spending for development and advertising and promotional expenses. In addition, a number of the new launches are with celebrities (either entertainers or athletes) which require substantial royalty commitments and whose careers and/or appeal could change drastically, both positively and negatively, based on a single event. We believe these trends will continue. If one or more of our new product introductions would be unsuccessful, or the appeal of the celebrity would diminish, it could result in a substantial reduction in profitability and operating cash flows.

In addition, certain U.S. department store retailers have recently consolidated operations resulting in the closing of retail doors as well as implementing various inventory control initiatives. We expect that these store closings and the inventory control initiatives will continue to affect our sales in the short term.

Results of Operation

Our gross margins may not be comparable to other entities that include all of the costs related to their distribution network in costs of goods sold as compared to our allocating only a portion of these distribution costs to costs of goods sold and including the remaining unallocated amounts as selling and distribution expenses.

Comparison of the year ended March 31, 2006 with the year ended March 31, 2005

During the fiscal year ended March 31, 2006, net sales increased 82% to $182,236,594 as compared to $100,360,981 for the prior year. The increase was mainly attributable to (1) the continuation of the worldwide launch of Paris Hilton fragrances for women and men, which commenced shipping in October 2004 and April 2005, respectively, coupled with the initial shipment in September 2005 of the second Paris Hilton fragrance for women, “Just Me” and December 2005 of “Just Me” for men, generating $76,339,381 in gross sales for the entire Paris Hilton fragrance brand during the current year (excluding $370,000 and $73,420 in Paris Hilton brand watch and handbag sales, respectively) as compared to $11,032,795 for the same period in the prior year; (2) the launch of GUESS? women’s fragrance during June 2005, and men’s fragrance during March 2006, which provided a total of $21,965,350 in g ross sales; (3) $2,376,097 in gross sales of XOXO brand products, which license was acquired during January 2005, as compared to gross sales of $1,337,642 during fiscal 2005; and (4) the initial shipments in September 2005 of Maria Sharapova women’s fragrance, which provided gross sales of $2,066,687. The increase was partially offset by a reduction in gross sales of Ocean Pacific (“OP”) brand products, since no major launches

19

were introduced during the current period pending strategic direction from OP’s new owner, Warnaco, who acquired the OP brand during 2005, and a slight reduction in gross sales of Perry Ellis brand products from $77,863,454 to $77,460,199.

Net sales to unrelated customers increased 136% to $111,779,850, compared to $47,449,801 for the prior year, mainly as a result of increases in Paris Hilton and GUESS? brand sales discussed above in the amount of $44,777,045 and $19,271,274, respectively, and an increase in Perry Ellis brand gross sales of $3,569,757, partially offset by the reduction of $2,668,239 in OP brand sales. Sales to related parties increased 33% to $70,456,744 compared to $52,911,180 in the prior year, mainly as a result of increases in the amount of $20,529,541 and $2,694,076 in Paris Hilton and GUESS? brand sales, respectively, partially offset by reductions of $3,973,012 and $1,866,748 in Perry Ellis and OP brand sales, respectively. We expect that sales growth to unrelated customers in the upcoming fiscal year will continue to outpace those of related customers with the further roll out of our Paris Hilton and GUESS? fragrance products, which should continue to h ave initially a higher percentage of sales to unrelated customers. However, the extent of the increases will be limited by the U.S. department store consolidations and their inventory control measures discussed above.

Our overall cost of goods sold decreased as a percentage of net sales to 43% for the fiscal year ended March 31, 2006 compared to 45% for the prior year. Cost of goods sold as a percentage of net sales to unrelated customers and related parties approximated 41% and 45%, respectively, for the current period, as compared to 43% and 47%, respectively, for the same period in the prior year. The reduction in cost of goods as a percentage of net sales is due primarily to the shipment of Paris Hilton and GUESS? products to unrelated parties, including U.S. department stores, where our margins are significantly higher. As noted below, these improved margins were partially offset by increased in-store advertising and promotional spending, both of which we expect to continue.

Operating expenses increased by 82% compared to the prior year from $37,543,482 to $68,492,416, increasing as a percentage of net sales from 37% to 38%. However, certain individual components of our operating expenses experienced more significant changes as we invested in our new product launches. Advertising and promotional expenses more than doubled to $38,977,490, compared to $18,528,907 in the prior year, increasing as a percentage of net sales from 18% to 21%. The current year includes approximately $19,659,000 and $10,296,000 of promotional costs in connection with the continued roll out of Paris Hilton fragrances for women and men and the GUESS? women’s and men’s fragrance launches, respectively, which substantially exceed required promotional spending under these two license agreements. We anticipate that increased promotional spending for these two brands will continue at these levels during periods which co ntain new product launches. Selling and distribution costs increased 23% to $9,489,889 compared to $7,707,435 in the prior year, decreasing as a percentage of net sales from 8% to 5%. The increase was mainly attributable to additional costs for temporary warehouse storage space to handle the increased order flow and inventory requirements, coupled with an increase in domestic sales headcount and travel expenses to support the increased sales in this distribution channel. General and administrative expenses increased 16% compared to the prior year, from $6,100,017 to $7,077,678, while decreasing as a percentage of net sales from 6% to 4%. The increase was mainly attributable to increases in audit and professional fees in connection with the first year of Sarbanes Oxley implementation, health and property insurance, and personnel additions in package development, quality assurance and production planning. Depreciation and amortization increased 54% during the current year from $1 ,266,652 to $1,946,545. A full year’s amortization of intangibles relating to the January 2005 XOXO license acquisition (See Note 8B to the consolidated financial statements for further discussion) was offset by a reduction in depreciation for certain fully depreciated molds and equipment. Royalties increased 179% in the current period from $3,940,471 to $11,000,814, increasing from 4% to 6% of net sales, in line with license requirements for the current sales mix and minimum royalties for certain brands.

As a result of the above factors, operating income increased to $36,071,313 or 20% of net sales for the current year, compared to $17,419,941 or 17% of net sales for the prior year. Net interest expense was $607,526 in the current period as compared to net interest income of $146,593 for the same period in the prior year as we used our line of credit to finance the increase in receivables and inventory in support of our continuing sales growth.

Income before taxes for the current year was $35,491,576 compared to $17,560,617 in the prior year. Giving effect to the tax provision, which reflects an effective rate of approximately 36%, we earned net income of $22,735,776 or 12% of net sales for the current year compared to $10,824,256 or 11% of net sales in the prior year. The approximate 2% reduction from the 38% effective income tax rate in the prior year was mainly attributable to the increase in international sales activity, resulting in additional foreign source income excludable for federal income tax purposes. This tax benefit has been phased out for the year ending March 31, 2007, replaced by new

20

provisions based on manufacturing criteria. We are currently analyzing the new tax law, but have not as yet concluded on its applicability to the Company.

Comparison of the year ended March 31, 2005 with the year ended March 31, 2004.

During the fiscal year ended March 31, 2005, net sales increased 25% to $100,360,981 as compared to $80,580,709 for the prior year. The increase was mainly attributable to, (1) the introduction of our new Paris Hilton fragrance, which commenced shipping in November 2004 and achieved gross sales of $11,032,795; (2) the launch of 360° Blue for men and women in September 2004, coupled with the full distribution of products launched in the prior year, resulted in an increase of $9,893,570 in total Perry Ellis brand sales from $67,969,863 to $77,863,453; and, (3) $1,337,642 in gross sales of XOXO brand products, which license was acquired during January 2005. The increase was partially offset by a reduction in gross sales of Chaleur d’Animale and Fred Hayman 273 Indigo brand products of $693,991 and $1,260,541, respectively. (See Note 8(C) to the accompanying consolidated financial statements for further discussion of the Animale and Fred Hayman brands).

Net sales to unrelated customers increased 24% to $47,449,801, compared to $38,138,631 for the prior year, mainly as a result of the Paris Hilton brand sales discussed above, as $9,594,260 of such sales were made to unrelated customers. Sales to related parties increased 25% to $52,911,180 compared to $42,442,078 for the prior year, mainly as a result of the Perry Ellis brand increase offset by the reduction in Animale and Fred Hayman brand products, discussed above.

Our overall cost of goods sold decreased as a percentage of net sales to 45% for the fiscal year ended March 31, 2005 compared to 49% for the prior year. Cost of goods sold as a percentage of net sales to unrelated customers and related parties approximated 43% and 47%, respectively, for the current year, as compared to 49% for both groups during the prior year. For the prior two fiscal years, the cost of goods sold to unrelated customers increased, and consequently gross margins decreased, due to a higher percentage of value sets being sold. Value sets, which include multiple products, have a higher cost of goods compared to basic stock items. The prior year included a higher percentage of value set sales to unrelated customers. Additionally, the current year sales of Paris Hilton brand products included a higher percentage of basic stock items. For the near future, we anticipate the percentage of value sets sold to unrelated customers will remain constant and that the overall cost of goods sold to unrelated customers will also remain relatively constant.

Operating expenses increased by 22% compared to the prior year from $30,659,884 to $37,543,482, decreasing as a percentage of net sales from 38% to 37%. However, individual components of our operating expenses experienced more significant changes. Advertising and promotional expenses increased 46% to $18,528,907 compared to $12,714,825 in the prior year, increasing as a percentage of net sales from 16% to 18%. The current year includes approximately $5,067,000 of promotional costs for the recently introduced Paris Hilton fragrance. Selling and distribution costs increased 17% to $7,707,435 in the current year compared to $6,560,973 for the prior year, remaining relatively constant at 8% of net sales. The increase was mainly attributable to additional costs for temporary warehouse employees and warehouse storage space to handle the increased order flow, coupled with increases in salaries and health insurance costs for sales and wareho use personnel. General and administrative expenses decreased slightly compared to the prior year from $6,162,926 to $6,100,017, decreasing as a percentage of net sales from 8% to 6%. The decrease was mainly attributable to the decrease in legal and other professional fees and non-recurring charitable contributions, offset by increases in salaries, health insurance costs and bad debt expense. Depreciation and amortization increased by 1% during the current year from $1,256,593 to $1,266,652. Amortization of intangibles of approximately $263,000 relating to the January 2005 XOXO license acquisition (see Note 8B to the consolidated financial statements for further discussion) were offset by a reduction in depreciation, as molds used in production for certain Ocean Pacific brand products became fully depreciated. Royalties decreased by 1% in the current year from $3,964,567 to $3,940,471, decreasing as a percentage of net sales from 5% to 4%. The prior year included approximately $906,000 in minim um royalties payable under the Jockey license agreement, which were no longer required. The Jockey license expired on December 31, 2004 and was not renewed.

As a result of the above factors, operating income increased to $17,419,941 or 17% of net sales for the current year, compared to $10,312,629 or 13% of net sales for the prior year. Net interest income was $146,593 as compared to net interest expense of $224,368 for the prior year. We did not borrow during the current year and invested our excess cash in money market deposit accounts.

21

Income before taxes for the current year was $17,560,617 compared to $10,109,057 in the prior year. Giving effect to the tax provision, we earned net income of $10,824,256 or 11% of net sales for the current year compared to $6,267,615 or 8% of net sales in the prior year.

Liquidity and Capital Resources

Working capital increased to $82,872,508 as of March 31, 2006, compared to $60,570,303 at fiscal year ended March 31, 2005, primarily as a result of the current period’s net income partially offset by the approximate $1 million unfinanced portion of the Sunrise Facility and the purchase of treasury stock discussed below.

During the year ended March 31, 2006, net cash used in operating activities was $16,397,015 compared to $14,280,497 provided by operating activities during the prior year.  The decrease was mainly attributable to the increase in trade receivables and inventory to support the increased sales generated from the Paris Hilton and GUESS? brands, offset by the increase in accounts payable.

Net cash used in investing activities increased from $1,960,081 to $23,816,564 in the current year, due to the release of approximately $4,162,669 of restricted cash resulting from our full pay down on our credit facility in the prior year, the re-establishment of $7,966,720 restricted cash pending transfer to our lender as of March 31, 2006 and the purchase of the Sunrise Facility for $14,018,238. In addition, collection of $1,708,511 of notes receivable from unrelated parties, in accordance with their terms, occurred during the prior year, as well as payments totaling $7,459,377 in connection with the XOXO acquisition.

Net cash provided by financing activities was $27,897,089 compared to a use of $611,602 in the prior year. The increase was attributable to the drawdown of $19,081,787 under our line of credit to partially finance the increase in trade accounts receivable and inventory discussed above and the $12,750,000 mortgage on the Sunrise Facility, offset by an additional $2,453,030 of treasury stock purchases during the current year compared to the prior year.

As of March 31, 2006 and 2005, our ratios of the number of days sales in accounts receivable and number of days cost of sales in inventory, on an annualized basis, were as follows:

	March 31,
	2006		2005
Trade accounts receivable:
Unrelated (1)		85		68
Related:
Perfumania		132		89
Other related		49		—
Total		82		63
Inventories		326		263

———————

⁽¹⁾

Calculated on gross trade receivables excluding allowances for doubtful accounts, sales returns and advertising allowances of approximately $3,988,000 and $2,128,000 in 2006 and 2005, respectively.

The increase in the number of days from 2005 to 2006 for unrelated customers was mainly attributable to the increase in sales to international distributors whose terms, for the most part, range from 60 to 90 days. Based on current circumstances, we anticipate the number of days for the unrelated customer group will range between 75 and 90 days during fiscal 2007.

The number of days sales in trade receivables from Perfumania, Inc. (“Perfumania”) continue to exceed those of unrelated customers, due mainly to their seasonal cash flow (See Note 2 to the accompanying consolidated financial statements for further discussion of our relationship with Perfumania). We are currently discussing with Perfumania their anticipated payments for the upcoming financial year which management expects will reduce their trade receivable balance and the number of days outstanding by March 31, 2007. The number of days sales in trade receivables from other related parties continue to be less than their 60 or 90 day payment terms.

The lead time for certain of our raw materials and components inventory (up to 120 days), requires us to maintain a three to six month supply of some items in order to ensure production schedules. In addition, when we

22

launch a new brand or Stock Keeping Unit, we frequently produce a six to nine-month supply to ensure adequate inventories if the new products exceed our forecasted expectations. We believe that the gross margins on our products outweigh the additional carrying costs. Due to the significant number of new product launches during the fiscal year, the number of days sales in inventory has increased. The increase in the number of days from 2005 to 2006 would have been reduced by 24 days if approximately $3.0 million and $2.2 million of inventory related to GUESS? for men and Paris Hilton brand watches, respectively, which products are just launching, were excluded.

As of December 31, 2002, we had repurchased, under all phases of our common stock buy-back program, a total of 8,018,291 shares at a cost of $22,116,995. On February 6, 2003, we received approval from our lender to purchase an additional 2,500,000 shares not to exceed $7,500,000, which was ratified on February 14, 2003, by our Board of Directors (the “Board”). As of March 31, 2004, we repurchased, in the open market, an additional 2,162,564 shares at a cost of $7,109,305 under this approval.

On August 6, 2004, the Board approved the repurchase of an additional 1,000,000 shares of our common stock, subject to certain limitations, including approval from our lender, which was subsequently received, for up to $8,000,000, on August 16, 2004. As of March 31, 2006, we had repurchased, in the open market, 384,102 shares at a cost of $5,302,560, including 217,272 shares at a cost of $3,877,795 during the period April 1, 2005 through March 31, 2006.

On July 20, 2001, we entered into a Loan and Security Agreement (the “Loan Agreement”) with GMAC Commercial Credit LLC (“GMACCC”). On January 4, 2005, the Loan Agreement was extended through July 20, 2006. Under the Loan Agreement, we were able to borrow, depending upon the availability of a borrowing base, on a revolving basis, up to $20,000,000 at an interest rate of LIBOR plus 2.75% or the Bank of New York’s prime rate, at our option.

On January 10, 2006, the Loan Agreement was amended, increasing the loan amount to $30,000,000, with an additional $5,000,000 available at our option, while extending the maturity to July 20, 2008. The interest was reduced to LIBOR plus 2.00% or .25% below the prime rate. During May 2006, we exercised our option and increased the line to $35,000,000.

At March 31, 2006, based on the borrowing base at that date, the credit line amounted to $30,000,000, of which $19,081,787 was outstanding. Accordingly, we had $10,918,213 available under the credit line. Restricted cash represents collections of trade accounts receivable deposited with our bank and pending transfer to GMACCC. As of March 31, 2006, $7,966,720 was on deposit with our bank pending transfer.

Substantially all of our assets, other than the Sunrise Facility, collateralize our credit line borrowing. The Loan Agreement contains customary events of default and covenants which prohibit, among other things, incurring additional indebtedness in excess of a specified amount, paying dividends, creating liens, and engaging in mergers and acquisitions without the prior consent of GMACCC. The Loan Agreement also contains certain financial covenants relating to net worth, interest coverage and other financial ratios, which we were in compliance with.

On December 29, 2005, we obtained a $12,750,000 mortgage loan from GE Finance Business Property Corporation for the Sunrise Facility. See Note 5 to the consolidated financial statements for further discussion. The mortgage was repaid in connection with the June 21, 2006 sale of the property.

In connection with our new distribution facility in New Jersey, we anticipate purchasing equipment and leasehold improvements of approximately $3 million, the majority of which will be financed through capital leases over a 36-month period.

Management believes that funds from operations and our existing financing will be sufficient to meet our current operating needs. However, if we were to expand operations through acquisitions, new licensing arrangements or both, we may need to obtain additional financing. There is no assurance that we could obtain such financing or what the terms of such financing, if available, would be.

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Contractual Obligations

The following table sets forth information regarding our contractual obligations as of March 31, 2006 (in 000’s):

	For the Year Ending March 31,
Type of Obligation	2007		2008		2009		2010		2011		Thereafter		Total
Operating Lease Obligations	$	1,341	$	1,070	$	1,021	$	1,034	$	1,054	$	512	$	6,032
Mortgage Payable on Property Held for Sale (1)		12,661												12,661
Line of Credit		19,082												19,082
Purchase Obligations (2)		81,176												81,176
Advertising Obligations (3)		34,417		35,793		38,308		33,525		29,904				171,947
Other Long-term Obligations (4)		8,219		7,911		9,005		7,886		6,446		630		40,097
	$	156,896	$	44,774	$	48,334	$	42,445	$	37,404	$	1,142	$	330,995

———————

⁽¹⁾

Included in 2007 as the Sunrise Facility was sold on June 21, 2006, and the mortgage was repaid.

⁽²⁾

Represents purchase orders issued in the normal course of business for components, raw materials and promotional supplies.

⁽³⁾

Consists of advertising commitments under our licensing agreements. These amounts were calculated based on the guaranteed minimum sales goals, as set forth in the agreements. Unlike guaranteed minimum royalties, advertising and promotional spending are based on a percentage of actual net sales, and are not contractually required if there are no sales. See Note 8B to the Company’s consolidated financial statements for further discussion of these amounts.

⁽⁴⁾

Consists of guaranteed minimum royalty requirements under our licensing agreements.

Off-Balance Sheet Arrangements

As of March 31, 2006 we did not have any “off-balance sheet arrangements” as that term is defined in Regulation S-K Item 303(a)(4).

Item 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

With the exception of Canada, we sell our products worldwide with all such sales being denominated in United States dollars. As a result, we are not at risk to foreign exchange translation exposure, other than with our Canadian distributor where we assume such risk. During the fiscal years ended March 31, 2006 and 2005, we recorded foreign exchange gains (losses) of $27,789 and $(5,917), respectively, relating to sales/collection activity with our Canadian distributor. We believe a hypothetical 10% change in the exchange rate between the U.S. dollar and Canadian dollar would not have a material effect on our consolidated statement of income.

We could, however, be subject to changes in political and economic conditions in the countries in which we are represented internationally. We closely monitor such conditions and are able, for the most part, to adjust our sales strategies accordingly.

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 electing the lower of the fixed rate LIBOR or prime rate option available under the line of credit. When borrowing for our operating and investing activities, we are exposed to interest rate risk. As of March 31, 2006 and 2005, the primary source of funds for working capital and other needs was our $30 million line of credit ($20 million in 2005).

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The line of credit bears interest at a floating rate of prime less .25%. We believe a hypothetical 10% adverse move in interest rates would increase future annual interest expense by approximately $0.3 million.

Item 8.

FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The financial statements and supplemental data are included herein commencing on page F-1. The financial statement schedule is listed in the Index to Financial Statements on page F-1 and is incorporated herein by reference.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

Item 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that material weaknesses existed in our internal controls over financial reporting and consequently our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report, to ensure that the information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the requisite time periods and that such information is accumulated and communicated to management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure. See “Management’s Report on Internal Control Over Financial Reporting” on page F-2.

In light of the material weaknesses described below, in preparing our financial statements at and for the fiscal year ended March 31, 2006, we performed additional procedures in an attempt to ensure that such financial statements were fairly presented in all material respects in accordance with generally accepted accounting principles. Notwithstanding the material weaknesses described below, management believes that the financial statements included in this Form 10-K fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods and dates presented.

1.

Lack of sufficient resources in our accounting and finance organization. The Company did not maintain a sufficient complement of personnel to maintain an appropriate accounting and financial reporting structure to support the activities of the Company. As of March 31, 2006, the Company had an insufficient number of personnel with clearly delineated and fully documented responsibilities in order to timely prepare and file its year-end financial statements and Annual Report on Form 10-K, mainly as a result of the new requirements under Section 404 of the Sarbanes-Oxley Act of 2002. In addition, the Company’s Chief Financial Officer is responsible for preparing or compiling certain critical portions of the quarterly and annual financial information and is often responsible for performing the final review of this information. These represent a material weakness in design of internal controls over financial reporting. Due to the pote ntial pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financial statements could occur and not be prevented or detected. This material weakness has also contributed to the material weaknesses in Nos. 2 and 3 below.

2.

Lack of sufficient resources to provide for suitable segregation of duties. Specifically, in connection with the lack of sufficient accounting and finance resources described in material weakness No. 1 above, certain financial and accounting personnel had incompatible duties that permitted creation, review, processing and potential management override of certain financial data without independent review and authorization affecting inventory, accounts payable and accounts receivable. The increase in the Company’s administrative staffing has not been commensurate with the rapid growth in the volume of business transactions. These represent a material weakness in design of internal controls over financial reporting. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financia l statements could occur and not be prevented or detected.

25

3.

Inadequate access controls with regard to computer master file information. Specifically, certain of the Company’s personnel in accounts payable, accounts receivable and inventory had access and could make changes to master files without approval. The internal controls were not adequately designed. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financial statements could occur and not be prevented or detected.

4.

Inadequate controls over the processing of certain credits to accounts receivable. The Company receives charge-backs from its U.S. department store customers for a variety of items. Certain charge backs relating to demonstration costs, although supported by store sell-through information, were recorded by accounts receivable personnel without additional approval. The internal controls were not adequately designed or operating in a manner to effectively support the requirements of the sales and expenditure cycles. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of trade receivables and advertising and promotional cost that would not be prevented or detected.

5.

Inadequate controls over the processing of certain expenses, most notably, advertising and promotional expenses. Costs relating to the advertisement and promotion of the Company’s products are a significant cost of operations. The internal controls were not adequately designed or operating in a manner to establish specific controls to ensure that all advertising and promotional expenses were approved and processed on a timely basis. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of accounts payable, accrued expenses and advertising and promotional cost that would not be prevented or detected.

6.

Inadequate controls over the processing of adjustments to accounts payable. The internal controls over accounts payable, including vendor rebates, were not adequately designed or operating in a manner to effectively support the expenditure cycle. Certain adjustments were processed without proper approval, or the Company’s procedures did not specifically document the approvals that would be required. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of accounts payable, accrued expenses and operating expenditures that would not be prevented or detected.

Changes In Internal Control Over Financial Reporting – Management’s Remediation Of The Material Weaknesses.

There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2006 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. Our management has discussed the material weaknesses described above and other deficiencies with our audit committee. In an effort to remediate the identified material weaknesses and other deficiencies, we continue to implement a number of changes to our internal control over financial reporting including the following:

1.

The Company is in the process of hiring experienced financial personnel to assume certain of the responsibilities presently performed by the Chief Financial Officer. In addition, commencing with the preparation of the Company’s March 31, 2006 financial statements, management has developed an Audit Committee review file which is provided to the Chair of the Audit Committee prior to the finalization of the Company’s Annual Report on Form 10-K and includes memoranda and supporting documentation for all significant areas where estimates and potential management override exist.

2.

The Company is in the process of hiring additional employees in finance and accounting, and has restricted certain responsibilities within accounts payable, accounts receivable and inventory in order to segregate incompatible functions.

3.

The Company has implemented procedures whereby computer generated reports will be prepared, on a daily basis, listing all changes to the accounts payable and accounts receivable master files. These reports will be reviewed by designated employees independent of these departments.

4.

The Company has implemented procedures whereby all charge-backs for demonstration costs must be approved by the Vice President of Domestic Sales.

5.

The Company is enhancing its procedure documentation in the accounts payable area and is in the process of implementing procedures whereby a listing of budgeted advertising will be reviewed as part of the month

26

end closing process to determine that billings for such services have been received or accrued during that reporting period.

6.

The Company is in the process of documenting specific procedures for processing adjustments to accounts payable, which will include all potential credits thereto.

Item 9B.

OTHER INFORMATION

None.

27

PART III

Item 10.

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required in response to this item is incorporated by reference to our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

Item 11.

EXECUTIVE COMPENSATION

The information required in response to this item is incorporated by reference to our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCK HOLDER MATTERS

The information required in response to this item is incorporated by reference to our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required in response to this item is incorporated by reference to our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required in response to this item is incorporated by reference to our Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.

28

PART IV

Item 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)

The following documents are filed as part of this report:

1.

Financial Statements

See Index to Financial Statements beginning on page F-1 of this annual report.

2.

Financial Statement Schedules

See Index to Financial Statements beginning on Page F-1 of this annual report.

3.

Exhibit Index

2.1

Asset Purchase Agreement, dated June 15, 1994, by and between Fred Hayman Beverly Hills Inc. and the Company (incorporated by reference to Exhibit 1 to the Company’s Report on Form 8-K, filed with the Securities and Exchange Commission (the “SEC”) on June 15, 1994 and as amended on June 29, 1994 and August 26, 1994)

2.2

Asset Purchase Agreement, dated November 2, 1994, by and between Sanofi Beauté and the Company (incorporated by reference to Exhibit 2.1 to the Company’s Report on Form 8-K, filed with the SEC on January 11, 1995 (the “1995” Form 8-K)

3(a)

Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibits 3.1 through 3.5 to the Registration Statement on Form S-3 (File No. 33-89806), declared effective on March 13, 1995 and Exhibit 4.6 of Registration Statement on Form S-3, declared effective on October 2, 1996 (File No. 333-11953)

3(b)

By-Laws of the Company (incorporated by reference to Exhibit 3.6 to the Company’s Registration Statement on Form S-3, declared effective on March 13, 1995 (File No. 33-89806)

4.30

Revolving Credit and Security Agreement, dated July 20, 2001, between the Company and GMAC Commercial Credit LLC (“GMACCC”) (incorporated by reference to Exhibit  4.30 to the Company’s Report on Form 8-K, filed with the SEC on July 26, 2001)

4.32

Amendment No. 4 to Revolving Credit and Security Agreement, dated as of January 4, 2005, between the Company and GMACCC (incorporated by reference to Exhibit 4.32 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2004, filed on February 14, 2005 (“the December 31, 2004 Form 10-Q”).

4.33

Mortgage and Security Agreement, dated as of December 29, 2005, between the Company and GE Commercial Finance Business Property Corporation (incorporated by reference to Exhibit 4.33 to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2005, filed on February 8, 2006 (the “December 31, 2005 Form 10-Q”)).

4.34

Amendment No. 5 to Revolving Credit and Security Agreement, dated as of January 10, 2006, between the Company and GMAC Commercial Finance LLC (incorporated by reference to Exhibit 4.34 to the Company’s December 31, 2005 Form 10-Q).

10.1

Stock Option Plan (incorporated by reference to Annex A to the Company’s Preliminary Proxy Statement, filed on August 16, 1996

10.2

Employee Stock Option Plan 2000 (incorporated by reference to Annex “A” to the Company’s Definitive Proxy Statement, filed on August 25, 2000)

10.37

Facility lease agreement, dated June 21, 1995 between the Company and Port 95-2, Ld. (incorporated by reference to Exhibit 10.37 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, filed on August 11, 1995)

29

10.48

Stock Purchase Agreement, dated as of August 31, 1999, between the Company and Perfumania, Inc., (incorporated by reference to Exhibit 10.48 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, filed on November 12, 1999)

10.64

Agreement, dated March 28, 2003, between the Company and Victory International (USA) LLC (incorporated by reference to Exhibit 10.64 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2003, filed on June 30, 2003)

10.66

License Agreement, dated as of November 1, 2003, between the Company and GUESS?, Inc. and GUESS? IP Holder L.P. (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”) (incorporated by reference to Exhibit 10.66 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, filed on November 14, 2003)

10.67

License Agreement, dated as of June 1, 2004, between the Company and Paris Hilton Entertainment, Inc. (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission) (incorporated by reference to Exhibit 10.67 to the Company’s Annual Report on Form 10-K for the year ended March 31, 2004, filed on June 28, 2004 (“the March 31, 2004 Form 10-K”))

10.68

License Agreement, dated September 15, 2004, between the Company and Maria Sharapova (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”) (incorporated by reference to Exhibit 10.68 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004, filed on November 12, 2004)

10.69

License Agreement, dated as of December 8, 2004, between the Company and Andy Roddick. (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”) (incorporated by reference to Exhibit 10.69 to the Company’s December 31, 2004 Form 10-Q)

10.70

Asset Purchase Agreement, dated January 6, 2005, between the Company and Victory International (USA) LLC (incorporated by reference to Exhibit 10.70 to the Company’s December 31, 2004 Form 10-Q)

10.71

License Agreement, dated January 26, 2005, between the Company and Paris Hilton Entertainment, Inc. (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”) (incorporated by reference to Exhibit 10.71 to the Company’s December 31, 2004 Form 10-Q)

10.72

License Agreement, dated April 6, 2005, between the Company and Gund, Inc. (incorporated by reference to Exhibit 10.72 to the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2005, filed on July 8, 2005 (“the March 31, 2005 Form 10-K”))

10.73

License Agreement, dated May 11, 2005, between the Company and Paris Hilton Entertainment, Inc. (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”) (incorporated by reference to Exhibit 10.73 to the Company’s March  31, 2005 Form 10-K)

10.74

License Agreement, dated May 13, 2005, between the Company and Paris Hilton Entertainment, Inc. (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”) (incorporated by reference to Exhibit 10.74 to the Company’s March  31, 2005 Form 10-K)

10.75

Employment Agreement, with Ilia Lekach, dated as of June 1, 2005 (incorporated by reference to Exhibit 10.75 to the Company’s March 31, 2005 Form 10-K)

10.76

Employment Agreement, with Frank A. Buttacavoli, dated as of June 1, 2005 (incorporated by reference to Exhibit 10.76 to the Company’s March 31, 2005 Form 10-K)

10.77

Consulting Agreement, with Cosmix, Inc., dated as of June 1, 2005 (incorporated by reference to Exhibit 10.77 to the Company’s March 31, 2005 Form 10-K)

30

10.78

Consulting Agreement, with Cambridge Development Corp., dated as of June 1, 2005 (incorporated by reference to Exhibit 10.78 to the Company’s March 31, 2005 Form 10-K)

10.79

Agreement for the Purchase and Sale of Real Property, dated July 15, 2005, between the Company and SGII Ltd. (incorporated by reference to Exhibit 10.79 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, filed on August 23, 2005)

10.80

Agreement for the Purchase and Sale of Real Property, dated May 16, 2006, between the Company and K/H – Sunrise, LLC (incorporated by reference to Exhibit 10.80 to the Company’s Report on Form 8-K, filed on June 23, 2006)

14.1

Parlux Fragrances, Inc.’s Code of Business Conduct and Ethics, adopted by the Board of Directors on April 30, 2004 (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended March  31, 2004)

The following exhibits are attached:

10.81

License Agreement, dated April 5, 2006, between the Company and Paris Hilton Entertainment, Inc. (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”)

10.82

Facility Lease Agreement, dated April 7, 2006, between the Company and GreDel Properties, L.L.C.

10.83

Facility Lease Agreement, dated May 2, 2006, between the Company and Port 95-2, Ltd.

23.1

Consent of Deloitte & Touche LLP, an independent registered public accounting firm

31.1

Certification of Chief Executive Officer Pursuant to § 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer Pursuant to § 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer Pursuant to § 906 of the Sarbanes-Oxley Act of 2002, as amended

32.2

Certification of Chief Financial Officer Pursuant to § 906 of the Sarbanes-Oxley Act of 2002, as amended

31

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.

Dated:  July 24, 2006

PARLUX FRAGRANCES, INC.

/s/ ILIA LEKACH

Ilia Lekach, Chief Executive Officer,
President and Chairman

(Principal Executive 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 date indicated:

Signature	Title	Date
/s/ FRANK A. BUTTACAVOLI Frank A. Buttacavoli	Executive Vice President, Chief Operating Officer, Chief Financial Officer and Director (Principal Financial and Principal Accounting Officer)	July 24, 2006
/s/ GLENN GOPMAN	Director	July 24, 2006
Glenn Gopman
/s/ ESTHER EGOZI CHOUKROUN	Director	July 24, 2006
Esther Egozi Choukroun
/s/ JAYA KADER ZEBEDE	Director	July 24, 2006
Jaya Kader Zebede
/s/ DAVID STONE	Director	July 24, 2006
David Stone
/s/ ISAAC LEKACH	Director	July 24, 2006
Issac Lekach

32

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

FINANCIAL STATEMENTS:	Page
Management’s Report on Internal Control over Financial Reporting	F-2
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	F-4
Report of Independent Registered Public Accounting Firm	F-6
Consolidated Balance Sheets	F-7
Consolidated Statements of Income	F-8
Consolidated Statements of Changes in Stockholders’ Equity	F-9
Consolidated Statements of Cash Flows	F-10
Notes to Consolidated Financial Statements	F-11
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts	F-29

All other Schedules are omitted as the required information is not applicable or the information is presented in the financial statements or the related notes thereto.

F-1

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

July 17, 2006

To the Stockholders of Parlux Fragrances, Inc.

Management of Parlux Fragrances, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

·

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. A control system, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2006. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

Based on our assessment, and in light of the material weaknesses described below, management concluded that the Company did not maintain effective internal control over financial reporting as of March 31, 2006 as a result of the material weaknesses described below.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements would not be prevented or detected. During the course of our assessment we noted the following material weaknesses:

·

Lack of sufficient resources in our accounting and finance organization - The Company did not maintain a sufficient complement of personnel to maintain an appropriate accounting and financial reporting structure to support the activities of the Company. As of March 31, 2006, the Company had an insufficient number of personnel with clearly delineated and fully documented responsibilities in order to timely prepare and file its year-end financial statements and Annual Report on Form 10-K. In addition, the Company’s  Chief Financial Officer is responsible for preparing or compiling certain critical portions of the quarterly and annual financial information and is often responsible for performing the final review of this information. These represent a material weakness in design of internal controls over financial reporting. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financial statements could occur and not be prevented or detected. This material weakness has also contributed to the next two material weaknesses below.

·

Lack of sufficient resources to provide for suitable segregation of duties - In connection with the lack of sufficient accounting and finance resources described above, certain financial and accounting personnel had incompatible duties that permitted creation, review, processing and potential management override of certain financial data without independent review and authorization affecting inventory, accounts payable and accounts receivable. The increase in the Company’s administrative staffing has not been commensurate with the growth in the volume of business transactions.  These represent a material weakness in design of internal

F-2

controls over financial reporting. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financial statements could occur and not be prevented or detected.

·

Inadequate access controls with regard to computer master file information - Certain of the Company’s personnel  in accounts payable, accounts receivable and inventory had access and could make changes to master files without approval. The internal controls were not adequately designed. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financial statements could occur and not be prevented or detected.

·

Inadequate controls over the processing of certain credits to accounts receivable - The Company receives charge-backs from its U.S. department store customers for a variety of items. Certain charge backs relating to demonstration costs, although supported by store sell-through information, were recorded by accounts receivable personnel without additional approval. The internal controls were not adequately designed or operating in a manner to effectively support the requirements of the sales and expenditure cycles. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of trade receivables and advertising and promotional cost that would not be prevented or detected.

·

Inadequate controls over the processing of certain expenses, most notably, advertising and promotional expenses - Costs relating to the advertisement and promotion of the Company’s products are a significant cost of operations. The internal controls were not adequately designed or operating in a manner to establish specific controls to ensure that all advertising and promotional expenses were approved and processed on a timely basis. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of accounts payable, accrued expenses and advertising and promotional cost that would not be prevented or detected.

·

Inadequate controls over the processing of adjustments to accounts payable - The internal controls over accounts payable, including vendor rebates, were not adequately designed or operating in a manner to effectively support the expenditure cycle. Certain adjustments were processed without proper approval, or the Company’s procedures did not specifically document the approvals that would be required. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of accounts payable, accrued expenses and operating expenditures that would not be prevented or detected.

The Company’s independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on our assessment of the Company’s internal control over financial reporting. Their report appears on pages F-4 and F-5.

/s/ ILIA LEKACH	/s/ FRANK A. BUTTACAVOLI
Ilia Lekach	Frank A. Buttacavoli
Chairman of the Board and Chief Executive Officer	Chief Financial Officer

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON INTERNAL CONTROL OVER FINANCIAL REPORTING

To the Board of Directors and Stockholders of

Parlux Fragrances, Inc.

Fort Lauderdale, Florida

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Parlux Fragrances, Inc, and subsidiaries (the “Company”) did not maintain effective internal control over financial reporting as of March 31, 2006, because of the effect of the material weaknesses identified in management’s assessment based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accountin g principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The following material weaknesses have been identified and included in management’s assessment:

·

The Company did not maintain a sufficient complement of personnel to maintain an appropriate accounting and financial reporting structure to support the activities of the Company. As of March 31, 2006, the Company had an insufficient number of personnel with clearly delineated and fully documented responsibilities in order to timely prepare and file its year-end financial statements and Annual Report on Form 10-K. In addition, the Company’s  Chief Financial Officer is responsible for preparing or compiling certain critical portions of the quarterly and annual financial information and is often responsible for performing the final review of this information. These represent a material weakness in design of internal controls over financial reporting. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a m aterial misstatement of the interim and annual financial statements could occur and not be prevented or detected. This material weakness has also contributed to the next two material weaknesses below.

F-4

·

In connection with the lack of sufficient accounting and finance resources described above, certain financial and accounting personnel had incompatible duties that permitted creation, review, processing and potential management override of certain financial data without independent review and authorization affecting inventory, accounts payable and accounts receivable. The increase in the Company’s administrative staffing has not been commensurate with the growth in the volume of business transactions. These represent a material weakness in design of internal controls over financial reporting. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financial statements could occur and not be prevented or detected.

·

Certain of the Company’s personnel in accounts payable, accounts receivable and inventory had access and could make changes to master files without approval. The internal controls were not adequately designed. Due to the potential pervasive effect on the financial statements and disclosures and the absence of other mitigating controls there is a more than remote likelihood that a material misstatement of the interim and annual financial statements could occur and not be prevented or detected.

·

The Company receives charge-backs from its U.S. department store customers for a variety of items. Certain charge backs relating to demonstration costs, although supported by store sell-through information, were recorded by accounts receivable personnel without additional approval. The internal controls were not adequately designed or operating in a manner to effectively support the requirements of the sales and expenditure cycles. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of trade receivables and advertising and promotional cost that would not be prevented or detected.

·

Costs relating to the advertisement and promotion of the Company’s products are a significant cost of operations. The internal controls were not adequately designed or operating in a manner to establish specific controls to ensure that all advertising and promotional expenses were approved and processed on a timely basis. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of accounts payable, accrued expenses and advertising and promotional cost that would not be prevented or detected.

·

The internal controls over accounts payable, including vendor rebates, were not adequately designed or operating in a manner to effectively support the expenditure cycle. Certain adjustments were processed without proper approval, or the Company’s procedures did not specifically document the approvals that would be required. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of accounts payable, accrued expenses and operating expenditures that would not be prevented or detected.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedule as of and for the year ended March 31, 2006, of the Company and this report does not affect our report on such financial statements and financial statement schedule.

In our opinion, management’s assessment that the Company did not maintain effective internal control over financial reporting as of March 31, 2006, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, because of the effect of the material weaknesses described above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of March 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended March 31, 2006, of the Company and our report dated July 24, 2006 expressed an unqualified opinion on those financial statements and financial statement schedule and included an explanatory paragraph regarding the Company’s transactions with related parties.

Deloitte & Touche LLP
Certified Public Accountants

Fort Lauderdale, Florida
July 24, 2006

F-5

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Parlux Fragrances, Inc.

Ft. Lauderdale, Florida

We have audited the accompanying consolidated balance sheets of Parlux Fragrances, Inc. and subsidiaries (the “Company”) as of March 31, 2006 and 2005, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended March 31, 2006. Our audits also included the financial statement schedule listed in the accompanying index. These financial statements and the financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 the Company at March 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended March 31, 2006, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As described in Note 2 to the consolidated financial statements, the Company conducts significant transactions with related parties.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of March 31, 2006, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 24, 2006 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of  material weaknesses.

Deloitte & Touche LLP

Certified Public Accountants

Fort Lauderdale, Florida

July 24, 2006

F-6

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	March 31, 2006			March 31, 2005
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	49,822		$	12,368,904
Certificate of deposit		1,026,534			—
Restricted cash		7,966,720			—
Trade receivables, net of allowance for doubtful accounts, sales returns and advertising allowances of approximately $3,988,000 and $2,128,000, respectively		22,177,303			6,689,750
Trade receivable from related parties		14,850,612			8,580,093
Inventories		69,443,085			32,676,807
Prepaid expenses and other current assets, net		17,507,785			8,682,608
Property held for sale		14,018,238			—
Investment in affiliate		6,900,343			4,764,073
TOTAL CURRENT ASSETS		153,940,442			73,762,235
Equipment and leasehold improvements, net		898,490			927,199
Trademarks and licenses, net		12,119,681			13,202,911
Other		333,546			383,629
TOTAL ASSETS	$	167,292,159		$	88,275,974
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Borrowings under line of credit	$	19,081,787		$	—
Mortgage payable on property held for sale		12,661,124			—
Accounts payable		35,560,969			11,845,483
Income taxes payable		2,484,190			260,848
Accrued expenses		1,279,864			1,085,601
TOTAL CURRENT LIABILITIES		71,067,934			13,191,932
Deferred tax liability		2,510,303			1,703,442
TOTAL LIABILITIES		73,578,237			14,895,374
COMMITMENTS  AND CONTINGENCIES
STOCKHOLDERS’ EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at March 31, 2006 and 2005		—			—
Common stock, $0.01 par value, 30,000,000 shares authorized, 28,471,289  and 28,447,289 shares issued at March 31, 2006 and 2005, respectively		284,713			284,473
Additional paid-in capital		80,878,952			80,728,746
Retained earnings		43,099,026			20,363,250
Accumulated other comprehensive income		3,980,091			2,655,196
		128,242,782			104,031,665
Less - 10,564,957 and 10,347,685 shares of common stock in treasury, at cost, at March 31, 2006 and 2005, respectively		(34,528,860	)		(30,651,065	)
TOTAL STOCKHOLDERS’ EQUITY		93,713,922			73,380,600
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	167,292,159		$	88,275,974

See notes to consolidated financial statements.

F-7

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Year Ended March 31,
	2006			2005			2004
Net sales:
Unrelated customers, including licensing fees of $75,540 in 2006, $129,500 in 2005 and $18,750 in 2004	$	111,779,850		$	47,449,801		$	38,138,631
Related parties		70,456,744			52,911,180			42,442,078
		182,236,594			100,360,981			80,580,709
Cost of goods sold, including $6,295,328, $2,342,483 and $2,919,266 of promotional items in 2006, 2005 and 2004, respectively:
Unrelated customers		46,177,236			20,371,535			18,607,927
Related parties		31,495,629			25,026,023			21,000,269
		77,672,865			45,397,558			39,608,196
Gross margin		104,563,729			54,963,423			40,972,513
Operating expenses:
Advertising and promotional		38,977,490			18,528,907			12,714,825
Selling and distribution		9,489,889			7,707,435			6,560,973
General and administrative		7,077,678			6,100,017			6,162,926
Depreciation and amortization		1,946,545			1,266,652			1,256,593
Royalties		11,000,814			3,940,471			3,964,567
Total operating expenses		68,492,416			37,543,482			30,659,884
Operating income		36,071,313			17,419,941			10,312,629
Interest income		100,912			149,422			196,528
Interest expense and bank charges		(708,438	)		(2,829	)		(420,896	)
Foreign exchange gain (loss)		27,789			(5,917	)		20,796
Income before income taxes		35,491,576			17,560,617			10,109,057
Provision for income taxes		(12,755,800	)		(6,736,361	)		(3,841,442	)
Net income	$	22,735,776		$	10,824,256		$	6,267,615
Income per common share:
Basic	$	1.27		$	0.61		$	0.40
Diluted	$	1.08		$	0.52		$	0.33

See notes to consolidated financial statements.

F-8

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

YEARS ENDED MARCH 31, 2006, 2005, AND 2004

	Common Stock				Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income			Treasury Stock					Total
	Number Issued		Par Value									Number of Shares		Cost
BALANCE at April 1, 2003		25,528,739	$	255,287	$	74,009,516	$	3,271,379	$	(656,299	)		9,494,991	$	(26,586,588	)	$	50,293,295
Comprehensive income:																			&n bsp;
Net income		—		—		—		6,267,615		—			—		—			6,267,615
Change in unrealized holding gain on investment in affiliate, net of taxes of $126,435		—		—		—		—		3,352,094			—		—			3,352,094
Foreign currency translation adjustment		—		—		—		—		828			—		—			828
Total comprehensive income		—		—		—		—		—			—		—			9,620,537
Issuance of common stock upon exercise of:																			&n bsp;
Employee stock options		192,550		1,926		218,354		—		—			—		—			220,280
Warrants		2,096,000		20,960		1,971,664		—		—			—		—			1,992,624
Tax benefit from exercise of warrants and employee stock options		—		—		1,753,409		—		—			—		—			1,753,409
Purchase of treasury stock, at cost		—		—		—		—		—			685,864		(2,639,712	)		(2,639,712	)
BALANCE at March 31, 2004		27,817,289		278,173		77,952,943		9,538,994		2,696,623			10,180,855		(29,226,300	)		61,240,433
Comprehensive income:																			&n bsp;
Net income		—		—		—		10,824,256		—			—		—			10,824,256
Change in unrealized holding gain on investment in affiliate, net of taxes of $28,736										(46,884	)		—		—			(46,884	)
Foreign currency translation adjustment		—		—		—		—		5,457			—		—			5,457
Total comprehensive income		—		—		—		—		—			—		—			10,782,829
Issuance of common stock upon exercise of:																			&n bsp;
Employee stock options		20,000		200		27,925		—		—			—		—			28,125
Warrants		610,000		6,100		949,865		—		—			—		—			955,965
Tax benefit from exercise of warrants and employee stock options		—		—		1,798,013		—		—			—		—			1,798,013
Purchase of treasury stock, at cost		—		—		—		—		—			166,830		(1,424,765	)		(1,424,765	)
BALANCE at March 31, 2005		28,447,289		284,473		80,728,746		20,363,250		2,655,196			10,347,685		(30,651,065	)		73,380,600
Comprehensive income:																			&n bsp;
Net income		—		—		—		22,735,776		—			—		—			22,735,776
Change in unrealized holding gain on investment in affiliate, net of taxes of $811,783		—		—		—		—		1,324,487			—		—			1,324,487
Foreign currency translation adjustment		—		—		—		—		408			—		—			408
Total comprehensive income																		24,060,671
Issuance of common stock upon exercise of:																			&n bsp;
Employee stock options		2,000		20		2,793		—		—			—		—			2,813
Warrants		22,000		220		28,940												29,160
Tax benefit from exercise of warrants and employee stock options		—		—		118,473		—		—			—		—			118,473
Purchase of treasury stock, at cost		—		—		—		—		—			217,272		(3,877,795	)		(3,877,795	)
BALANCE at March 31, 2006		28,471,289	$	284,713	$	80,878,952	$	43,099,026	$	3,980,091			10,564,957	$	(34,528,860	)	$	93,713,922

See notes to consolidated financial statements.

F-9

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year ended March 31,
	2006			2005			2004
Cash flows from operating activities:
Net income	$	22,735,776		$	10,824,256		$	6,267,615
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization		1,946,545			1,266,652			1,256,593
Provision for doubtful accounts		280,000			120,000			8,232
Write-downs of prepaid promotional supplies and inventory		1,820,000			2,129,000			2,290,000
Deferred income tax provision		(1,849,256	)		121,983			285,671
Tax benefit from exercise of warrants and employee stock options		118,473			1,798,013			1,753,409
Changes in assets and liabilities net of effect of brand licensing/sales and license acquisition:
(Increase) decrease in trade receivables - customers		(15,767,553	)		(4,061,905	)		995,493
(Increase) decrease in note and trade receivables - related parties		(6,270,519	)		2,924,379			429,480
Decrease (increase) in income tax receivable		—			231,366			(231,366	)
Increase in inventories		(38,306,278	)		(1,482,377	)		(7,100,256	)
(Increase) decrease in prepaid expenses and other current assets		(7,287,377	)		(3,122,205	)		814,117
Decrease (increase) in other non-current assets		50,083			(326,490	)		316,527
Increase in accounts payable		23,715,486			3,388,356			1,036,722
Increase (decrease) in accrued expenses and income taxes payable		2,417,605			469,469			(585,101	)
Total adjustments		(39,132,791	)		3,456,241			1,269,521
Net cash (used in) provided by operating activities		(16,397,015	)		14,280,497			7,537,136
Cash flows from investing activities:
Net (increase) decrease in restricted cash		(7,966,720	)		4,162,669			(2,684,828	)
Purchases of equipment and leasehold improvements, net		(615,245	)		(371,884	)		(382,042	)
Purchase of property held for sale		(14,018,238	)		—			—
Purchase of trademarks		(219,361	)		—			—
Purchases of certificate of deposit, including accrued interest		(1,000,000	)		—			—
Collections on notes receivable from unrelated parties		—			1,708,511			1,997,828
Cash paid for XOXO license acquisition, including
payments on short-term note		—			(7,459,377	)		—
Net cash used in investing activities		(23,819,564	)		(1,960,081	)		(1,069,042	)
Cash flows from financing activities:
Proceeds (payments) - note payable to GMACCC, net		19,081,787			—			(5,444,971	)
Proceeds - mortgage payable on property held for sale		12,750,000			—			—
Payments - mortgage payable on property held for sale		(88,876	)		—			—
Payments - note payable to Fred Hayman Beverly Hills		—			(170,927	)		(794,418	)
Payments - notes payable to Bankers Capital Leasing		—			—			(27,999	)
Net decrease in notes receivable from officer		—			—			742,884
Purchases of treasury stock		(3,877,795	)		(1,424,765	)		(2,639,712	)
Proceeds from issuance of common stock, net		31,973			984,090			2,212,904
Net cash provided by (used in) financing activities		27,897,089			(611,602	)		(5,951,312	)
Effect of exchange rate changes on cash		408			5,457			828
Net (decrease) increase in cash and cash equivalents		(12,319,082	)		11,714,271			517,610
Cash and cash equivalents, beginning of year		12,368,904			654,633			137,023
Cash and cash equivalents, end of year	$	49,822		$	12,368,904		$	654,633

See notes to consolidated financial statements.

F-10

PARLUX FRAGRANCES INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2006, 2005, AND 2004

1.

NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.

Nature of business

Parlux Fragrances, Inc. was incorporated in Delaware on July 23, 1984, and is engaged in the creation, design, manufacture, and distribution and sale of prestige fragrances and beauty related products, on a worldwide basis. See Note 8(B) for further discussion of recently signed license agreements to manufacture and distribute watches, cosmetics and handbags, purses and other small leather goods, and sunglasses for which sales of watches commenced during December 2005, with the initial shipment of handbags during March 2006.

B.

Principles of consolidation

The consolidated financial statements include the accounts of Parlux Fragrances, Inc., and its wholly-owned subsidiaries, Parlux S.A., a French company, and Parlux, Ltd. (jointly referred to as the “Company”). All material intercompany accounts and transactions have been eliminated in consolidation.

C.

Accounting estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) 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 more significant estimates relate to the carrying value of accounts receivable from related parties, reserve for doubtful accounts, sales returns and advertising allowances, inventory obsolescence, periods of depreciation and amortization for trademarks, licenses, and equipment, and the carrying value of intangibles. Actual results could differ from those estimates.

D.

Revenue recognition

Revenue is recognized when the product is shipped to a customer, or in the limited circumstances, at destination, when terms provide that title passes at destination. Estimated amounts for sales returns and allowances are recorded at the time of sale.

On occasion, the Company will consign certain limited edition watches to customers. Revenue for such activity is only recognized and billed when the customer sells such products.

Licensing income, which is included in sales to unrelated customers, is recognized ratably over the terms of the contractual license agreements.

E.

Restricted cash

The Company had $7,966,720 of cash on deposit at March 31, 2006 which represents collections on trade accounts receivable pending transfer to its lender, as stipulated in its revolving credit agreement discussed in Note 7.

In the accompanying consolidated statement of cash flows for the years ended March 31, 2005 and 2004, the Company changed the classification of the net (increase) decrease in restricted cash balance to present such changes as an investing activity. The Company previously presented such changes as a financing activity. This change resulted in a $4,162,669 and ($2,684,828) increase and decrease, respectively, to investing cash flows and a corresponding decrease and increase to financing cash flows from the amounts previously reported.

F-11

F.

Inventories and cost of goods sold

Inventories are stated at the lower of cost (using the first-in, first-out method) or market.  The cost of inventories includes product costs, inbound freight and handling charges, including an allocation of the Company’s applicable overhead in an amount of $2,688,000 and $2,456,000 at March 31, 2006 and 2005, respectively.

Cost of goods sold includes the cost of inventories discussed above, as well as gift-with-purchase products.

G.

Investment in Affiliate

Investment in Affiliate consists of an investment in common stock of E Com Ventures, Inc. (“ECMV”), the parent company of Perfumania, Inc. (“Perfumania”) (see Note 2).  Such securities are considered available-for-sale and are recorded at fair value. Changes in unrealized gains and losses of the Company’s investment are charged or credited as a component of accumulated other comprehensive income (loss), net of tax, and are included in the accompanying statements of changes in stockholders’ equity. A decline in the fair value of an available-for-sale security below cost that is deemed other than temporary is charged to earnings.

H.

Equipment and leasehold improvements

Equipment and leasehold improvements are carried at cost. Equipment is depreciated using the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the lesser of the estimated useful life or the lease period. Repairs and maintenance charges are expensed as incurred, while betterments and major renewals are capitalized. The cost of assets and related accumulated depreciation is removed from the accounts when such assets are disposed of, and any related gains or losses are reflected in current earnings.

I.

Property held for sale

The Company considers property to be held for sale when management and the Board of Directors approves and commits to a formal plan to actively market the property for sale. Upon designation as held for sale, the carrying value of the property is recorded at the lower of its carrying value or its estimated fair value, less costs to sell. The Company ceases to record depreciation expense at that time. See Note 5 for discussion of the Sunrise Facility that was held for sale.

J.

Trademarks and licenses

Trademarks and licenses are recorded at cost and those with a finite life are amortized over the estimated periods of benefit. Amortization expense was $1,302,591, $542,012, and $286,221 for the years ended March 31, 2006, 2005, and 2004, respectively.

Indefinite-lived intangible assets are reviewed annually for impairment under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets, during the Company’s fourth quarter of each fiscal year, or sooner, if events indicate a potential impairment. The identification and measurement of impairment of indefinite-lived intangible assets involves the estimation of the fair value of the related asset. The estimates of fair value are based on the best information available as of the date of the assessment, which primarily incorporates management assumptions about discounted expected future cash flows. Future cash flows can be affected by changes in industry or market conditions.

K.

Long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable.  Impairment losses are recognized if expected undiscounted future cash flows of the related assets are less than their carrying values. The impairment loss is determined based on the difference between the carrying value of the assets and anticipated future cash flows discounted at a value commensurate with the risk involved, which is management’s estimate of fair value. Management does not believe that there are any unrecorded impairment losses as of March 31, 2006.

F-12

L.

Advertising and promotion costs

Advertising and promotional expenditures are expensed to operations as incurred. These expenditures include print and media advertising, as well as in-store cooperative advertising and promotions.

Cooperative advertising, which is under the direct control of our customer and includes a percentage rebate or deduction based on net sales to the customer, is accrued and recorded as a reduction of net sales at the time of sale. Cooperative advertising with our customers, which is under the direct control of, and at the option of the Company, including catalogue and other forms of print advertising, are included in advertising and promotional expense. The costs associated with the specific advertisements are recorded as incurred, and when applicable, are applied against trade accounts receivable. Such cooperative advertising costs under our direct control amounted to approximately  $7,895,000, $3,276,000, and $2,240,000, and have been included in advertising and promotional expenses for the years ended March 31, 2006, 2005, and 2004, respectively (including $50,000 to Perfumania in 2004).

M.

Selling and distribution expenses

Selling and distribution expenses include labor costs (wages and other benefits) for employees directly involved in the selling and marketing of the Company’s products, sales commissions to independent sales representatives, and the other overhead costs relating to these areas.

Additionally, this caption includes approximately $3,554,000, $2,481,000, and $2,039,000 for the years ended March 31, 2006, 2005 and 2004, respectively, relating to the cost of warehouse operations not allocated to inventories and other related distribution expenses (excluding shipping expenses which are recorded as cost of goods sold). A portion of warehouse operation expenses is allocated to inventory in accordance with generally accepted accounting principles.

N.

General and administrative expenses

General and administrative expenses include labor costs (wages and other benefits) for employees not directly involved in the selling and distribution of the Company’s products, professional service fees, corporate activities and other overhead costs relating to these areas.

O.

Shipping and handling fees and costs

Amounts billed to customers for shipping and handling, which amount is not significant, are included in net sales. The Company classifies the cost related to shipping and handling in cost of goods sold.

P.

Research and development costs

Research and product development costs, which amounted to approximately $645,000, $96,000, and $120,000 for the years ended March 31, 2006, 2005 and 2004, respectively, are expensed as incurred.

Q.

Income taxes

The Company follows the liability method in accounting for income taxes. The liability method provides that deferred tax assets and liabilities are recorded, using currently enacted tax rates, based upon the difference between the tax bases of assets and liabilities and their carrying amounts for financial statement purposes.

Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities.

R.

Foreign currency translation and transactions

The Company’s functional currency for its French foreign subsidiary is the local currency (Euro). Other income and expense includes foreign currency gains and losses on transactions denominated in foreign currencies, which are recognized as incurred.

F-13

S.

Fair value of financial instruments

The carrying value of the Company’s financial instruments, consisting principally of cash and cash equivalents, certificate of deposit, restricted cash, receivables, accounts payable and borrowings (including the mortgage payable on property held for sale), approximate fair value due to either the short-term maturity of the instruments or borrowings with similar interest rates and maturities.

The fair value of the Company’s investment in affiliate is based on a quoted market price.

T.

Basic and diluted earnings per share

Basic earnings per common share calculations are determined by dividing earnings attributable to common stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing earnings attributable to common stockholders by the weighted average number of shares of common stock and dilutive potential common stock equivalents outstanding during the year. All such calculations have been retroactively restated for the effect of the Stock Split.

U.

Stock based compensation

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 148, “Accounting for Stock-Based Compensation--Transition and Disclosure--an amendment of SFAS 123”. SFAS No. 148 amends SFAS No. 123, “Accounting for Stock-Based Compensation”, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Bo ard (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, compensation expense for stock options is measured as the excess, if any, of the market value of the Company’s  stock at the date of the grant (using the Black-Scholes option-pricing model), over the amount an employee must pay to acquire the stock. No stock-based compensation cost is reflected in the accompanying consolidated statements of income, as all warrants and options granted had an exercise price equal to the market value of the underlying common stock on the date of grant.

In calculating the potential effect for proforma disclosure, the fair market value on the date of grant was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (there were no stock options granted in 2005 and 2006):

	2004
Expected life (years)	5
Interest rate	3%
Volatility	70%
Dividend Yield	—

F-14

If compensation cost had been determined based on the fair value at the grant date under SFAS No. 123, the Company’s net income and income per share would have been as follows:

	For the years ended March 31,
	2006		2005		2004
Net income, as reported	$	22,735,776	$	10,824,256	$	6,267,615
Add:  Stock-based employee compensation expense included in net income, net of related tax effects		—		—		—
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		174,343		174,343		265,128
Pro forma net income	$	22,561,433	$	10,649,913	$	6,002,487
Basic net income per share:
As reported	$	1.27	$	0.61	$	0.40
Proforma	$	1.26	$	0.60	$	0.38
Diluted net income per share:
As reported	$	1.08	$	0.52	$	0.33
Proforma	$	1.07	$	0.51	$	0.32

In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment, (SFAS No. 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. The Company has chosen to disclose the pro forma effect. The fair value concepts were not changed significantly in SFAS No. 123(R); however, in adopting this standard, companies must choose among alternative valuation models and amortization assumptions. The valuation model and amortization assumption previously used by the Company continues to be available. The new standard will be effective for the Company beginning with the fiscal year start ing on April 1, 2006. Transition options allow companies to choose whether to adopt prospectively, restate results to the beginning of the year, or to restate prior periods with the amounts that have been included in the footnotes. The Company has decided to adopt prospectively and will continue to utilize the current Black-Scholes option-pricing model. See above for the pro forma effect for each of the three years in the period ended March 31, 2006, using our existing valuation and amortization assumptions. There were no unvested options or warrants outstanding at March 31, 2006, and as such, the result of adopting SFAS No. 123(R) on April 1, 2006, was not material to our results of operations or financial portion.

V.

Cash flow information

The Company considers temporary investments with an original maturity of three months or less to be cash equivalents. Supplemental disclosures of cash flow information are as follows:

	2006		2005		2004
Cash paid for:
Interest	$	646,504	$	3,862	$	424,665
Income taxes	$	12,263,239	$	4,324,235	$	1,880,325

F-15

Supplemental disclosures of non-cash investing and financing activities are as follows:

Year ended March 31, 2006:

·

Change in unrealized holding gain of $1,324,487 on the investment in affiliate, net of deferred taxes of $811,783.

Year ended March 31, 2005:

·

Change in unrealized holding gain of ($46,884) on the investment in affiliate, net of deferred taxes of $28,736.

Year ended March 31, 2004:

·

The conversion of trade accounts receivable into a subordinated note receivable from Perfumania in the amount of $5,000,000.

·

Change in unrealized holding gain of $3,352,094 on the investment in affiliate, net of deferred taxes of $126,435.

W.

Accumulated Other Comprehensive Income

The balance in accumulated other comprehensive income, and the changes during each of the three years in the period ended March 31, 2006, are as follows:

	Foreign Currency Items			Unrealized Gain (Loss) On Investment in Affiliate			Total Accumulated Other Comprehensive Income (Loss)
Balance at April 1, 2003	$	(368,940	)	$	(287,359	)	$	(656,299	)
Current period change		828			3,352,094			3,352,922
Balance at March 31, 2004		(368,112	)		3,064,735			2,696,623
Current period change		5,457			(46,884	)		(41,427	)
Balance at March 31, 2005		(362,655	)		3,017,851			2,655,196
Current period change		408			1,324,487			1,324,895
Balance at March 31, 2006	$	(362,247	)	$	4,342,338		$	3,980,091

X.

Segment Information

Prior to the quarter ended December 31, 2005, the Company operated in one industry segment as a manufacturer and distributor of prestige fragrances and beauty related products. During December 2005, the Company commenced sales of watches, and in March 2006, sales of handbags, both of which are under license agreements with Paris Hilton Entertainment, Inc. Revenues from the sale of watches and handbags during the year ended March 31, 2006 totaled $370,000 and $73,420, respectively. Included in inventories at March 31, 2006, is approximately $2,220,000 relating to watches, of which approximately $2,022,000 are finished goods. The Company anticipates preparing full segment disclosure as these operations become more significant. See Note 13 for discussion of international sales.

Y.

Stock Split

On May 17, 2006, the Company announced a two-for-one stock split of common stock in the form of a dividend, for shareholders of record on May 31, 2006 (the “Stock Split”). The Stock Split was effected on June 16, 2006 and did not include shares held in treasury. The par value of the common stock remains at $0.01 per share. All references to share and per share amounts in the accompanying consolidated financial statements and the notes thereto have been adjusted to reflect the Stock Split. Previously awarded stock options and warrants have been retroactively adjusted to reflect the Stock Split.

F-16

2.

RELATED PARTY TRANSACTIONS AND SIGNIFICANT CUSTOMERS

The Company had net sales of $23,517,313, $35,330,772, and $31,964,407 during the fiscal years ended March 31, 2006, 2005 and 2004, respectively, to Perfumania, a wholly-owned subsidiary of ECMV, a company in which the Company’s Chairman and Chief Executive Officer has an ownership interest and held identical management positions until February 2004. Perfumania is one of the Company’s largest customers, and transactions with them are closely monitored by the Company’s Audit Committee and Board of Directors. Perfumania offers the Company the opportunity to sell its products in approximately 240 retail outlets and its terms with Perfumania take into consideration the companies’ over 15 year  relationship. Pricing and terms with Perfumania reflect (a) the volume of Perfumania’s purchases, (b) a policy of no returns from Perfumania, (c) minimal spending for advertising and promotion, (d) exposure of the Com pany’s products provided in Perfumania’s store windows and (e) minimal distribution costs to fulfill Perfumania orders shipped directly to their distribution center.

While the Company’s invoice terms to Perfumania appear as net ninety days, for over ten years, the Board of Directors has granted longer payment terms, taking into consideration the factors discussed above. The Board of Directors evaluates the credit risk involved and imposes a specific dollar limit, which is determined based on Perfumania’s reported results and comparable store sales performance. Management monitors the account activity to ensure compliance with the Board limit. Net trade accounts receivable owed by Perfumania to the Company totaled $8,506,303 and $8,566,939 at March 31, 2006 and 2005, respectively. Amounts due from Perfumania are non-interest bearing and were paid in accordance with the terms established by the Board (See Note 13 for further discussion of this concentration of credit risk).

The following unaudited summarized financial data was obtained from ECMV’s public filings (in 000’s):

	Balance Sheet Data
	January 28, 2006		January 29, 2005
Current assets	$	81,350	$	82,025
Total assets	$	113,956	$	107,817
Current liabilities	$	68,820	$	79,785
Total liabilities	$	81,718	$	92,757
Stockholders’ equity	$	32,239	$	15,060

	Statement of Income Data For Fiscal Year Ended
	January 28, 2006		January 29, 2005
Net sales	$	233,694	$	225,003
Costs and operating expenses		218,032		212,501
Depreciation and amortization		5,156		5,875
Income from operations		10,506		6,627
Net income	$	14,265	$	3,151

The Company owns 378,101 shares of ECMV common stock, which is an available-for-sale security and is reflected as an “investment in affiliate” in the accompanying consolidated balance sheets. As of March 31, 2006, the fair market value of the investment was $6,900,343 or $18.25 per share ($4,764,073 or $12.60 per share as of March 31, 2005), based on the quoted market price of the shares. Our adjusted cost basis (after a non-cash charge to earnings during fiscal 2002 of $2,858,447, which was reported as an other-than-temporary decline in the value of the investment) for the shares is $1,648,523 or $4.36 per share.

In addition to its sales to Perfumania, the Company had net sales of $46,939,431, $17,580,408, and $10,477,671 during the years ended March 31, 2006, 2005, and 2004, respectively, to fragrance distributors owned/operated by individuals related to the Company’s Chairman/CEO. These sales are included as related party sales in the accompanying statements of income. As of March 31, 2006 and 2005, trade receivables from related parties include $6,344,309 and $13,154 respectively, from these customers, which were current in accordance with their sixty or ninety day terms. The Company also reimbursed these related party distributors

F-17

for advertising and promotional expenses totaling approximately $174,000, $745,000, and $1,153,000, during the years ended March 31, 2006, 2005 and 2004, respectively.

During the years ended March 31, 2006 and 2005, the Company purchased $1,232,470 and $250,500, respectively, in television advertising on the “Adrenalina Show”, which is broadcast in various U.S. markets and in Latin American countries. The Company’s Chairman/CEO has a controlling ownership interest in a company, which has the production rights to the show.

3.

INVENTORIES

The components of inventories are as follows:

	March 31,
	2006		2005
Finished products	$	41,016,214	$	21,733,452
Components and packaging material		22,313,145		7,201,610
Raw material		6,113,726		3,741,745
	$	69,443,085	$	32,676,807

Included in finished products, and components and packaging materials at March 31, 2006, was $2,021,616 and $198,315, respectively, relating to watches.

4.

PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets are as follows:

	March 31,
	2006		2005
Promotional supplies, net	$	7,513,162	$	3,355,789
Prepaid advertising		2,235,704		1,660,363
Deferred tax assets		3,656,736		1,812,402
Prepaid royalties		1,964,617		1,022,281
Other		2,137,566		831,773
	$	17,507,785	$	8,682,608

5.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements are comprised of the following:

	March 31,						Estimated useful Lives (in Years)
	2006			2005
Molds and equipment	$	4,781,017		$	4,836,393		3-7
Furniture and fixtures		1,040,776			989,266		3-5
Leasehold improvements		467,271			732,209		5-7
		6,289,064			6,557,868
Less: accumulated depreciation and amortization		(5,390,574	)		(5,630,669	)
	$	898,490		$	927,199

Depreciation and amortization expense on equipment and leasehold improvements for the years ended March 31, 2006, 2005 and 2004 was $643,954, $724,640, and $970,372, respectively. There were no amounts subject to capital leases at March 31, 2006 and 2005.

On July 22, 2005, the Company finalized an agreement with SGII, Ltd. (an unrelated Florida limited partnership), to purchase certain real property in Sunrise, Florida for approximately $14 million. The property, which was intended to be used as the Company’s corporate headquarters and main distribution center, includes approximately 15 acres of land and a 150,000 square foot distribution center, with existing office space of 15,000 square feet. On December 29, 2005, the Company closed on the Sunrise Facility, financing $12.75 million of the purchase price under a fifteen year conventional mortgage with GE Commercial Finance Business Property Corporation.

F-18

As a result of various factors including the Company’s continuing growth, the increase in trucking costs resulting primarily from the increase in fuel prices and South Florida’s susceptibility to major storms, management and the Company’s Board of Directors determined that it would be more cost effective and prudent to relocate a major part of the Company’s warehousing and distribution activities to the New Jersey area, close to where the Company’s products are filled and packaged. Accordingly, on April 17, 2006, the Company entered into a five-year lease, commencing approximately August 1, 2006, for approximately 200,000 square feet of warehouse space in New Jersey, to also serve as a backup information technology site if the current Fort Lauderdale, Florida location encounters unplanned disruptions.

On May 15, 2006, the Company entered into an agreement to sell the Sunrise Facility for $15 million receiving a non-refundable deposit of $250,000 from the buyer. The sale was completed on June 21, 2006, and the mortgage was repaid. Accordingly, the Company has classified the property as “Property held for sale” in the accompanying consolidated balance sheet at March 31, 2006, along with the corresponding mortgage liability.

6.

TRADEMARKS AND LICENSES

Trademarks and licenses are attributable to the following brands:

	March 31,						Estimated Life (in years)
	2006			2005
XOXO	$	5,800,000		$	5,800,000		5
Fred Hayman Beverly Hills (“FHBH”)		2,820,361			2,820,361		10
Perry Ellis and Other		329,106			329,106		5-25
Paris Hilton		219,361			—		5
		9,168,828			8,949,467
Less – accumulated amortization		(2,937,397	)		(1,634,806	)
Subtotal of amortizable intangibles		6,231,431			7,314,661
Perry Ellis		5,888,250			5,888,250		indefinite
	$	12,119,681		$	13,202,911

Future amortization of licenses and trademarks is as follows (in 000’s):

For the year ending March 31,	Amount
2007	$	1,335
2008		1,335
2009		1,316
2010		1,301
2011		499
Thereafter		445
	$	6,231

See Note 8(B) and 8(C), respectively, for further discussion of the XOXO and FHBH brands.

7.

BORROWINGS

On July 20, 2001, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with GMAC Commercial Credit LLC (“GMACCC”). On January 4, 2005, the Loan Agreement was extended through July 20, 2006. Under the Loan Agreement, the Company was able to borrow, depending on the availability of a borrowing base, on a revolving basis, up to $20,000,000 at an interest rate of LIBOR plus 2.75% or the Bank of New York’s prime rate (7.75% at March 31, 2006), at the Company’s option.

On January 10, 2006, the Loan Agreement was amended, increasing the loan amount to $30,000,000 with an additional $5,000,000 available at the Company’s option. In addition, the maturity was extended through July 20, 2008, and the interest rate was reduced to LIBOR plus 2% or .25% below the prime rate. During May 2006, the company exercised its option and increased the line of credit to $35,000,000.

At March 31, 2006, based on the borrowing base at that date, the credit line amounted to $30,000,000 of which $19,081,787 was outstanding. Accordingly, the Company had $10,918,213 available under the credit

F-19

line. Restricted cash represents collections of trade accounts receivable deposited with our bank and pending transfer to GMACCC. As of March 31, 2006, $7,966,720 was on deposit with our bank pending transfer. As of March 31, 2005, none of the credit line was utilized and, accordingly, the Company had no restricted cash at that date.

Substantially all of the assets of the Company, excluding the Sunrise Facility (see Note 5 for discussion), collateralize the credit line borrowing. The Loan Agreement contains customary events of default and covenants which prohibit, among other things, incurring additional indebtedness in excess of a specified amount, paying dividends, creating liens, and engaging in mergers and acquisitions without the prior consent of GMACCC. The Loan Agreement also contains certain financial covenants relating to net worth, interest coverage and other financial ratios, which the Company was in compliance with at March 31, 2006.

On August 16, 2004, GMACCC approved a continuation of the Company’s common stock buyback program not to exceed $8,000,000.

On December 29, 2005, the Company entered into a fifteen year conventional mortgage loan with GE Commercial Finance Business Property Corporation in the amount of $12,750,000 in connection with the Sunrise Facility acquisition. The mortgage is payable in equal monthly installments of $106,698, including interest at 5.87%. As of March 31, 2006, the outstanding balance was $12,661,124. See Note 5 for further discussion of the Sunrise Facility acquisition and classification as “Held for Sale.”  The mortgage was repaid in connection with the June 21, 2006 sale of the property.

Management believes that funds from operations and its existing financing will be sufficient to meet the Company’s current operating needs.

8.

COMMITMENTS AND CONTINGENCIES

A.

Leases:

The Company leases office and warehouse space, as well as certain equipment under operating leases expiring on various dates through 2011. Total rent expense charged to operations for the years ended March 31, 2006, 2005 and 2004 was approximately $1,399,000, $1,080,000, and $900,000, respectively.

At March 31, 2006, the future minimum annual rental commitments under noncancellable operating leases, including the lease for the Company’s new New Jersey warehouse and distribution facility signed in April 2006, are as follows (in 000’s):

For the year ending March 31,	Amount
2007	$	1,341
2008		1,070
2009		1,021
2010		1,034
2011		1,054
Thereafter		512
Total	$	6,032

B.

License and Distribution Agreements:

During the year ended March 31, 2006, the Company held exclusive worldwide licenses to manufacture and sell fragrance and other related products for Perry Ellis, Paris Hilton, GUESS?, Ocean Pacific (“OP”), Maria Sharapova, Andy Roddick, babyGund and XOXO.

On January 7, 2005, the Company entered into a purchase and sale agreement, effective January 6, 2005, (the “Purchase Agreement”) with Victory International (USA), LLC (“Victory”), whereby it acquired the exclusive worldwide licensing rights, along with inventories, molds, designs and other assets, relating to the XOXO fragrance brand. As consideration, Victory was paid approximately $7.46 million, of which $2.55 million was in the form of a 60-day promissory note payable in two equal installments on February 6 and March 6, 2005. The payments were made as scheduled.

F-20

On December 1, 2003, Victory had entered into a license agreement with Global Brand Holdings, LLC (the “Fragrance License”) to manufacture and distribute XOXO branded fragrances. The first XOXO fragrances were introduced by Victory during December 2004. Under the Purchase Agreement, Victory assigned its rights, and the Company assumed the obligations, under the Fragrance License. During June 2006, the Company negotiated renewal terms which, among other items, reduced minimum royalty requirements and have extended the Fragrance License for an additional three years through June 30, 2010.

On January 26, 2005, the Company entered into an exclusive worldwide license agreement with Paris Hilton Entertainment, Inc. (“PHEI”), to develop, manufacture and distribute watches and other time pieces under the Paris Hilton name. The initial term of the agreement expires on June 30, 2010 and is renewable for an additional five-year period. The first “limited edition” watches under this agreement were launched during December 2005 and a line of “fashion watches” launched during spring 2006.

Effective April 6, 2005, the Company entered into an exclusive license agreement with GUND, Inc., to develop, manufacture and distribute children’s fragrances and related products on a worldwide basis under the babyGund trademark. The agreement continues through June 2010, and is renewable for an additional two years if certain sales levels are met. The Company anticipates that the first products under this agreement will be launched during fall 2006.

On May 11, 2005, the Company entered into an exclusive worldwide license agreement with PHEI, to develop, manufacture and distribute cosmetics under the Paris Hilton name. The initial term of the agreement expires on January 15, 2011 and is renewable for an additional five-year period. The Company anticipates that the first cosmetics under this agreement will be launched during fall 2006.

On May 13, 2005, the Company entered into an exclusive worldwide license agreement with PHEI, to develop, manufacture and distribute handbags, purses, wallets and other small leather goods, under the Paris Hilton name. The initial term of the agreement expires on January 15, 2011 and is renewable for an additional five-year period. The Company anticipates that the first products under this agreement will be launched during summer 2006.

On April 5, 2006, the Company entered into an exclusive worldwide license agreement with PHEI, to develop, manufacture and distribute sunglasses under the Paris Hilton name. The initial term of the agreement expires on January 15, 2012 and is renewable for an additional five-year period. The Company anticipates the first sunglasses under this agreement will be launched during Spring 2007.

Under all of these license agreements, we must pay a royalty and spend minimum amounts for advertising based on sales volume.

The Company believes it is presently in compliance with all material obligations under the above agreements. The Company expects to incur continuing obligations for advertising and royalty expense under all of these license agreements. As of March 31, 2006, the minimum amounts of these obligations derived from the aggregate minimum sales goals, set forth in the agreements, over the remaining contract periods are as follows (in 000’s):

Fiscal year ending March 31,	2007		2008		2009		2010		2011		After
Advertising	$	34,417	$	35,793	$	38,308	$	33,525	$	29,904	$	—
Royalties	$	8,219	$	7,911	$	9,005	$	7,886	$	6,446	$	630

C.

Trademarks:

Through various acquisitions since 1991, the Company acquired worldwide trademarks and distribution rights to ANIMALE and LIMOUSINE. In addition during 1994, FHBH granted the Company an exclusive 55-year royalty free license. Accordingly, there are no licensing agreements requiring the payment of royalties by the Company on these trademarks and the Company had the rights to license all of these trademarks, other than FHBH, for all classes of merchandise.

On January 16, 2003, the Company entered into an agreement with the Animale Group, S.A., to sell the inventory, promotional materials, molds, and intangibles, relating to the Animale brand for $4,000,000,

F-21

which closely approximates the brand’s net book value at the date of sale. At closing, the purchaser paid $2,000,000 in cash and provided a $2,000,000 note payable in twelve equal monthly installments of $166,667, plus interest at prime plus 1%, through January 31, 2004, which was paid in accordance with its terms.

As part of the agreement the Company retained the right to sell Chaleur d’Animale, the Animale brand’s newest product introduction, and maintained the rights to, and manufactured and distributed this product line on a royalty-free basis, until January 2005, at which time the Company destroyed all remaining inventory (which was not significant) and wrote-off intangibles relating to this brand, which had been fully amortized.

On March 28, 2003, the Company entered into an exclusive agreement to sublicense the FHBH rights to Victory for a royalty of 2% of net sales, with a guaranteed minimum annual royalty of $50,000 (the “Sublicense”). The initial term of the Sublicense is for five years, renewable every five years at the sublicensee’s option.

The Sublicense excluded the rights to “273 Indigo” for men and women, the latest fragrance introduction for the FHBH brand, as well as all new FHBH product development rights.

On October 17, 2003, the parties amended the Sublicense, granting new FHBH product development rights to the sublicensee. In addition, the guaranteed minimum annual royalty increased to $75,000 and royalty percentage on sales of new FHBH products increased to 3% of net sales.

D.

Employment and Consulting Agreements:

The Company has contracts with certain officers, employees and consultants which expire during March 2009. Minimum commitments under these contracts total approximately $3,625,000, ($1,275,000, $1,125,000, and $1,225,000 for the fiscal years ended March 31, 2007, 2008, and 2009, respectively). In addition, warrants to purchase 1,520,000 shares of common stock at a price of $0.93 (adjusted for Stock Split) were granted to officers and directors during 2002 in connection with their previous contracts. These warrants are exercisable for a ten-year period from the date of grant, vest over the three-year term of the applicable contract starting on March 31, 2004 (end of contract’s initial year), and double in the event of a change in control. As of March 31, 2006, all of these warrants were vested.

All of the previously described warrants were granted at or in excess of the market value of the underlying shares at the date of grant.

E.

Purchase Commitments:

As of March 31, 2006, the Company is contingently liable in the amount of approximately $81 million for purchase orders issued in the normal course of business for components, raw materials and promotional supplies. The purchase orders, for the most part, stipulate delivery dates ranging from thirty days to periods exceeding one year, based on forecasted production needs.

The Company is a party to legal and administrative proceedings arising in the ordinary course of business. The outcome of these actions is not expected to have a material effect on the Company’s financial position or results of operations.  See Note 12 to the consolidated financial statements for further discussion.

F-22

9.

INCOME TAXES

The components of the provision for income taxes for each of the years ended March 31 are as follows:

	Years Ended March 31,
	2006			2005		2004
Current taxes:
U.S. federal	$	13,149,357		$	5,803,516	$	3,024,049
U.S. state and local		1,455,699			811,062		531,722
		14,605,056			6,614,578		3,555,771
Deferred taxes (benefit)		(1,849,256	)		121,983		285,671
Income tax expense	$	12,755,800		$	6,736,561	$	3,841,442

The following table reconciles the statutory federal income tax rate to the Company’s effective tax rate for the years ended March 31 as follows:

	2006			2005			2004
Statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Increase (decrease) resulting from:
Extra-territorial exclusion		(1.4	)%		(0.6	)%		0.0	%
Other, including state taxes		2.3	%		3.9	%		3.0	%
		35.9	%		38.3	%		38.0	%

The approximate 2% reduction from the 38% effective income tax rate in the prior year was mainly attributable to the increase in international sales activity, resulting in additional foreign source income excludable for federal income tax purposes. This tax benefit has been phased out for the year ending March 31, 2007, replaced by new provisions based on a manufacturing criteria. The Company is currently analyzing the new tax law, but has not as yet concluded on its applicability to the Company.

Deferred income taxes as of March 31 are provided for temporary differences between financial reporting carrying value and the tax basis of the Company’s assets and liabilities under SFAS No. 109. The tax effects of temporary differences are as follows:

	2006			2005
Deferred Tax Assets:
Allowance for doubtful accounts, sales returns and allowances	$	1,246,281		$	604,848
Inventory write-downs		2,296,507			1,063,619
Other, net		113,948			143,935
Deferred tax asset	$	3,656,736		$	1,812,402
Deferred Tax Liabilities:
Depreciation and amortization	$	(1,600,821	)	$	(1,605,743	)
Net Deferred Tax Liability on Available-For-Sale Securities
Unrealized gain on investment in affiliate		(909,482	)		(97,699	)
Deferred tax liability	$	(2,510,303	)	$	(1,703,442	)

10.

STOCK OPTION AND OTHER PLANS

In October 1996, the Company’s shareholders ratified the establishment of a new stock option plan (the “1996 Plan”) which reserved 500,000 shares of its common stock for issue thereunder. Only employees who are not officers or directors of the Company shall be eligible to receive options under the 1996 Plan. Options granted under the 1996 Plan were exercisable for  five years from the date of grant and vested 25% after each of the first two years, and 50% after the third year.

F-23

As of March 31, 2006, and since the inception of the 1996 Plan, options have been granted to purchase 368,274 shares (net of cancellations) at exercise prices ranging from $0.6875 to $1.406 per share. Through March 31, 2006, all of these options had been exercised.

The following table summarizes the activity for options covered under the 1996 Plan:

	1996 Plan
	Amount			Weighted Average Exercise Price
Balance at April 1, 2003		221,450		$1.20
Granted		—
Exercised		(192,550	)	$1.15
Canceled/Expired		(6,900	)	$1.05
Balance at March 31, 2004		22,000		$1.40
Granted		—
Exercised		(20,000	)	$1.41
Balance at March 31, 2005		2,000		$1.41
Granted		—
Exercised		(2,000	)	$1.41
Canceled/Expired		—
Balance at March 31, 2006		0

In October 2000, the Company’s shareholders ratified the establishment of an additional option plan (the “2000 Plan”) which reserved an additional 500,000 shares of its common stock for issue thereunder with the same expiration and vesting terms as the 1996 Plan. To date, no grants have been made under the 2000 Plan and the shares underlying the options have not been registered.

The following table summarizes the activity and related information for all other options and warrants outstanding, including the warrants discussed under commitments in Note 8 (D):

	Amount			Average Price
Balance at April 1, 2003		6,092,000			$1.08
Granted		80,000			$1.80
Exercised		(2,096,000	)		$0.95
Canceled/Expired		—			—
Balance at March 31, 2004		4,076,000			$1.16
Exercised		(610,000	)		$1.57
Balance at March 31, 2005		3,466,000			$1.09
Granted		—			—
Exercised		(22,000	)		$1.33
Canceled/Expired		(4,000	)		$4.00
Balance at March 31, 2006		3,440,000			$1.09

On March 9, 2006, the Company filed with the Securities and Exchange Commission (“SEC”) a registration statement on Form S-3 (file number 333-132288) to register 3,480,000 shares of the Company’s common stock on behalf of certain selling shareholders. All of the shares are shares issuable, or that have already been issued, upon the exercise of the above warrants held by the selling shareholders. Although the Company was not entitled to receive any of the proceeds from any subsequent resale of the shares, it would receive approximately $3,792,000 if all of the warrants are exercised. The registration statement was declared effective by the SEC on May 1, 2006. As of March 31, 2006, 40,000 (22,000 during the year ended March 31, 2006) of these warrants have been exercised and the Company has received proceeds of $54,600.

F-24

The following table summarizes information about these options and warrants outstanding at March 31, 2006, all of which are exercisable:

	Options and Warrants Outstanding
Range of Exercise Prices	Amount		Weighted Average Exercise Price		Weighted Average Remaining Life
$0.93 - $1.22		3,420,000		$1.08	5
$1.80		20,000		$1.80	7
		3,440,000		$1.09	3

The Company has established a 401-K plan covering substantially all of its U.S. employees. Commencing on April 1, 1996, the Company matched 25% of the first 6% of employee contributions, within annual limitations established by the Internal Revenue Code. The cost of the matching program totaled approximately $68,000, $57,000, and $43,000 for the years ended March 31, 2006, 2005, and 2004, respectively.

11.

BASIC AND DILUTED EARNINGS PER COMMON SHARE

The following is the reconciliation of the numerators and denominators of the basic and diluted net income per common share calculations, retroactively restated for the Stock Split:

	2006			2005			2004
Net income	$	22,735,776		$	10,824,256		$	6,267,615
Weighted average number of shares issued		28,454,642			28,024,497			25,620,651
Weighted average number of treasury shares		(10,549,874	)		(10,282,117	)		(9,771,166	)
Weighted average number of shares outstanding used in basic earnings per share calculation		17,904,768			17,742,380			15,849,484
Basic net income per common share	$	1.27		$	0.61		$	0.40
Weighted average number of shares outstanding used in basic earnings per share calculation		17,904,768			17,742,380			15,849,484
Effect of dilutive securities:
Stock options and warrants		3,194,005			3,266,869			3,151,211
Weighted average number of shares outstanding used in diluted earnings per share calculation		21,098,773			21,009,249			19,000,695
Diluted net income per common share	$	1.08		$	0.52		$	0.33
Antidilutive securities not included in diluted earnings per share computation:
Options and warrants to purchase common stock		—			—			32,000
Exercise price		—			—		$	2.28 - $4.00

12.

LEGAL PROCEEDINGS

On June 21, 2006, the Company was served with a shareholder’s class action complaint (the “Class Action”) filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida by Glen Hutton, purporting to act on behalf of himself and other public stockholders of the Company, and a stockholder derivative action (the “Derivative Action”) filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida by NECA-IBEW Pension Fund, purporting to act derivatively on behalf of the Company.

The Class Action names Parlux Fragrances, Inc. as a defendant, along with Ilia Lekach, Frank A. Buttacavoli, Glenn Gopman, Esther Egozi Choukroun, David Stone, Jaya Kader Zebede and Isaac Lekach, each of whom is a director of the Company. The Class Action relates to the proposal (previously disclosed in the Company’s June 14, 2006 Form 8-K) from PF Acquisition of Florida LLC (“PFA”), which is presently owned by Ilia Lekach, to acquire all of the outstanding shares of common stock of the Company for $29.00 ($14.50 after the Stock Split) per share in cash (the “Proposal”). The Class Action seeks equitable relief for inadequate and

F-25

unfair consideration, without full disclosure of all material information, to the detriment of the public shareholders, all in breach of defendants’ fiduciary duties. The Class Action alleges that the Proposal is solely designed to ensure that the Company’s management completes the Proposal despite the fact that the consideration called for in the Proposal is unfair to the public shareholders and the Company’s public shareholders have not been provided with all material information concerning the Proposal necessary for them to make an informed decision.

The Derivative Action names the identical defendants as the Class Action and relates to the Proposal. The Derivative Action seeks to remedy the alleged breaches of fiduciary duties, waste of corporate assets, and other violations of law and seeks injunctive relief from the Court appointing a receiver or other truly neutral third party to conduct and/or oversee any negotiations regarding the terms of the Proposal, or any alternative transaction, on behalf of the Company and its public shareholders, and to report to the Court and plaintiff’s counsel regarding the same. The Derivative Action alleges that the unlawful plan to attempt to buy out the public shareholders of the Company without having proper financing in place, and for inadequate consideration, violates applicable law by directly breaching and/or aiding the other defendants’ breaches of their fiduciary duties of loyalty, candor, due care, independence, good faith and f air dealing, causing the complete waste of corporate assets, and constituting an abuse of control by the defendants.

The Company and the other named defendants engaged experienced Florida securities counsel and intend to respond to the Class Action and the Derivative Action in due course, but based on the allegations in the complaints and the information presently known to the Company, it believes they are without merit. Accordingly, management believes that the ultimate outcome of these matters will not have a material effect on the Company’s financial position or results of operations.

On June 20, 2006, the Independent Committee of the Board, through their counsel, responded to the Proposal, indicating that they did not believe it was prudent for the Company to move forward to consider the Proposal due to the contingencies therein, and requested removal of such as well as a deposit to cover the Company’s expenses that may re required to evaluate the Proposal.

On July 12, 2006, the Independent Committee received a letter from PFA stating that, due to corporate developments occurring with respect to the potential acquisition of certain of the Company’s brands, Mr. Lekach was withdrawing the Proposal.

On December 8, 2003, the Company was served with a complaint (the “Complaint”) filed in the Circuit Court for the Eleventh Judicial Circuit in Miami-Dade County, which was amended on January 26, 2004. The Complaint was a derivative action, in which the nominal plaintiffs, the Macatee Family Limited Partnership and Chatham, Partners I, LP, purported to be suing for the benefit of the Company itself and all of its public shareholders. The Complaint named Parlux Fragrances, Inc. as the nominal defendant and all of the current members of the Board of Directors as the defendants. It sought unspecified damages allegedly arising out of breaches of fiduciary duties in connection with transactions involving the Company and Mr. Ilia Lekach, its Chief Executive Officer or companies in which he had an ownership interest.  The Complaint sought to enjoin the Company from continuing to enter into such transactions, sought payme nt of costs and fees to Plaintiffs’ counsel and other unstated relief.

The Company and the Board of Directors engaged experienced Florida securities counsel to vigorously defend the action. A Motion to Dismiss was filed on February 27, 2004. A hearing on the Motion was held on April 14, 2004 and the Complaint was dismissed, without prejudice. The Court suggested the Plaintiffs serve a demand  upon the Corporation to examine the issues alleged in the Complaint rather than file an Amended Complaint, but gave the Plaintiffs thirty (30) days to file an Amended Complaint if they chose to do so. Following the order granting dismissal, the Company voluntarily furnished detailed information to Plaintiff’s counsel supporting the Company’s view that there was no legitimate basis for the claims previously asserted. Based on that submission, Plaintiffs requested additional time to consider their amendment. Additional exchanges of correspondence followed and additional extensions of time were granted . On June 25, 2004, the Plaintiffs filed an Amended Complaint, which was received by the Company’s counsel on June 29, 2004. The Amended Complaint, for the most part, contained similar allegations and requests for relief as included in the original Complaint. On August 12, 2004, the Company responded to the Amended Complaint denying the allegations and requesting dismissal as well as reimbursement of legal fees and costs. The Plaintiffs’ initial deposition occurred on October 21, 2004.

F-26

On December 8, 2004, Plaintiff’s filed a Motion for an Interim Award of $168,824 in attorneys’ fees and reimbursement of expenses. Plaintiffs also noticed the depositions of three of the Company’s Board members, who agreed and provided dates for their appearances. Plaintiff’s counsel was informed of the rejection of their claim, which the Company believes was without merit.

On December 22, 2004, Plaintiffs filed for voluntary dismissal of the action, without prejudice. No payment was made to the Plaintiffs or Plaintiffs counsel by the Company or the Company’s insurance carrier.

There are no other proceedings pending against the Company, which, if determined adversely, would have a material effect on the Company’s financial position or results of operations.

13.

CONCENTRATION OF REVENUE SOURCES AND CREDIT RISKS:

During the last three fiscal years, the following brands have accounted for 10% or more of the Company’s gross sales:

	2006		2005		2004
PERRY ELLIS		41%		75%		81%
PARIS HILTON		41%		11%		—%
GUESS?		12%		—%		—%
OCEAN PACIFIC		4%		11%		13%

Financial instruments which potentially subject the Company to credit risk consist primarily of trade receivables from department and specialty stores in the United States, distributors throughout the world, and Perfumania. To reduce credit risk for trade receivables from unaffiliated parties, the Company performs ongoing evaluations of its customers’ financial condition but does not generally require collateral. Management has established an allowance for doubtful accounts for estimated losses. The allowances for doubtful accounts are considered adequate to cover estimated credit losses.

No unrelated customer accounted for more than 10% of the Company’s net sales during the years ended March 31, 2006, 2005 and 2004.

Revenues from Perfumania represented 13%, 35%, and 18% of the Company’s net sales during the years ended March 31, 2006, 2005, and 2004, respectively. To reduce credit risk, on occasion, the Company, based on its reviews of Perfumania’s financial condition, converts certain trade receivables into subordinated notes receivable. During the years ended March 31, 2006, 2005 and 2004, revenues from other related parties represented approximately 25%, 18% and 13%, respectively, of the Company’s net sales, and receivables from these customers were current in accordance with their sixty or ninety day terms.

ECMV’s financial statements included in its Annual Report on Form 10-K for the year ended January 28, 2006, reflects a net income of $14.3 million compared to $3.1 million in the prior year comparable period. (See Note 2 for summarized financial data obtained from ECMV’s public filing). Management continues to evaluate its credit risk and assess the collectibility of the Perfumania receivables. Perfumania’s reported financial information, as well as the Company’s payment history with Perfumania, indicates that, historically, their first quarter ended approximately April 30, is Perfumania’s most difficult quarter as is the case with most U.S. based retailers. The Company has, in the past, received significant payments from Perfumania during the last three months of the calendar year, and has no reason to believe that this will not continue. Based on management’s evaluation, no allowances h ave been recorded as of March 31, 2006. The Company expects that Perfumania will reduce its receivable balance and the number of days outstanding by

March 31, 2007. Management will continue to evaluate Perfumania’s financial condition on an ongoing basis and consider the possible alternatives and effects, if any, on the Company.

F-27

Gross sales to unrelated international customers totaled approximately $77,681,000, $31,619,000, and $28,418,000, for the years ended March 31, 2006, 2005 and 2004, respectively. These gross sales by region were as follows (in 000’s):

	Year Ended March 31,
	2006		2005		2004
Latin America	$	47,479	$	17,273	$	11,343
Middle East		10,030		4,182		6,066
Europe		8,395		2,170		2,509
Asia/Pacific		6,234		3,837		2,810
Canada		3,876		1,462		2,167
Caribbean		1,354		1,038		2,496
Duty Free & Other		313		1,657		1,027
	$	77,681	$	31,619	$	28,418

At March 31, 2006 and 2005, trade receivables from foreign customers (all are payable in U.S. dollars except for approximately $400,000 in 2006) amounted to approximately $25,829,000 and $5,519,000, respectively.

14.

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):

The following is a summary of the Company’s unaudited quarterly results of operations for the years ended March, 31, 2006 and 2005 (in thousands, except per share amounts).

	Quarter Ended
	June 30, 2005		September 30, 2005		December 31, 2005		March 31, 2006
Net sales	$	33,817	$	39,328	$	56,412	$	52,679
Gross margin		19,424		22.245		31,385		31,510
Net income		3,812		4,440		5,996		8,488
Income per common share:
Basic	$	0.21	$	0.25	$	0.34	$	0.47
Diluted	$	0.18	$	0.21	$	0.29	$	0.40
	Quarter Ended
	June 30 2004		September 30, 2004		December 31, 2004		March 31, 2005
Net sales	$	22,961	$	22,723	$	28,748	$	25,928
Gross margin		11,270		11,404		16,053		16,236
Net income		2,190		2,375		2,868		3,391
Income per common share:
Basic	$	0.12	$	0.13	$	0.16	$	0.19
Diluted	$	0.11	$	0.12	$	0.14	$	0.16

F-28

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

Description	Balance at beginning of period		Additions charged to costs and expenses		Net Deductions		Balance at end of period
Year ended March 31, 2006
Reserves for:
Doubtful accounts	$	199,343	$	280,000	$	21,234	$	458,109
Sales returns		759,818		5,156,748		4,139,335		1,777,231
Demonstration and co-op advertising allowances		1,168,844		7,894,679		7,311,066		1,752,457
	$	2,128,005	$	13,331,427	$	11,471,635	$	3,987,797
Year ended March 31, 2005
Reserves for:
Doubtful accounts	$	235,198	$	120,000	$	155,855	$	199,343
Sales returns		758,487		3,561,399		3,560,068		759,818
Demonstration and co-op advertising allowances		761,842		3,275,595		2,868,593		1,168,844
	$	1,755,527	$	6,956,994	$	6,584,516	$	2,128,005
Year ended March 31, 2004
Reserves for:
Doubtful accounts	$	312,425	$	8,232	$	85,459	$	235,198
Sales returns		600,686		2,660,459		2,502,658		758,487
Demonstration and co-op advertising allowances		820,448		3,216,600		3,275,206		761,842
	$	1,733,559	$	5,885,291	$	5,863,323	$	1,755,527

F-29

EX-10.81

THROUGHOUT THIS AGREEMENT, WHERE INFORMATION HAS BEEN REPLACED BY AN ASTERISK
(*), THAT INFORMATION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE
24B-2 PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THES
OMITTED INFORMATION HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.

                                                                   EXHIBIT 10.81

                           SUNGLASS LICENSE AGREEMENT


         This SUNGLASS LICENSE AGREEMENT ("Agreement") is made and effective as
of the 30th day of March, 2006 (the "Effective Date"), by and between PARIS
HILTON ENTERTAINMENT INC., a California corporation with offices at 250 North
Canon Drive, 2nd Floor, Beverly Hills, CA 90210 ("Licensor"), and PARLUX
FRAGRANCES, INC., a public Delaware corporation with offices at 3725 S.W. 30th
Avenue, Ft. Lauderdale, Fl. 33312 ("Licensee") (together the "Parties").

                                   WITNESSETH:

        WHEREAS, by way of a master license (the "Master License") from Ms.
Paris Hilton, an individual with a mailing address of do Ms. Wendy White, 250
North Canon Drive, 2nd Floor, Beverly Hills, CA 90210, to Licensor, Licensor has
the sole and exclusive rights to license the Licensed Mark (as hereinafter
defined) pursuant to the terms hereof; and,

        WHEREAS, the Parties entered into a license agreement on May 21, 2004 in
which Licensor granted Licensee the sole and exclusive rights to manufacture and
distribute fragrances and related products bearing the Licensed Mark ( the
"Fragrance License"); and,

        WHEREAS, the Parties entered into a license agreement effective January
6, 2005 in which Licensor granted Licensee the sole and exclusive rights to
manufacture and distribute watches and other timepieces bearing the Licensed
Mark ( the "Watch License"); and,

        WHEREAS, the Parties entered into a license agreement effective May 11,
2005 in which Licensor granted Licensee the sole and exclusive rights to
manufacture and distribute cosmetics bearing the Licensed Mark ( the "Cosmetic
License"); and,

        WHEREAS, the Parties entered into a license agreement effective May 13,
2005 in which Licensor granted Licensee the sole and exclusive rights to
manufacture and distribute purses, hand bags, bags and small leather goods
bearing the Licensed Mark ( the "Handbag License"); and,

        WHEREAS, Licensee and its distributors are familiar with the business of
manufacturing, promoting and selling sunglasses and Licensee now desires to
obtain the exclusive right and license to use the Licensed Mark in the Territory
(as hereinafter defined) in connection with the design, manufacture, promotion,
distribution and sale of such products; and,

        WHEREAS, Licensor is willing to grant the license pursuant to the terms
contained herein.

        NOW, THEREFORE, in consideration of the premises and mutual agreements
contained herein, the parties hereto covenant and agree as follows:


                                     Page 1





                                    ARTICLE 1

                                   DEFINITIONS

The following definitions shall apply:

         A. TERRITORY. All countries of the world and all duty-free-shops,
ships, airplanes, military bases and diplomatic missions of every country of the
world, including the world-wide web.

         B. ARTICLES. Non prescription sunglasses and sunglass cases.

         C. LICENSED MARK. The trademark PARIS HILTON and such other trademarks
as are, from time to time, agreed to by Licensor. Licensor's current
applications for the Licensed Mark are detailed on the annexed Exhibit A. In
Germany, Austria, Switzerland and Italy (collectively, the "Restricted
Countries") Licensor and Paris Hilton are precluded from endorsing, selling or
licensing any products that are not sold under the PARIS HILTON trademark. Thus,
in the Restricted Countries, all Articles sold pursuant to this Agreement must
be sold under the PARIS HILTON trademark and none other.

         D. NET SALES. The sales price at which Licensee or any Subsidiary or
Affiliate (as hereinafter defined) bills its Non-Subsidiary or Affiliate
customers for Articles less: (i) all returns of damaged, defective or other
merchandise, uncollectible accounts, trade and cash discounts and allowances,
and taxes directly applicable to the sale of Articles (such as sales, use, value
added or similar taxes); (ii) all freight and shipping charges, insurance costs
and duties and other governmental charges paid by the Licensee to the extent
stated separately on any invoice; (iii) all receipts from the sale of
discontinued and close-out merchandise (which shall include only Articles sold
at a discount of 25% or more from the normal price charged to that specific
customer and then only to the extent that the aggregate gross sales thereof in
any contract year do not exceed fifteen percent (15%) of total gross sales);
and, (iv) all receipts from the sale of samples, displays, brochures,
gift-withpurchase and similar advertising and promotional materials and
packaging supplies. Notwithstanding the terms of sub-section (iii) above,
Licensee shall not be excused from paying royalties on the sales of the Articles
in which the Licensee receives a minimum gross margin of 25%, in which gross
margin is defined as sales price to the customer less Licensee's cost of goods
and shipping. For purposes of calculating royalties, any sales of Articles that
are not at arms-length shall have a royalty amount charged to them at Licensee's
arms-length cost.

         E. SUBSIDIARY. Any corporation or other entity which is 100% directly
or indirectly owned by Licensee.

         F. AFFILIATE. Any corporation or other entity which is at least 50%
owned by Licensee.

                                    ARTICLE 2

                             GRANT OF LICENSE RIGHTS

         RIGHTS GRANTED. Upon the terms and conditions of this Agreement,
Licensor hereby grants to Licensee, during the term of this Agreement, the sole
and exclusive right and license to use the Licensed Mark in the Territory as a
trademark in connection with the manufacture, promotion, sale and distribution
solely of the Articles and on all packaging materials, containers and
promotional materials related to the Articles and in connection with the
publicity, sales and advertising of the Articles, including in newspapers,
magazines, radio, television, cinema and similar media presently existing or
that may exist in the future. Articles may be sold through the channels
customarily used to sell similar products of comparable prestige and quality in
the

                                     Page 2





ordinary course of business as described in paragraph A of Article 7 below.
Licensor shall not, during any period this Agreement is in effect, grant any
rights to any third party in connection with the Articles for the Trademark or
any other trademark which includes PARIS HILTON or any derivative thereof.


                                    ARTICLE 3

                             EXCLUSIVITY OF LICENSE

        Other than as previously disclosed herein, Licensor will not grant any
other license effective during the term of this Agreement for the use of the
Licensed Mark on or in connection with the Articles in the Territory. Licensor
and Ms. Paris Hilton may use or grant others the right to use the Licensed Mark
on or in connection with goods of all other types and descriptions (with the
acknowledgement that Licensor has previously granted various licenses to
Licensee for a variety of goods in the Territory). Licensor acknowledges that
Licensee may manufacture and/or distribute in parts of the Territory goods
similar to the Articles covered by this Agreement which bear other trademarks.
Licensor further acknowledges and consents to Licensee obtaining other
additional licenses for the manufacture and/or distribution of other similar
lines of goods during the term of this Agreement. Licensee will not, during the
term of this Agreement and thereafter, attack either Licensor's title in and to
the Licensed Mark or the validity of this License.


                                    ARTICLE 4

                                TERM OF AGREEMENT

        Subject to the rights of termination set forth in this Agreement, the
initial term of this Agreement shall be for five (5) years commencing on the
execution date above and terminating on January 15, 2012 (the "Initial Term").
Licensee shall have the option to renew this Agreement for an additional
five-year period as long as the Minimum Royalties (as hereinafter defined) for
the Initial Term have been fully paid. Licensee shall notify Licensor of its
intent to either renew or not renew no later than August 15, 2011. Each twelve
(12) month period commencing on each January 16th and ending on January 15th
shall constitute and be referred to herein as an "Annual Period." However, the
initial Annual Period shall commence on the Effective Date above and shall
terminate on January 15, 2008.


                                    ARTICLE 5

                                 CONFIDENTIALITY

        The Parties acknowledge that all information relating to the business
and operations of Licensor and Licensee which they learn or have learned during
or prior to the term of this Agreement is confidential. The Parties acknowledge
the need to preserve the confidentiality and secrecy of such information and
agree that, both during the term of this Agreement and after the expiration or
termination hereof, they shall not use or disclose same, and shall take all
necessary steps to preserve in all respects such confidentiality and secrecy.
The provisions of this paragraph shall not apply with respect to any information
which has entered the public domain through no fault of Parties. The provisions
of this paragraph shall survive the expiration or termination of this Agreement.



                                     Page 3



                                    ARTICLE 6

                               DUTIES OF LICENSEE

         A. Best Efforts. During the Term of this Agreement, Licensee will use
its best efforts to exploit the rights herein granted throughout the Territory
and to sell the maximum quantity of Articles consistent with the high standards
and prestige represented by the Licensed Mark.

         B. Design and Sample Making. Licensor shall not be responsible for the
production, design or sample making of the Articles and Licensee shall bear all
costs related thereto.


                                    ARTICLE 7

                                QUALITY STANDARDS

         A. Manufacture of Articles; Quality Control. (i) The contents and
workmanship of Articles shall be at all times of the highest quality consistent
with the reputation, image and prestige of the Licensed Mark and Articles shall
be distributed and sold with packaging and sales promotion materials appropriate
for such high quality Products. The parties agree that the Articles shall be of
such premium quality, prestige and price similar to that of Donna Karan,
Christian Dior and Gucci branded sunglasses.

            (ii) All Articles shall be manufactured, labeled, sold, distributed
and advertised in accordance with all applicable national, state and local laws
and regulations.

            (iii) Licensee shall submit to Licensor for approval the proposed
Articles, along with the proposed packaging and other materials, designs,
sketches, colors, tags, containers and labels (the "Approval Package") for
Licensor's prior written approval, which approval shall not be unreasonably
withheld. In the event that Licensor does not respond to Licensee within 10 days
of the receipt of any and all items within the scope of the Approval Package,
any such item shall be deemed approved.

            (iv) During the term of this Agreement, upon Licensor's request,
Licensee shall submit, free of charge to Licensor, the then current production
samples of each Article marketed. Production samples submitted by Licensee for
this purpose may be retained by Licensor. Further, Licensee shall provide
Licensor with 100 samples of the various Articles being distributed each year
for Licensor to use for public relations and promotional purposes. All Articles
to be sold hereunder shall be at least equal in quality to the Approval Package
presented to Licensor. Licensor and its duly authorized representatives shall
have the right, upon reasonable advance notice and during normal business hours,
at Licensor's expense, to examine Articles in the process of being manufactured.

         B. Required Markings. Licensee shall cause to appear on all packaging
of Articles, (i) "the trademark, PARIS HILTON" is licensed to "Parlux
Fragrances, Inc."; and such additional legends, markings and notices complying
with the requirements of any law or regulation in the Territory and (ii) such
legends, markings and notices as Licensor, from time to time, may reasonably
request.

         C. Distribution. In order to maintain the reputation, image and
prestige of the Licensed Mark, Licensee's normal distribution patterns shall
consist of those retail establishments whose location,



                                     Page 4



merchandising and overall operations are consistent with the products described
in paragraph A (i) of Article 7 above.

         D. Sales Force. During the term of this Agreement, Licensee shall
maintain a non-exclusive sales force suitable to carry out the purpose of this
Agreement.

                                    ARTICLE 8

                           GUARANTEED MINIMUM ROYALTY

         In consideration of both the license granted and the services to be
performed by Ms. Paris Hilton hereunder, Licensee shall pay to Licensor an
annual Guaranteed Minimum Royalty during the initial Term of this Agreement of $
* per Annual Period, with payment for the first Annual Period due upon execution
hereof.



        ANNUAL PERIOD                         ANNUAL MIN. ROYALTY DUE                 GUARANTEED MIN ROYALTY DUE
- ---------------------------------------------------------------------------------------------------------------------
                                                                                        
First: Execution to 1/15/08                50% on 4/3/06   &  50% on 7/3/06                   $ *
- ---------------------------------------------------------------------------------------------------------------------
Second:   1/16/08 to 1/15/09               50% on 1/16/08 &  50% on 7/15/08                   $ *
- ---------------------------------------------------------------------------------------------------------------------
Third:    1/16/09 to 1/15/10               50% on 1/16/09 &  50% on 7/15/09                   $ *
- ---------------------------------------------------------------------------------------------------------------------
Fourth:   1/16/10 to 1/15/11               50% on 1/16/10 &  50% on 7/15/10                   $ *
- ---------------------------------------------------------------------------------------------------------------------
Fifth:    1/16/11 to 1/15/12               50% on 1/16/11 &  50% on 7/15/11                   $ *
- ---------------------------------------------------------------------------------------------------------------------


         In the event that the Initial Term of this Agreement is extended for an
additional five-year term (January 16, 2012 through January 15, 2017, the
"Extended Term") the Guaranteed Minimum Royalty for each Annual Period of the
Extended Term shall be $ *.

         The Guaranteed Minimum Royalty payable for each Annual Period in the
Extended Term shall be paid fifty percent (50%) on January 16th of the beginning
of each Annual Period and fifty percent (50%) on July 15th of each Annual Period
in the Extended Term. For example, the Guaranteed Minimum Royalty payable for
the Annual Period from January 16, 2012 through January 15, 2013 shall be
payable $ * on January 15, 2012 and $ * on July 15, 2012.

         The Guaranteed Minimum Royalty for each Annual Period shall be credited
against the Sales Royalty for the Annual Period(s) as provided in Article 9
below.


                                   ARTICLE 9,

           SALES ROYALTY; WITHHOLDING TAXES; COMMISSION TO RICK HILTON

         A. Licensee shall pay to Licensor a Sales Royalty on each Annual
Period's Net Sales of * . The Sales Royalty payable hereunder shall be accounted
for and paid on a quarterly basis (based upon a calendar year with quarters
ending March 31st, June 30th, September 30th and December 31st within
forty-five (45) days after the close of the prior quarter's sales, along with
the Guaranteed Minimum Royalty that may be due. In other words, the actual Sales
Royalty will be paid 45-days in arrears computed on the basis of Net Sales
during the quarter ending 45 days before the date upon which royalties are being
paid, with a credit for any Guaranteed Minimum Royalty and Sales Royalty
payments previously made to Licensor during such Annual Period.





                                     Page 5



         B. If applicable, Licensee shall compute any payment, on behalf of
Licensor, for all taxes (other than United States Federal, state or local income
taxes) which any governmental authority in the Territory may impose on Licensor
with respect to royalties paid by Licensee to Licensor. The amount of such taxes
shall be deducted from payments of royalties, provided that Licensor is entitled
under applicable law to credit the amount of such taxes against its United
States Federal Income Tax obligations. Licensee shall furnish Licensor with an
official receipt (together with a translation thereof if not in English)
promptly after each such payment of taxes. In the event such taxes are not paid
when due, all resulting penalties and interest shall be borne by Licensee.

         C. Up to 50% of the Sales Royalty for any Annual Period in excess of
payments of Guaranteed Minimum Royalty for the same Annual Period shall be
credited against the Guaranteed Minimum Royalty due to Licensor for any other
future Annual Period if the actual Sales Royalty for that period does not reach
such period's Guaranteed Minimum Royalty.

         D. Payment of the initial Guaranteed Minimum Royalty shall be as
follows:

            (1) $ * to "Rick Hilton" on April 3, 2006 c/o Ms. Wendy White, 250
            North Canon Drive, 2nd Floor, Beverly Hills, CA 90210 and $ * to
            Rick Hilton on July 3, 2006; and,

            (2) $ * to "Paris Hilton Entertainment Inc." on April 3, 2006 c/o
            Ms. Wendy White, 250 North Canon Drive, 2nd Floor, Beverly Hills, CA
            90210 and $ * to Paris Hilton Entertainment Inc. on July 3, 2006.

        E. All other Guaranteed Minimum Royalties and other Royalties shall be
paid as follows:

            (1) 5% of amounts due to: "Rick Hilton" c/o Ms. Wendy White, 250
            North Canon Drive, 2nd Floor, Beverly Hills, CA 90210; and,

            (2) 95% of amounts due to: Paris Hilton Entertainment Inc. c/o Ms.
            Wendy White, 250 North Canon Drive, 2nd Floor, Beverly Hills, CA
            90210.

        F. In addition to the Sales Royalty and Guaranteed Minimum Royalties
that Licensee is obligated to pay pursuant to the terms hereof, Licensee shall
further pay Mr. Rick Hilton, a commission for negotiating this Agreement of * of
the actual Sales Royalty and Guaranteed Minimum Royalty (paid to Licensor and
Rick Hilton) throughout the term of this Agreement and any extensions thereof.
This * commission shall be paid to Rick Hilton at the time that the Sales
Royalty is due to Licensor. The * commission shall be paid on the initial
Guaranteed Minimum Royalty due, so that Rick Hilton shall receive $ *
(Guaranteed Minimum Royalty), plus $* (commission) or a total of $ * payable 50%
on April 3, 2006 and 50% on July 3, 2006. For the avoidance of doubt, Licensee
shall be paying a total of 105% of the Guaranteed Minimum Royalty and Sales
Royalty hereunder for the life of this Agreement.


                                   ARTICLE 10

                                   ADVERTISING

         Licensee agrees to spend in the United States for "consumer
advertising" (as defined below) * of Net Sales during each Annual Period.




                                     Page 6



         For the other markets in the Territory, Licensee or its distributors
will jointly spend not less than * of Net Sales in such markets during each
Annual Period.

         "Consumer Advertising" shall be understood to include newspapers,
magazines, television, radio, billboards (including related artwork and
production charges for these five categories), retailer demonstration charges,
retailer's catalogues, gifts-with-purchase including the gift aspect of value
sets, direct mail, remittance envelopes, billing inserts , product samples,
pamphlets, free goods (including those to Licensor for events and other public
relation activities), window and counter displays (including testers, dummies,
counter cards and other visual aids), special events, contests, publicity and
promotions and cooperative advertising.

         Licensor undertakes at Licensee's request to make Ms. Paris Hilton
("PH") available at reasonable intervals and for reasonable periods (which shall
involve a maximum of three (3) appearances during the first Annual Period and a
maximum of two (2) appearances for each Annual Period thereafter) for
promotional tie-ins serving to associate PH with the Articles. Licensee shall
also be entitled to the use of PH's likeness for advertising and promotional
purposes upon Licensor's approval first being obtained in each instance, which
approval shall not be unreasonably withheld or delayed. Licensor shall make
every reasonable effort, in light of PH's busy schedule, at the request of the
Licensee, to arrange for PH's cooperation for publicity photographs, launch
parties, personal appearances and radio and TV interviews (which shall be
included in PH's obligations of three (3) and two (2) appearances discussed
above). Licensee shall reimburse Licensor for the reasonable costs involved in
providing PH plus four other individuals, selected by Licensor, plus her Mother
and Father if they wish to attend, with first-class travel, lodging, food and
other related expenses mutually agreed upon in advance of each appearance
attended by PH at Licensee's request, which shall include the cost of hair and
makeup personnel and security personnel. If PH fails to appear for a scheduled
Licensor approved event, Licensee will have the right to deduct up to $ * of its
non-refundable out of pocket expenses incurred in connection with each specific
event from the Sales Royalty. The failure to appear at a scheduled event could
have a material adverse effect on the Licensee's ability to market the Articles.

                                   ARTICLE 11

                   SALES STATEMENT; BOOKS AND RECORDS; AUDITS

         A. Sales Statement. Licensee shall deliver to Licensor at the time each
Sales Royalty payment is due, a reasonably detailed report signed by a duly
authorized officer of Licensee indicating by quarter the Net Sales and a
computation of the amount of Sales Royalty payable hereunder for said period.
Such statement shall be furnished to Licensor whether or not any Articles have
been sold during the period of which such statement is due.

         Licensee shall deliver to Licensor, not later than ninety (90) days
after the close of each Annual Period during the term of this Agreement (or
portion thereof in the event of prior termination for any reason), a statement
signed by a duly authorized officer relating to said entire Annual Period,
setting forth the same information required to be submitted by Licensee in
accordance with the first paragraph of this Article and also setting forth the
information concerning expenditures for the advertising and promotion of
Articles during such Annual Period required by Article 10 hereof.

         B. Books and Records; Audits. Licensee shall prepare and maintain, in
such manner as will allow its accountants to audit same in accordance with
generally accepted accounting principles, complete and accurate books of account
and records (specifically including without limitation the originals or copies
of documents supporting entries in the books of account) in which accurate
entries will be made covering all transactions, including advertising
expenditures, arising out of or relating to this Agreement. Licensee shall keep
separate general ledger accounts for such matters that do not include matters or
sales related to this



                                     Page 7



Agreement. Licensor and its duly authorized representatives shall have the
right, for the duration of this Agreement and for one (1) year thereafter,
during regular business hours and upon seven (7) business days advance notice
(unless a shorter period is appropriate in the circumstances), to audit said
books of account and records and examine all other documents and material in the
possession or under the control of Licensee with respect to the subject matter
and the terms of this Agreement, including, without limitation, invoices,
credits and shipping documents, and to make copies of any and all of the above.
All such books of account, records, documents and materials shall be kept
available by Licensee for at least two (2) years after the end of the Annual
Period to which they relate. If, as a result of any audit of Licensee's books
and records, it is shown that Licensee's payments were less than the amount
which should have been paid by an amount equal to * or more of the payments
actually made with respect to sales occurring during the period in question,
Licensee shall reimburse Licensor for the cost of such audit and shall make all
payments required to be made to eliminate any discrepancy revealed by said audit
within ten (10) days after Licensor's demand therefore.


                                   ARTICLE 12

                          INDEMNIFICATION AND INSURANCE

         A. Indemnification of Licensor. Licensee hereby agrees to save and hold
Licensor, Paris Hilton and their agents (the "Indemnified Parties") harmless
from and against and to indemnify them against any and all claims, suits,
injuries, losses, liability, demands, damages and expenses (including, subject
to subparagraph D below, Licensor's reasonable attorneys' fees and expenses)
which the Indemnified Parties may incur or be obligated to pay, or for which
either may become liable or be compelled to pay in any action, claim or
proceeding against them, for or by reason of any acts, whether of omission or
commission, that may be committed or suffered by Licensee or any of its
servants, agents or employees in connection with Licensee's performance of this
Agreement, including but not limited to those arising out of the alleged defect
in any Article produced by Licensee under this Agreement, the manufacture,
labeling, sale, distribution or advertisement of any Article by Licensee in
violation of any national, state or local law or regulation or the breach of
Article 5 hereof. The provisions of this paragraph and Licensee's obligations
hereunder shall survive the expiration or termination of this Agreement.

         B. Insurance Policy. Licensee shall procure and maintain at its own
expense in full force and effect at all times during which Articles are being
sold, with a responsible insurance carrier acceptable to Licensor, a public
liability insurance policy including products liability coverage with respect to
Articles with a limit of liability not less than $3,000,000. It shall be
acceptable if such coverage is provided by a product liability policy and an
additional umbrella policy. Such insurance policies shall be written for the
benefit of Licensee, Licensor and Paris Hilton and shall provide for at least
thirty (30) days prior written notice to said parties of the cancellation or
substantial modification thereof. Licensor shall be a named insured on each such
policy. Such insurance may be obtained by Licensee in conjunction with a policy
which covers products other than Articles.

         C. Evidence of Insurance. Licensee shall, from time to time upon
reasonable request by Licensor, promptly furnish or cause to be furnished to
Licensor evidence in form and substance satisfactory to Licensor of the
maintenance of the insurance required by subparagraph B above, including, but
not limited to, copies of policies, certificates of insurance (with applicable
riders and endorsements) and proof of premium payments. Nothing contained in
this paragraph shall be deemed to limit in any way the indemnification
provisions of the subparagraph A above.

         D. Notice. Licensor will give Licensee notice of any action, claim,
suit or proceeding in respect of which indemnification may be sought and
Licensee shall defend such action, claim, suit or proceeding on behalf


                                     Page 8



of Licensor. In the event appropriate action is not taken by Licensee within
thirty (30) days after its receipt of notice from Licensor, then Licensor shall
have the right, but not the obligation, to defend such action, claim, suit or
proceeding. Licensor may, subject to Licensee's indemnity obligation under
subparagraph A above, be represented by its own counsel in any such action,
claim, suit or proceeding. In any case, the Licensor and the Licensee shall keep
each other fully advised of all developments and shall cooperate fully with each
other in all respects in connection with any such defense as is made. Nothing
contained in this paragraph shall be deemed to limit in any way the
indemnification provisions of subparagraph A above, except that in the event
appropriate action is being taken by Licensee, through counsel reasonably
acceptable to Licensor, with respect to any non-trademark or intellectual
property action, claim, suit or proceeding, Licensor shall not be permitted to
seek indemnification from Licensee for attorneys' fees and expenses incurred
without the consent of Licensee. In connection with the aforesaid actions,
claims and proceedings, the parties shall, where no conflict of interest exists,
seek to be represented by common reasonably acceptable counsel. In connection
with actions, claims or proceedings involving trademark or other intellectual
property matters which are subject to indemnification hereunder, Licensor shall
at all times be entitled to be represented by its own counsel, for whose
reasonable fees and disbursements it shall be entitled to indemnification
hereunder.

                                   ARTICLE 13

                                THE LICENSED MARK

         A. Licensee shall not join any name or names with the Licensed Mark so
as to form a new mark, unless and until Licensor consents thereto in writing.
Licensee acknowledges the validity of the Licensed Mark, the secondary meaning
associated with the Licensed Mark, and the rights of Licensor with respect to
the Licensed Mark in the Territory in any form or embodiment thereof and the
goodwill attached or which shall become attached to the Licensed Mark in
connection with the business and goods in relation to which the same has been,
is or shall be used. Sales by Licensee shall be deemed to have been made by
Licensor for purposes of trademark registration and all uses of the Licensed
Mark by Licensee shall inure to the benefit of Licensor. Licensee shall not, at
any time, do or suffer to be done, any act or thing which may in any way
adversely affect any rights of Licensor in and to the Licensed Mark or any
registrations thereof or which, directly or indirectly, may reduce the value of
the Licensed Mark or detract from its reputation. Licensee will use its best
efforts to distribute Articles in the proper channels comparable to those of
similarly situated brands as discussed in Article 7 A (i) herein.

         B. At Licensor's request, Licensee shall execute any documents,
including Registered User Agreements, reasonably required by Licensor to confirm
the respective rights of Licensor and Ms. Paris Hilton in and to the Licensed
Mark in each jurisdiction in the Territory and the respective rights of Licensor
and Licensee pursuant to this Agreement. Licensee shall cooperate with Licensor,
in connection with the filing and the prosecution by Licensor of applications to
register or renew the Licensed Mark for Articles sold hereunder in each
jurisdiction in the Territory where Licensee has reasonably requested the same.
Such filings and prosecution shall be in the name of Licensor or Ms. Paris
Hilton, as they may decide, the expense of which shall be paid for by Licensee.
Nothing contained herein shall obligate Licensor to prosecute any trademark
application outside the U.S. which is opposed or rejected in any country after
the application is filed, provided, however, that any such prosecution shall go
forward if (a) Licensee requests same; (b) Licensee pays for same directly; and
(c) such prosecution is in Licensor's (or Ms. Paris Hilton's) name and directed
by Licensor. Licensor shall cooperate fully with any such prosecution. Licensee
agrees to retain and employ on Licensor's behalf the firm of Tucker & Latifi,
LLP of New York City to file and prosecute the various trademark applications
around the World for the Trademark in International Class 9 for eyewear, as long
as such fees charged by Tucker & Latifi, LLP are competitively priced to those
of other intellectual property law firms and such firm utilizes the services of
Licensee's paralegal employee in order to reduce such costs.



                                     Page 9



         C. Licensee shall use the Licensed Mark in each jurisdiction in the
Territory strictly in compliance with the legal requirements obtained therein
and shall use such markings in connection therewith as may be required by
applicable legal provisions. Licensee shall cause to appear on all Articles and
on all materials on or in connection with which the Licensed Mark is used, such
legends, markings and notices as may be reasonably necessary in order to give
appropriate notice of any trademark, trade name or other rights therein or
pertaining thereto.

         D. Licensee shall never challenge the validity of the Licensed Mark or
any application for registration thereof, or any trademark registration hereof,
or any rights of Licensor therein. The foregoing shall not be deemed to prevent
Licensee from asserting, as a defense to a claim of breach of contract brought
against Licensee by Licensor for failure to perform its obligations hereunder,
that its ceasing performance under this Agreement was based upon Licensor's
failure to own the Licensed Mark in the United States of America, provided that
it is established in a court of law that Licensor does not own the Licensed
Mark, that the Licensed Mark is owned by a third party so as to preclude the
grant of the license provided herein.

         E. In the event that Licensee learns of any infringement or imitation
of the Licensed Mark or of any use by any person of a trademark similar to the
Licensed Mark, it promptly shall notify Licensor thereof. In no event, however,
shall Licensor be required to take any action if it deems it inadvisable to do
so.

         F. Licensor shall not be required to protect, indemnify or hold
Licensee harmless against, or be liable to Licensee for, any liabilities,
losses, expenses or damages which may be suffered or incurred by Licensee as a
result of any infringement or allegation thereof by any other person, firm or
corporation, other than by reason of Licensor's breach of the representations
made and obligations assumed herein. Licensor and Ms. Paris Hilton make no
warranties or representations as to the registrability of the Licensed Mark in
the various trademark offices around the World, except that Licensor warrants
and represents that Ms. Paris Hilton has pending trademark applications as shown
on the annexed Exhibit A.


                                   ARTICLE 14

                              DEFAULTS; TERMINATION

         A. The following conditions and occurrences shall constitute "Events of
Default" by Licensee:

            1. the failure to pay Licensor the full amount due it under any of
the provisions of this Agreement by the prescribed date for such payment;

            2. the failure to deliver full and accurate reports pursuant to any
of the provisions of this Agreement by the prescribed due date therefore;

            3. the making or furnishing of a knowingly false statement in
connection with or as part of any material aspect of a report, notice or request
rendered pursuant to this Agreement;

            4. the failure to maintain the insurance required by Article 12;

            5. the use of the licensed mark in an unauthorized or unapproved
manner;

            6. Licensee's use of other trademarks or in association with the
Articles, without prior written consent of Licensor,

            7. the commencement against Licensee of any proceeding in
bankruptcy, or similar law, seeking reorganization, liquidation, dissolution,
arrangement, readjustment, discharge of debt, or seeking the appointment of a
receiver, trustee or custodian of all or any substantial part of Licensee's
property, not dismissed within sixty (60) days, or Licensee's making of an
assignment for the benefit of creditors, filing of a bankruptcy petition, its
acknowledgment of its insolvency or inability to pay debts, or taking advantage
of any other provision of the bankruptcy laws;



                                    Page 10


            8. the material breach of any other material promise or agreement
made herein.

         B. In the event Licensee fails to cure (i) an Event of Default within
thirty (30) days after written notice of default is transmitted to Licensee
under Article 14 A.3, A.5, A.6, or A.7; or (ii) Licensee fails to cure any other
Event of Default within sixty (60) days after written notice of default is
transmitted to Licensee or within such further period as Licensor may allow,
this Agreement shall, at Licensor's option, be terminated, on notice to
Licensee, and all the prorated Guaranteed Minimum Royalties for the Annual
Period as in Article 8 above shall become due, without prejudice to Licensor's
right to receive other payments due or owing to Licensor under this Agreement or
to any other right of Licensor, including the right to damages and/or equitable
relief.

         C. Upon the termination of this Agreement, in the event this Agreement
is not renewed as provided in Article 4 above, or in the event of the
termination or expiration of a renewal term of this Agreement, Licensee, except
as specified below, will immediately discontinue use of the Licensed Mark, will
not resume the use thereof or adopt any colorable imitation of the Licensed Mark
or any of its parts, will promptly deliver and convey to Licensor (free of all
liens and encumbrances) (i) all plates, engravings, silk-screens, or the like
used to make or reproduce the Licensed Mark and the Designs, but not the bottle
mold or tooling which Licensor shall be entitled to purchase or recover as
provided below; and, (ii) all items affixed with likeness or reproductions of
the Licensed Mark, whether Articles, labels, bags, hangers, tags or otherwise,
and, upon request by Licensor, will assign to Licensor such rights as Licensee
may have acquired in the Licensed Mark. In the event that this Agreement expires
or is terminated by Licensor due to Licensee's default, Licensor shall have an
option, but not an obligation, to purchase the bottle mold and tooling for the
Articles, free of all liens and other encumbrances, at a price equal to
Licensee's cost for same established by submission of bill(s) from supplier and
satisfactory proof of payment for same. Licensor shall pay such cost as follows:
50% (fifty) at closing and the balance paid by six (6) equal monthly payments.
Licensor shall, at the time it exercises its purchase option, enter into a
security agreement with Licensee with respect to the mold, which shall entitle
Licensee to foreclose on its security interest in the mold in the event Licensor
fails to make any installment payment due within fifteen (15) days after
receiving notice of default. Licensor shall exercise its aforesaid option within
thirty (30) days after Licensee's submission of documents establishing cost.
Notwithstanding the foregoing, if Licensor has terminated this Agreement due to
Licensee's default, Licensor, at its option, shall be entitled, in exercising
its purchase option, to deduct from the cost price an amount equal to the sales
and guaranteed minimum royalties Licensor is entitled to recover, for which
deduction Licensee shall receive a credit. In the event Licensor exercises its
aforesaid option, Licensee shall be precluded forever from using the bottle
molds or tools and from selling or otherwise transferring or licensing any
rights whatsoever in the molds or tools to any third party. In the event that
Licensor does not exercise its aforesaid option, Licensee shall not use the
bottle molds or tools or sell or otherwise transfer or license any rights
whatsoever in the bottle mold or tools to any third party for a period of two
(2) years after the determination of the fair market value. In the event of any
permitted use of the bottle mold and/or tools by Licensee, Licensee shall not
use in connection therewith the Licensed Mark, any trademark confusingly similar
thereto, any trade dress associated with the Articles, any advertising or
promotional materials used in connection with the Articles or any other markings
or materials which would cause a reasonable consumer to believe that any new
items sold using the bottle mold and tools are authorized by Licensor or in some
way associated with the Licensed Mark. Any permitted sale or license of the
bottle mold and/or tools by Licensee shall prohibit in writing the purchaser or
licensee from using the Licensed Mark, and confusingly similar trademark and any
such trade dress, advertising, promotional materials, markings or other
materials and shall expressly make Licensor a third party beneficiary of such
provision.


                                    Page 11



                                   ARTICLE 15

                       RIGHTS ON EXPIRATION OR TERMINATION

         A. If this Agreement expires or is terminated, Licensee shall cease to
manufacture Articles (except for work in process or to balance component
inventory) but shall be entitled, for an additional period of twelve (12) months
only, on a non-exclusive basis, to sell and dispose of its inventory subject,
however, to the provisions of paragraph D of this Article. Such sales shall be
made subject to all of the provisions of this agreement and to an accounting for
and the payment of Sales Royalty thereon but not to the payment of Guaranteed
Minimum Royalties. Such accounting and payment shall be made monthly.

         B. In the event of termination in accordance with Article 14 above,
Licensee shall pay to Licensor, the Sales Royalty then owed to it pursuant to
this Agreement or otherwise.

         C. Notwithstanding any termination in accordance with Article 14 above,
Licensor shall have and hereby reserve all rights and remedies which it has, or
which are granted to it by operation of law, to enjoin the unlawful or
unauthorized use of the Licensed Mark, and to collect royalties payable by
Licensee pursuant to this Agreement and to be compensated for damages for breach
of this Agreement.

         D. Upon the expiration or termination of this Agreement, Licensee shall
deliver to Licensor a complete and accurate schedule of Licensee's inventory of
Articles and of related work in progress then on hand (including any such items
held by Subsidiaries, Affiliates or others on behalf of Licensee) (hereinafter
referred to as "Inventory). Such schedule shall be prepared as of the close of
business on the date of such expiration or termination and shall reflect
Licensee's cost of each such item. Notwithstanding anything contained to the
contrary in this Agreement, Licensor thereupon shall have the option,
exercisable by notice in writing delivered to Licensee within thirty (30) days
after its receipt of the complete Inventory schedule, to purchase any or all of
the Inventory, free of all liens and other encumbrances, for an amount equal to
Licensee's cost plus 20%. In the event such notice is sent by Licensor, Licensee
shall deliver to Licensor or its designee all of the Inventory referred to
therein within thirty (30) days after Licensor's said notice and, in respect of
any Inventory so purchased, assign to Licensor all then outstanding orders from
Licensee to its suppliers and to Licensee from its customers. Licensor shall pay
Licensee for such Inventory within twenty (20) days after the delivery of such
Inventory to Licensor. No Sales Royalty shall be payable to Licensor with
respect to any such inventory purchased by Licensor.

                                   ARTICLE 16

                          SUBLICENSINA AND DISTRIBUTION

         A. (i) This Agreement and the License or other rights granted hereunder
may be assigned, sublicensed or transferred by Licensee, upon the approval of
Licensor in advance, in writing, which approval will not be unreasonably denied
or delayed. Any transferee shall be required to prove to Licensor that it is
capable of meeting the financial obligations contained herein.

            (ii) Consolidation. Notwithstanding anything contained to the
contrary in this Agreement, this Agreement shall not terminate if Licensee is
merged or otherwise consolidated into another entity which is the surviving
entity of equal or superior financial strength.




                                    Page 12



         B. Licensee shall be entitled to use distributors in connection with
its sale of Articles under this Agreement without approval of Licensor. No such
distributor, however, shall be entitled to exercise any of Licensee's rights
hereunder except for the sale of Articles which have been approved by Licensor
hereunder.

                                   ARTICLE 17

                                  MISCELLANEOUS

         A. Representations. The parties respectively represent and warrant that
they have full right, power and authority to enter into this Agreement and
perform all of their obligations hereunder and that they are under no legal
impediment which would prevent their signing this Agreement or consummating the
same. Licensor represents and warrants that it has the right to license the
Licensee the Licensed Mark and that Licensor has not granted any other existing
license to use the Licensed Mark on products covered hereunder in the Territory
and that no such license will be granted during the term of this Agreement
except in accordance with the provisions hereof.

         B. Licensor's Rights. Not withstanding anything to the contrary
contained in this Agreement, Licensor shall not have the right to negotiate or
enter into agreements with third parties pursuant to which it may grant a
license to use the Licensed Mark in connection with the manufacture,
distribution and/or sale of products covered hereunder in the Territory or
provide consultation and design services with respect to such products in the
Territory prior to the termination or expiration of this Agreement.

         C. Licensor's Retail Stores. In the event Licensor (or Ms. Paris
Hilton) opens one or more retail stores or boutiques selling various products
bearing the Licensed Mark, Licensee agrees to sell Articles to Licensor for sale
in such stores at the established U.S. retail price for the specific Article,
less an additional * discount. Licensee further agrees that any sales pursuant
to this paragraph shall be included in the computation of Net Sales for any
applicable Annual Period hereunder.

         D. Governing Law; Entire Agreement. This Agreement shall be construed
and interpreted in accordance with the laws of the State of Florida applicable
to agreements made and to be performed in said State, contains the entire
understanding and agreement between the parties hereto with respect to the
subject matter hereof, supersedes all prior oral or written understandings and
agreements relating thereto and may not be modified, discharged or terminated,
nor may any of the provisions hereof be waived, orally.

         E. No Agency. Nothing herein contained shall be construed to constitute
the parties hereto as partners or as joint venturers, or either as agent of the
other, and Licensee shall have no power to obligate or bind Licensor in any
manner whatsoever.

         F. No Waiver. No waiver by either party, whether express or implied, of
any provision of this Agreement, or of any breach or default thereof, shall
constitute a continuing waiver of such provision or of any other provision of
this Agreement. Acceptance of payments by Licensor shall not be deemed a waiver
by Licensor of any violation of or default under any of the provisions of this
Agreement by Licensee.

         G. Void Provisions. If any provision or any portion of any provision of
this Agreement shall be held to be void or unenforceable, the remaining
provisions of this Agreement and the remaining portion of any provision held
void or unenforceable in part shall continue in full force and effect.


                                    Page 13



         H. Force Majeure. Neither party hereto shall be liable to the other for
delay in any performance or for the failure to render any performance under the
Agreement (other than payment to any accrued obligation for the payment of
money) when such delay or failure is by reason of lockouts, strikes, riots,
fires, explosions, blockade, civil commotion, epidemic, insurrection, war or
warlike conditions, the elements, embargoes, act of God or the public enemy,
compliance with any law, regulation or other governmental order, whether or not
valid, or other similar causes beyond the control of the party effected. The
party claiming to be so affected shall give notice to the other party promptly
after it learns of the occurrence of said event and of the adverse results
thereof. Such notice shall set forth the nature and extent of the event. The
delay or failure shall not be excused unless such notice is so given.
Notwithstanding any other provision of this Agreement, either party may
terminate this Agreement if the other party is unable to perform any or all of
its obligations hereunder for a period of six (6) months by reason of said event
as if the date of termination were the date set forth herein as the expiration
date hereof. If either party elects to terminate this Agreement under this
paragraph, Licensee shall have no further obligations for the Guaranteed Minimum
Royalty beyond the date of termination (which shall be prorated if less than an
Annual Period is involved) and shall be obligated to pay any Sales Royalty which
is then due or becomes due.

         I. Construction. This Agreement shall be construed without regard to
any presumption or other rule requiring construction against the party causing
this Agreement to be drafted. If any words or phrases in this Agreement shall
have been stricken out or otherwise eliminated, whether or not any other words
or phrases have been added, this Agreement shall be construed as if those words
or phrases were never included in this Agreement, and no implication or
inference shall be drawn from the fact that the words or phrases were so
stricken out or otherwise eliminated.

         J. Binding Effect. This Agreement shall inure to the benefit of and
shall be binding upon the parties, their respective successors, Licensor's
transferees and assigns and Licensee's permitted transferees and assigns.

         K. Resolution of Disputes. Any controversy or claim arising out of, in
connection with, or relating to this Agreement, shall be determined by
arbitration by a three person arbitration panel at the office of the American
Arbitration Association. Both Parties shall share equally the cost of such
arbitration (except each shall bear its own attorney's fees). Any decision
rendered by the arbitrators shall be final and binding, and judgment may be
entered in any court having jurisdiction.

         L. Consolidation. Notwithstanding anything contained to the contrary in
this Agreement (a) this Agreement shall not terminate if Licensor is merged or
otherwise consolidated into another entity which is the surviving entity. (b)
Licensor shall be entitled to assign this Agreement to any Corporation to which
the Licensed Mark is assigned.

         M. Survival. The provisions of Articles 11, 12A, 12D, 13, 15, 16, and
17 shall survive any expiration or termination of this Agreement.

         N. Paragraph Headings. The paragraph headings in this Agreement are for
convenience of reference only and shall be given no substantive effect.








                                    Page 14



                                   ARTICLE 18

                                     NOTICES

        Any notice or other communications required or permitted by this
Agreement to be given to a party will be in writing and will be considered to be
duly given when sent by any recognized overnight courier service to the party
concerned to the following persons or addresses (or to such other persons or
addresses as a party may specify by notice to the other):


                         Ms. Paris Hilton c/o Ms. Wendy White
                         Paris Hilton Entertainment, Inc.
                         250 North Canon Dr. 2nd Floor,
                         Beverly Hills, CA 90210

TO LICENSOR
                         Robert L. Tucker, Esq., Tucker & Latifi, LLP
                         160 East 84th Street, New York, NY 10028
                         Tel: 212-472-6262;
                         Fax: 212-744-6509.
                         RTucker@TuckerLatifi.com


TO LICENSEE              PARLUX FRAGRANCES, INC.
                         3725 SW 30TH Avenue
                         Ft. Lauderdale, Florida, 33312
                         Attention: Ilia Lekach
                         Chairman & CEO
                         Fax : (954) 316-8155

WITH A COPY TO:          Kasowitz, Benson, Torres & Friedman, LLP
                         1633 Broadway
                         New York, New York 10019
                         Attention: Mitchell R. Schrage, Esq.
                         Tel: (212) 506-1960 Fax: (212) 758-1616,
                         MSchrage@Kasowitz.com


                                    Page 15



         Notice of the change of any such address shall be duly given by either
party to the other in the manner herein provided.

         EXECUTED as of the day and year first written above:


                             PARLUX FRAGRANCES INC.

                      By: /s/ Frank A. Buttacavoli 4/5/2006
                          ----------------------------------
           Frank A. Buttacavoli, Executive Vice President / COO / CFO





                         PARIS HILTON ENTERTAINMENT INC.

                              By: /s/ Paris Hilton
                                  -----------------
                             Paris Hilton, President

        Compliance with the terms of this Agreement shall constitute compliance
with the terms of the Master License. In the event of a termination of the
Master License granted to Licensor, prior to the expiration of this Agreement
(and any extensions thereof), Ms. Paris Hilton warrants and represents that the
successor entity to the rights to the PARIS HILTON trademark shall assume the
obligations and succeed to the rights of the Licensor and the rights of Licensee
shall continue unaffected.


                           ACKNOWLEDGED AND APPROVED:

                                /s/ Paris Hilton
                                ----------------
                                  Paris Hilton








                                    Page 16

EX-10.82

                                                                   EXHIBIT 10.82

                                 LEASE AGREEMENT

                  THIS LEASE AGREEMENT is made as of April 17, 2006, by and
between GREDEL PROPERTIES, L.L.C., c/o Frank A. Greek & Son, Inc., 33 Cotters
Lane, East Brunswick, New Jersey 08816 (hereinafter called the "LANDLORD") and
PARLUX FRAGRANCES, INC., a Delaware corporation (hereinafter called the
"TENANT").

                              W I T N E S S E T H:

         WHEREAS, the Landlord owns certain lands and premises in the Township
of Woodbridge, County of Middlesex, and State of New Jersey, located on the
parcels described as Lots 1A, 1B, and 2 in Block 61 (the "PREMISES"), and
containing 697,500 square feet of building (the "BUILDING;" and collectively
with the Premises, the "PROJECT"); and

         WHEREAS, the Landlord intends to lease to the Tenant, and Tenant
intends to hire and lease from Landlord, that portion of the Building containing
approximately 198,500 square feet, outside dimensions, as shown on SCHEDULE A
annexed hereto and made a part hereof (the "LEASED PREMISES").

         NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for the rents
reserved, the mutual considerations herein and the parties mutually intending to
be legally bound hereby, the Landlord does demise, lease and let unto the
Tenant; and the Tenant does rent and take from the Landlord the Leased Premises
as described in Article #l hereof and the Landlord and Tenant do hereby mutually
covenant and agree as follows:

                                  LEASE SUMMARY

TENANT:                             Parlux Fragrances, Inc., a Delaware
                                    corporation

TENANT'S REPRESENTATIVE:            Frank A. Buttacavoli, COO and CFO

ADDRESS AND PHONE NO.:              3725 SW 30th Avenue
                                    Ft. Lauderdale, FL 33312
                                    954-316-9008

LEASED PREMISES:                    That portion of the Building, containing
                                    approximately 198,500 rentable square feet,
                                    as determined by Landlord, as shown on
                                    SCHEDULE A. Landlord and Tenant stipulate
                                    that the number of rentable square feet in
                                    the Leased Premises set forth above shall be
                                    binding upon them.

BUILDING:                           That building in which the Leased Premises
                                    are located with an address of 1000
                                    Riverside Drive (formerly Industrial
                                    Avenue), Keasbey, New Jersey 08832, located
                                    on land commonly known as Block 61, Lots 1A,
                                    1B, and 2 on the tax maps of the Township of
                                    Woodbridge, Middlesex County, New Jersey,
                                    containing approximately 697,500 rentable
                                    square feet, situated on a portion of that
                                    certain real property legally described in
                                    SCHEDULE B attached hereto. Landlord and
                                    Tenant stipulate that the number of rentable
                                    square feet in the Building set forth above
                                    shall be binding upon them.

PROJECT:                            The real property legally described in
                                    SCHEDULE B attached hereto together with the
                                    Building and improvements located thereon.

                                       1


TENANT'S PROPORTIONATE
SHARE OF BUILDING:                  28.459%

LEASE TERM:                         Beginning on the Commencement Date and
                                    ending on the last day of the sixtieth
                                    (60th) full calendar month thereafter,
                                    subject to adjustment for renewal as
                                    provided in this Lease or earlier
                                    termination upon default.

COMMENCEMENT DATE:                  The date on which Landlord achieves
                                    "Substantial Completion" (as defined below)
                                    of the work (as detailed in SCHEDULE C
                                    hereto) in the Leased Premises and an
                                    unconditional certificate of occupancy is
                                    issued by Woodbridge Township or a
                                    conditional temporary certificate of
                                    occupancy is issued by Woodbridge Township
                                    subject to terms and conditions the
                                    existence and satisfaction of which will not
                                    prevent or materially interfere with
                                    Tenant's conduct of its business in the
                                    Leased Premises; provided, however, that if
                                    Landlord is prevented from obtaining a
                                    certificate or temporary certificate of
                                    occupancy as a result of work performed or
                                    being performed by or on behalf of Tenant,
                                    Landlord shall notify Tenant of such fact
                                    and the Commencement Date shall occur upon
                                    delivery by Landlord to Tenant of a
                                    certification as to substantial completion
                                    of the work as detailed in Schedule C issued
                                    by Landlord's engineer. The Commencement
                                    Date is estimated to be August 1, 2006. For
                                    purposes of this Lease the term "SUBSTANTIAL
                                    COMPLETION" shall mean the completion of the
                                    work such as to allow the use and occupancy
                                    of the Leased Premises for its intended
                                    purpose subject only to the completion of
                                    punchlist items the absence and the
                                    completion of which will not materially
                                    interfere with the use of the Leased
                                    Premises or the conduct and operation of
                                    Tenant's business therein.

PARKING:                            Tenant shall have no fewer than 65 parking
                                    spaces for use by employees and visitors.
                                    Parking spaces are unassigned. Landlord is
                                    not responsible to supervise use of parking
                                    spaces by tenants of the Building.

MONTHLY FIXED BASE RENT:


                                    ------------ ------------------------- ------------------- ---------------------
                                      MONTHS     ANNUAL RATE PER SQ. FT.   ANNUAL FIXED        MONTHLY FIXED
                                                                           BASE RENT           BASE RENT
                                    ------------ ------------------------- ------------------- ---------------------
                                                                                        
                                       1-24               $5.50              $1,091,750.00          $90,979.17
                                    ------------ ------------------------- ------------------- ---------------------
                                      25-48               $5.60              $1,111,600.00          $92,633.33
                                    ------------ ------------------------- ------------------- ---------------------
                                      49-60               $5.65              $1,121,525.00          $93,460.42
                                    ------------ ------------------------- ------------------- ---------------------


INITIAL ESTIMATED ANNUAL
REAL ESTATE TAX AND
OPERATING EXPENSE PAYMENTS*:


                                    ------------ ----------------------- --------------------- --------------------
                                      MONTHS     ESTIMATED ANNUAL RATE     ESTIMATED ANNUAL     ESTIMATED MONTHLY
                                                      PER SQ. FT.         OPERATING EXPENSES   OPERATING EXPENSES
                                    ------------ ----------------------- --------------------- --------------------
                                                                                       
                                       1-60              $1.36               $269,960.00           $22,496.67
                                    ------------ ----------------------- --------------------- --------------------


                                    * The above Real Estate Tax and Operating
                                      Expense Payments are estimates only and
                                      subject to adjustment to actual costs and
                                      expenses and according to the provisions
                                      of this Lease. Utilities are to be paid
                                      separately in accordance with Paragraph 6
                                      herein. This estimate does not include the
                                      Management Fee noted below which is
                                      payable as a part of Operating Expenses
                                      despite being listed separately.

INITIAL MONTHLY BASE
RENT AND OPERATING
EXPENSE PAYMENTS:                   $113,475.84

MANAGEMENT FEE                      3% of Fixed Base Rent

ROOF MAINTENANCE FEE:               None

SECURITY DEPOSIT:                   1 MONTH
BASE RENT & EXPENSES)               $116,000.00

REAL ESTATE TAX ESCROW:             $33,000.00

INSURANCE ESCROW:                   $16,000.00

BROKER:                             Trammell Crow Company and Cushman &
                                    Wakefield of New Jersey, Inc.

                                       2


NOTICES:                            Copies of notices to Tenant to be sent
                                    concurrently to:

                                    Jerry P. Brodsky, Esq.
                                    Peckar and Abramson, P.C.
                                    One South East Third Avenue
                                    Miami, Florida  33131

ADDENDA:                            Schedule A  -  Site Plan
                                    Schedule B  -  Legal Description
                                    Schedule C  -  Landlord's Work
                                    Schedule D  -  Non-Disturbance and
                                                   Attornment Agreement
                                    Schedule E  -  Landlord Subordination and
                                                   Consent
                                    Schedule F -   Direct Recognition Agreements

TENANT'S NAICS CODE:                424210 [SIC 5122]

         1. LEASED PREMISES. The Leased Premises shall consist of approximately
198,500 square feet outside dimensions located in a one-story building as shown
on SCHEDULE A on a portion of the Premises described on SCHEDULE B. The Leased
Premises shall be altered by Landlord in accordance with plans and
specifications as shall be mutually approved in writing by the Landlord and
Tenant, and shall be incorporated by reference herein, made a part hereof and
referred to as SCHEDULE C. Tenant shall have the right to use trailer parking
spaces of the loading dock doors serving the Leased Premises only.


         2. TERM OF LEASE. (a) The Landlord leases unto the Tenant and the
Tenant hires the aforementioned Leased Premises for the term of approximately
five (5) years to commence on or about August 1, 2006 and to terminate on the
last day of the calendar month in which the fifth anniversary of the
Commencement Date occurs (subject to the conditions of the Commencement Date
provision in the Lease Summary hereinabove). If the Commencement Date is other
than the first day of the month, Fixed Base Rent and Operating Expenses for the
partial month in which the Commencement date occurs shall be apportion on a per
diem basis based on a month of thirty (30) days and the partial month shall be
added to the first year of the Term.

           (b) If the Landlord is unable to give possession of the Leased
Premises on the date of the commencement of the term hereof due to the fact that
the work set forth in SCHEDULE C is not sufficiently completed or for any reason
whatsoever, the Landlord shall not be subject to any liability for the failure
to give possession on said date. Under such conditions, the base rent to be paid
herein shall not commence until the possession of the Leased Premises is given
or made available for occupancy by the Tenant, unless the failure of the
Landlord to give possession is caused by Tenant as a result of work being
performed pursuant to Section 2(c) below, delay in preparation and approval of
plans or otherwise as a result of Tenant's acts or failure to act (in which case
the rent to be paid herein shall commence when Landlord reasonably determines
Landlord would have be able to give possession of the Leased Premises to Tenant
but for such delay caused by Tenant). No such failure to give possession on the
date of commencement shall affect the validity of the Lease or the obligations
of the Tenant hereunder.

           (c) Notwithstanding the foregoing, providing that Tenant does not
interfere with the performance of any of Landlord's work, Tenant may be
permitted access to the Leased Premises on or about June 19, 2006 (such date to
be determined in Landlord's reasonable discretion) for the purpose of installing
racks and performing such other work and/or storing such personal property as
Tenant may lawfully perform or store therein, provided, however, that (i) Tenant
releases Landlord for any loss or damage to any personal property in the Leased
Premises, from any cause whatsoever, including, without limitation, fire or
theft, and acknowledges its obligation to insure against such loss or damage,
and (ii) Tenant shall indemnify and defend Landlord against any claim, loss,
expense or liability arising from any injury (including death) to any of
Tenant's employees, or Tenant's contractor's or subcontractor's employees, and
any property damage (including, without limitation, theft of materials, tools or
stored product or inventory), occurring during the performance of any of
Tenant's work at the Leased Premises and shall carry or cause others to carry
liability insurance against any such personal injury or property damage naming
Landlord as an additional insured.

                                       3


         (d) Notwithstanding the forgoing, Tenant and Landlord acknowledge that
application has or will be made to the Township of Woodbridge ("TOWNSHIP") for
classification of Tenant's storage as Group S-1 as suggested in that certain
report entitled "New Jersey Uniform Construction Code Analysis, Parlux
Fragrances Distribution Center, Woodbridge, NJ, File: PAR-06-01" dated February
27, 2006, prepared by Alfred J. Longhitano, P.E., LLC. Upon receipt of notice of
the results of such application from the Township the party receiving same shall
promptly provided a copy of the notice to the other. In the event that the
Township does not approve such application and the classification of Tenant's
storage is such that requires the installation of an in-rack sprinkler system,
Tenant may, by written notice to Landlord to be given within five (5) business
days from receipt by Tenant of notice of the results of the application, elect
to terminate this Lease, in which event all money paid by Tenant to Landlord
hereunder shall be promptly refunded, without deduction. Time is of the essence
with regard to any such notice of termination.

         3. FIXED BASE RENT. (a)(i) The annual fixed base rent during the term
of this Lease shall be as set forth on the Lease Summary page of this Lease,
payable by the Tenant in equal monthly installments on or before the first day
of each month, in advance, except that the first monthly installment of fixed
base rent shall be paid upon signing of this Lease. In the event that the
Commencement Date is not the first day of a calendar month the apportioned fixed
base rent for the partial month in which the Commencement Date occurs shall be
payable on or before the first day of the first full calendar month of the Term
and payment of full installments of fixed base rent shall commence as of the
second full calendar month of the Term

         (b) All rents due herein and other sums due under this Lease shall be
paid in U.S. funds payable on a U.S. bank at the office of the Landlord or at
such other place designated by Landlord from time to time, without any prior
demand and without any deduction or set-off whatsoever promptly on the dates
due.

         (c) In those instances where Tenant is required to pay additional rent
herein, Tenant's proportionate share shall be 28.459% (on the basis of (i)
198,500 square feet over 697,500 square feet). If Tenant's actual use of any
service or common utility is more than that of other tenants then the basis for
the computing of said additional rent with regard to such service or utility
shall be adjusted equitably based on such actual use.

         (d) Any additional rent required to be paid by Tenant shall be due and
payable no later than ten (10) days of the date of receipt by Tenant of
statement by Landlord.

         (e) Tenant hereby acknowledges that late payment to Landlord of rent or
other sums due hereunder will cause Landlord to incur costs not contemplated by
this Lease, the exact amount of which will be extremely difficult to ascertain.
If any rent or other sums due from Tenant is not received by Landlord within ten
(10) days after its due date, then Tenant shall pay to Landlord a late charge
equal to five percent (5%) of such overdue amount, plus costs and reasonable
attorneys' fees, if any, incurred by Landlord to collect amounts due from
Tenant. The parties hereby agree that such late charges represent a fair and
reasonable estimate of the cost that Landlord will incur by reason of Tenant's
late payment. Landlord's acceptance of such late charges shall not constitute a
waiver of Tenant's default with respect to such overdue amount or estop Landlord
from exercising any of the other rights and remedies provided under this Lease
or at law.

         (f) In addition to the fixed annual base rent provided in 3(a)(i)
above, Tenant shall pay to Landlord a management fee equal to three (3%) percent
multiplied by the fixed annual base rent representing Landlord's fee for
managing the Project, Building and Leased Premises.

         4. USE. Tenant shall use the Leased Premises for distribution,
warehousing, general offices and such other uses directly related to
distribution, warehousing and general offices (and for no other purpose
whatsoever) subject to and in accordance with all rules, regulations, laws,
ordinances, statutes and requirements of all government authorities, including
the fire insurance rating organization and any similar bodies having
jurisdiction over the Leased Premises. Tenant warrants to the Landlord it will
not permit any flammable or hazardous materials to enter, be stored, used or
remain on the Leased Premises except as expressly provided by the terms of this.


                                       4


5. OPERATING EXPENSES AND REPAIRS AND MAINTENANCE.

         (a) As provided for herein, in addition to the Base Rent, Tenant shall
pay to Landlord Tenant's proportionate share of all Operating Expenses,
including, without limitation, repairs, maintenance and replacements (if
necessary), landscape maintenance and landscaping, snow removal, utilities not
directly metered to Tenant or other tenants, general exterior debris and garbage
removal at the Project (but excluding Tenant's dumpsters or other trash removal
and/or recycling), broken glass, common area cleaning (if applicable), sprinkler
monitoring, standby sprinkler charges, asphalt driveway and parking lot
maintenance (including, without limitation, dolly pads and curbs), exterior
lighting, repair or replacement of fencing, parking lot re-striping, painting
and power washing of exterior, re-caulking of panel joints, non-structural
maintenance of roof (including roof membrane, smoke domes and skylights), pest
control and extermination (but excluding within the Leased Premises), repair of
sanitary and storm sewers and utility feeds, security (if any, and nothing
herein shall be construed to require Landlord to provide security services of
any kind) and the management fee payable pursuant to Section 3(f) (collectively,
"OPERATING EXPENSES"). Operating Expenses exclude: (i) Tenant's payment of
taxes, insurance, roof maintenance and environmental inspections which shall be
governed as provided for elsewhere in this Lease; and (ii) specific repairs
requested by Tenant to its Leased Premises not contemplated under this Lease.
Notwithstanding the foregoing, Landlord agrees that to the extent that
guarantees or warranties are applicable to the Building or any equipment, same
will be enforced for the benefit of the Project.

         (b) Tenant shall pay monthly, in advance and on the same day as the
Base Rent is due, one-twelfth (1/12th) of the estimated amount of its
proportionate share (as defined in the Lease) of the Operating Expenses as
determined by Landlord within its reasonable discretion and as set forth in a
notice delivered to Tenant at least thirty (30) days before the expiration of
the current calendar year (the "ESTIMATED PROPORTIONATE SHARE"). Within ninety
(90) days after the expiration of each calendar year, and within one hundred
twenty (120) days after the expiration or other termination of the Lease,
Landlord shall deliver to Tenant a reasonably detailed statement showing
Tenant's Proportionate Share of the Operating Expenses actually incurred by
Landlord during the preceding year (the "ACTUAL PROPORTIONATE SHARE"), provided
however that the failure to deliver such statement shall not prohibit Landlord
from collecting any deficiency in the estimated payment of such Operating
Expenses for any past period or from collecting such Operating Expenses in
applicable current or future periods. If Tenant's Estimated Proportionate Share
under this Section during the preceding year exceeds Tenant's Actual
Proportionate Share as indicated on said statement, Tenant shall be credited the
amount of such overpayment against Tenant's payment of its Estimated
Proportionate Share of such Operating Expenses next becoming due or, if at the
end of the Term, Landlord shall remit to Tenant such overpayment, by check,
within forty-five (45) days after delivery of such statement. If Tenant's
Estimated Proportionate Share under this Section 5(b) during said preceding year
was less than Tenant's Actual Proportionate Share as indicated on said
statement, Tenant shall pay to Landlord the amount of the deficiency within 45
days after delivery by Landlord to Tenant of said statement. At any time and
upon reasonable notice, Landlord may adjust the amount of the Tenant's Estimated
Proportionate Share to reflect Landlord's revised estimate of such expenses for
the remainder of the current calendar year. Landlord also reserves the right to
bill Tenant for other extraordinary Operating Expenses, not contemplated within
the Estimated Proportionate Share (the "ADDITIONAL OPERATING EXPENSES") as
incurred, and shall provide Tenant with copies of the backup documentation
supporting each such bill, and such Additional Operating Expenses shall be due
within thirty (30) days of the date of Tenant's receipt of such bill from
Landlord.

         (c) Tenant shall have the right to examine and audit Landlord's records
supporting the statement of Operating Expenses during normal business hours, and
at Landlord's office where the records regarding the Operating Expenses are
maintained, upon not less than three business days' notice. Tenant shall
commence its examination and, if applicable, its audit within 90 days after
receipt of the statement, shall perform its examination and audit with diligence
and continuity and shall complete its examination and audit and deliver a copy
thereof to Landlord within 30 days after beginning the audit. The cost of any
such examination and audit shall be paid by Tenant, provided that Landlord shall
reimburse Tenant for the reasonable cost of the audit if the audit reveals an
overcharge of 5% or more and the amount of the overcharge is not reduced below
such 5% upon Landlord's dispute thereof. Landlord shall refund to Tenant any
overpayment, or Tenant shall pay to Landlord any underpayment, as applicable,
for the calendar year in question within 30 days after the amount of the
overpayment/underpayment has been established by the audit or as provided in
this subsection. If Tenant fails to exercise its rights of audit within the 180
day period, the amount of Tenant's obligations for Operating Expenses shall be
conclusively established as the amount set forth in the statement delivered by
Landlord to Tenant. If, however, Tenant timely exercises its right to audit and
the results thereof differ from Landlord's statement of Operating Expenses and
Landlord disputes Tenant's audit and gives Tenant notice within 30 days of
Landlord's receipt thereof that it disputes the results of such audit, Landlord
and Tenant will use reasonable efforts to resolve the dispute. If the dispute is
not resolved by Landlord and Tenant within 30 days after Landlord's notice of
dispute, the dispute shall be resolved by a mutually-selected independent
certified public accountant with at least ten years experience in the commercial
real estate market. In the event Landlord fails to give Tenant notice that it
disputes Tenant's audit within such 30 day period, the amount of Tenant's
obligation for Operating Expenses shall be conclusively established as the
amount set forth in Tenant's audit. Any personnel involved in the examination or
audit who are not employees of Tenant shall be required to sign a
confidentiality agreement which precludes such person, and any firm with which
he/she may be associated, from disclosing any information obtained to any third
parties.

                                       5


         (d) Tenant shall, at its sole cost and expense, make all repairs and
replacements to the Leased Premises, including the maintenance of same as the
same may be required during the term of this Lease, provided that such damage to
the Leased Premises is not caused by the sole negligence or intentional act of
Landlord, its agents, servants, contractors or employees, or of other tenants of
the Building or such other tenant's agents, servants, contractors, employees or
invitees (collectively, "OTHER TENANT PARTIES"). Tenant shall maintain a service
contract on the HVAC system with a vendor reasonably acceptable to Landlord.
Notwithstanding the foregoing, Landlord shall, at its own cost and expense, make
all repairs and replacements to the structural elements of the Building and the
Leased Premises, and any latent defects therein except for repairs resulting
from the negligence or intentional acts of Tenant or its agents, employees,
contractors or invitees. Structural elements as used herein shall be defined as
load bearing walls, steel, foundation, footings and the roof structure.
Structural elements specifically exclude the roof membrane, roof mounted smoke
domes and skylights, windows, window frames, doors, door frames and glass which
shall be maintained, repaired and replaced (if necessary) by Landlord as an
operating expense; provided that any damage to the foregoing is not caused by
the negligence or intentional act of Landlord, its agents, servants, employees,
contractors or Other Tenant Parties. Landlord represents that the floors of the
Leased Premises consist of an 8" concrete slab capable of bearing loads of 500
pounds per square foot.

         (e) The Tenant covenants and agrees that it shall not cause or permit
any waste (other than reasonable wear and tear), damage, disfigurement or injury
to the Leased Premises, or any overloading of the floors of the building
constituting part of the Leased Premises.

         (f) The Tenant expressly covenants and agrees at its sole expense to
replace with similar quality glass any broken glass in the windows, doors or
other apertures of the Leased Premises which may become damaged or injured.

         (g) (i) The Landlord shall, at Tenant's sole cost and expense,
maintain, repair and keep free and clear of ice and snow, the driveways and
parking areas as well as maintain and repair the common area hallway(s),
bathroom(s) and loading dock area(s), if any. Such amounts shall be treated as
Operating Expenses as provided for in Section 5(a). Tenant shall reimburse
Landlord for its proportionate share of all repairs to the front and rear
asphalt parking areas.

                  (ii) The Tenant shall at its cost and expense, maintain,
repair and keep free and clear of ice and snow the sidewalks, steps and approach
sidewalks to the Leased Premises; and the Tenant shall further, at its own cost
and expense, keep the exterior of the Leased Premises free and clear of paper
and other debris so as to keep same in a good and orderly manner as reasonably
prescribed by Landlord. Tenant shall be responsible for its own garbage disposal
and dumpsters (if any).

                  (iii) In the event the Landlord expends any amounts in
fulfilling the Tenant's obligation herein, then the Tenant shall pay as
additional rent its proportionate share of such amounts expended as provided
under the formula in Article 3 hereof.

         (h)      Intentionally Omitted


         6. UTILITIES. The Tenant shall be responsible for, and at its own cost
and expense, shall pay all utility meter charges, deposits, service charges and
use of utilities, including gas, electric, water and sewer. All utilities not
separately metered shall be assessed against Tenant and other tenants sharing
same as provided in the formula in Article 3 (c).


         7. TAXES. (a) The Tenant shall pay as additional rent its proportionate
share of the "Estimated Real Estate Taxes Assessed on Project Land and
Improvements" (as such term is defined in Section 7(b) herein), said obligation
to commence and be prorated as of the Commencement Date of this Lease and as of
the date of termination hereunder. In addition to the obligation to pay real
estate taxes as hereinabove set forth, the Tenant shall, during the term of this
Lease, pay, as additional rent, its proportionate share of any levy for the
installation of local improvements and any municipal license fees affecting the
Leased Premises or the building in which the Leased Premises is located as may
be assessed by any governmental agencies, boards or bureaus having jurisdiction
thereof. If any assessment or imposition for capital or public improvements may
be payable by law at the option of the taxpayer in installments, Landlord shall
elect to make payment in installments and such installments payment of which are
due during the Term of this Lease (or any renewal lease) shall be paid by Tenant
with any interest that may be due thereon before any fine, penalty, interest or
cost shall be added thereto, and those payments due after the expiration of this
Lease shall be the obligation of the Landlord.

                                       6


(b) As used in this Section 7, the term "ESTIMATED REAL ESTATE TAXES ASSESSED ON
PROJECT LAND AND IMPROVEMENTS" shall mean an amount equal to the final product
of (i) the "Estimated Assessed Value of Land and Improvements" (as herein
defined) associated with the Project, multiplied by (ii) the so-called county
equalization ratio ("APPLICABLE EQUALIZATION RATIO") in effect for the Township
of Woodbridge ("TOWNSHIP") for the year in question, (iii) multiplied by the
final tax rate (sometimes referred to as "millage") of the Township applicable
to the Keasby district ("APPLICABLE TAX RATE") in effect from time to time. As
used in this Section 7, the term "ESTIMATED ASSESSED VALUE OF LAND AND
IMPROVEMENTS" shall mean $36,967,500.00. Such Estimated Assessed Value of Land
and Improvements shall be fixed for the initial 5-year Term of this Lease.
Notwithstanding the foregoing, for purposes of calculating Tenant's
proportionate share of the Estimated Real Estate Taxes Assessed on Project Land
and Improvements for the portion of the Term that falls within calendar year
2006, Landlord agrees that such amount shall be fixed at $1.00 psf of the
Building ($697,500.00) and that Tenant's proportionate share will be $697,500.00
multiplied by Tenant's Proportionate Share of Building (28.459%) and prorated to
reflect the portion of the tax year falling after the Commencement Date. For the
remainder of the initial Term of this Lease Tenant shall be entitled to a credit
("TENANT'S TAX CREDIT") to be applied in equal monthly installments against
Tenant's proportionate share of the Estimated Real Estate Taxes Assessed on
Project Land and Improvements in an amount equal to the product of: (a) 198,500
sf, times (b) the difference between (i) $1.00 psf and (ii) the product of
$36,967,500.00 multiplied by the 2006 so-called county equalization ratio for
the Township and the 2006 Applicable Tax Rate and product divided by 697,500.
[FOR EXAMPLE: If the Township's 2006 Applicable Equalization Ratio were to be
30.32% and the 2006 Applicable Tax Rate were to be $6.959 per $100 of assessed
value, Tenant's Tax Credit against its proportionate share of Estimated Real
Estate Taxes Assessed on Project Land and Improvements for each tax year within
the initial Term after calendar 2006 would be $0.11828 psf (prorated for any
partial year), calculated as follows: Estimated Assessed Value of Land and
Improvements ($36,967,500.00) times Township's 2006 Applicable Equalization
Ratio (30.32%) equals $11,208,546.00. $11,208,546.00 multiplied by the 2006
Applicable Tax Rate of $6.959 per $100 equals Estimated Real Estate Taxes
Assessed on Project Land and Improvements of $780,002.72. Estimated Real Estate
Taxes Assessed on Project Land and Improvements of $780,002.72 divided by
697,500 sf of Building area equals a tax per square foot of Building area of
$1.11828 per square foot. Per square foot tax of $1.11828 minus agreed upon 2006
tax of $1.00 psf, equals credit of $0.11828 psf. Credit of $0.11828 psf
multiplied by 198,500 sf of Leased Premises area equals Tenant's Tax Credit of
$23,478.58 to be applied monthly in the amount of $1,956.55. Assuming a
Commencement Date of August 1, 2006 and a full 5-year initial Term, Tenant's Tax
Credit would be applied in its full amount of $23,478.58 (to be applied monthly
in the amount of $1,956.55) for each of calendar years 2007, 2008, 2009 and
2010, and in the amount of $13,695.84 (7/12ths of $23,478.58) applied January,
2011 through July, 2011 at $1,956.55 per month.]

     Landlord shall notify Tenant not more than thirteen (13) and no less than
twelve (12) months before the end of the initial Term (or applicable renewal
term) of the Landlord's determination of the Estimated Assessed Value of Land
and Improvements to be applicable in the event that Tenant elects to exercise a
renewal option as provided in Section 35 of this Lease. Tenant shall, within
twenty (20) days after receipt of Landlord's notice, notify Landlord in writing
whether Tenant accepts or rejects Landlord's determination of the Estimated
Assessed Value of Land and Improvements.

     If Tenant does not timely notify Landlord that Tenant rejects Landlord's
determination of the Estimated Assessed Value of Land and Improvements, then, in
the event of Tenant's election to renew, such Estimated Assessed Value of Land
and Improvements shall be applicable in the calculation of Estimated Real Estate
Taxes Assessed on Project Land and Improvements during the renewal term. If
Tenant timely rejects the Landlord's determination of Estimated Assessed Value
of Land and Improvements, Landlord and Tenant shall use good faith efforts to
agree on the Estimated Assessed Value of Land and Improvements. If Landlord and
Tenant are unable to agree upon a Estimated Assessed Value of Land and
Improvements, then Landlord and Tenant shall promptly select a mutually
agreeable real estate appraiser (who shall be a MAI with not less than ten (10)
years experience in industrial leasing in the Middlesex and Union County area)
who shall by not later than ten (10) months before the end of the initial Term
(or applicable renewal term) determine the Estimated Assessed Value of Land and
Improvements based upon the then applicable assessed valuations of comparable
buildings in the Township and in the event of Tenant's election to renew, such
Estimated Assessed Value of Land and Improvements determined by the appraiser
shall be applicable in the calculation of Estimated Real Estate Taxes Assessed
on Project Land and Improvements during the renewal term.

     Notwithstanding the foregoing, Landlord and Tenant agree that (i) there
shall be no Tenant's Tax Credit during any renewal term, and (ii) the Estimated
Assessed Value of Land and Improvements as determined by an appraiser pursuant
to the preceding subparagraph of subsection 7(b) shall not exceed, and shall be
capped at, an amount equal to the assessed valuation of land and improvements as
determined by the tax assessor of the Township of Woodbridge.

         (c) While that certain Second Amended Financial Agreement dated
February 28, 2005, executed by and between Landlord and the Township of
Woodbridge (as same may have been or may be amended from time to time,
"FINANCIAL AGREEMENT"), is in full force and effect, Tenant shall have no right
to contest any Project Improvement Taxes or the terms of the Financial
Agreement. Thereafter, in the event Tenant wishes to contest any Real Property
Taxes (or Project Improvement Taxes in the event the Financial Agreement is
terminated), Landlord covenants and agrees that it will lend its name and
execute all papers necessary to aid Tenant in contesting or litigating said
assessment; provided, however, that said litigation or contest shall be at the
sole cost and expense of Tenant, and shall not affect Landlord's ownership of or
title to the Project or cause forfeiture thereof.

         (d) The Tenant shall deposit with the Landlord at the signing of this
Lease the amount of $33,000.00, to be used by Landlord to pay that portion of
real estate taxes payable under this Lease by Tenant. Thereafter Tenant shall
pay to Landlord with each monthly rent payment an amount equal to one-twelfth
(l/l2th) of Tenant's proportionate share of the Estimated Real Estate Taxes
Assessed on Project Land and Improvements, less the monthly portion of Tenant's
Tax Credit, if applicable.

                                       7


         8. INSURANCE. (a) Landlord shall maintain special form property
insurance (or equivalent) covering the full replacement value of the Building in
which the Leased Premises is located (excluding foundations), less a
commercially reasonable deductible if Landlord so chooses. Landlord may, but is
not obligated to, maintain such other insurance and additional coverages as it
may deem necessary, including, but not limited to, commercial general liability
insurance, flood insurance, and rent loss insurance, and such other insurance as
may be required by any mortgage lender holding a mortgage lien on the Project.
Landlord's insurance may be included in a blanket policy (in which case the cost
of such insurance allocable to the Project or Building will be determined by
Landlord based upon the insurer's cost calculations). Tenant shall also
reimburse Landlord for any increased premiums imposed by the insurer as a result
of the nature of Tenant's use and/or occupancy of the Leased Premises or
additional insurance which Landlord must purchase as a result of any change in
the terms and conditions of Landlord's existing insurance policy(ies) (i.e., to
replace coverage presently existing which may be excluded by the insurer in the
future), required by any institutional lender holding a mortgage on the Project
or customarily carried by the owners of similar properties in the
Middlesex/Union County area.

         (b) Effective as of the earlier of: (1) the date Tenant enters or
occupies the Leased Premises; or (2) the Commencement Date, and continuing
during the Lease Term, Tenant, at its expense, shall obtain and maintain in full
force the following insurance coverage: (i) special form property insurance (or
equivalent) covering the full replacement value of all property and improvements
installed or placed in the Leased Premises by Tenant or for Tenant's benefit;
(ii) worker's compensation insurance with no less than the minimum limits
required by law; (iii) employer's liability insurance with such limits as
required by law; and (iv) commercial general liability insurance, with a minimum
limit of $1,000,000 per occurrence and a minimum umbrella limit of $2,000,000,
for a total minimum combined general liability and umbrella limit of $3,000,000
(together with such additional umbrella coverage as Landlord may reasonably
require) for property damage, personal injuries, or deaths of persons occurring
in or about the Leased Premises. Landlord may from time to time require
reasonable increases in the limits of insurance required by the terms of this
Lease. The commercial general liability policies shall name Landlord and
Landlord's agents, including the property manager (currently Frank A. Greek &
Son, Inc.), as additional insureds, insure on an occurrence and not a
claims-made basis, be issued by insurance companies which are reasonably
acceptable to Landlord, not be cancelable unless thirty (30) days prior written
notice shall have been given to Landlord, contain a hostile fire endorsement or
amended pollution endorsement, and a contractual liability endorsement. Evidence
of such insurance (on an ACORD 27 form), or at Landlord's option, copies of the
policies evidencing coverage shall be delivered to Landlord by Tenant at least
ten (10) days prior to the Commencement Date and at least fifteen (15) days
prior to each renewal of said insurance. If Tenant fails to comply with the
foregoing insurance requirements or to deliver to Landlord copies of such
policies and evidence of the coverage required herein, in either case after five
(5) days from the date of Tenant's receipt of written notice from Landlord, then
Landlord, in addition to any remedy available pursuant to this Lease or
otherwise, may, but shall not be obligated to, obtain such insurance and Tenant
shall pay to Landlord on demand the premium costs thereof, plus an
administrative fee of fifteen percent (15%) of the cost. The Tenant's coverage
may be included in a blanket policy (in which case the cost of such insurance
allocable to the Leased Premises will be expressly specified and all limits or
coverage and deductibles shall be calculated and made applicable with regard to
the Leased Premises only). The limits of coverage set forth in this Lease shall
not be construed to limit the coverage available to any additional insured party
to an amount which is less than the full policy limit(s) of the coverage(s)
actually carried by Tenant.

         (c) The special form property insurance obtained by Landlord and Tenant
shall include the right of the insured to waive subrogation and all rights based
upon an assignment from its insured, against Landlord or Tenant, their officers,
directors, managers, in connection with any loss or damage thereby insured
against. The failure of a party to insure its property shall not void this
waiver. Notwithstanding anything to the contrary contained herein, Tenant hereby
releases and waives any claims against Landlord, and its officers, directors,
employees, managers, agents, invitees and contractors for any loss or damage
insured against or required to be insured against hereunder (whether by
self-insurance or otherwise), regardless of whether the negligence or fault of
Landlord caused such loss. Landlord hereby releases and waives any claims
against Tenant, and its officers, directors, employees, managers, agents,
invitees and contractors for any loss or damage insured against or required to
be insured against hereunder to the extent insurance proceeds are received
therefor, regardless of whether the negligence or fault of Tenant caused such
loss; however, Landlord's release and waiver shall not apply to any deductible
amounts of $100,000.00 or less maintained by Landlord under its insurance
policy.

         (d) The Tenant shall place with the Landlord an amount in escrow
sufficient to cover Tenant's proportionate share of one (l) year's premium for
insurance purchases by the Landlord. Thereafter, commencing as of the
Commencement Date, Tenant shall pay to Landlord each month as additional rent
Tenant's proportionate share of 1/12th of estimated annual premiums for
Landlord's insurance.

                                       8


         9. FIXTURES (a) The Tenant is given the right and privilege of
installing and removing (without damage to real property) his personal property,
furniture, equipment and fixtures in the Leased Premises during the term of the
lease, it being understood and agreed, however, that in the event of: (i)
default by the Tenant under the terms and conditions of this Lease; or (ii) upon
the expiration of this Lease; or (iii) if the Tenant moves out or is
dispossessed and fails to remove any such property, equipment and fixtures or
other property within thirty (30) days after such default or removal pursuant to
the applicable terms and conditions of this Lease; then and in any such event,
the said property, equipment and fixtures or other property shall be deemed, at
the option of the Landlord, to be abandoned, (and become Landlord's property) or
in lieu thereof, at the Landlord's option, it may remove such property and
charge the reasonable cost and expense of removal and storage to the Tenant.

         (b) Anything to the contrary contained herein notwithstanding it is
expressly understood and agreed that the Tenant may without injury to real
property install, connect and operate equipment as may be deemed necessary by
the Tenant to conduct its business subject to applicable rules and regulations
of governmental agencies, boards and bureaus having jurisdiction thereof;
provided, in any event, that subject to the terms and conditions of this article
and article 9(a), the machinery and fixtures belonging to the Tenant shall, at
all times, be considered and intended to be personal property of the Tenant, and
not part of the realty, and subject to removal, by the Tenant, provided at the
time of such removal that the Tenant is not in default pursuant to the terms and
conditions of this Lease, and that the Tenant, at its own cost and expense, pays
for any damage to the Leased Premises caused by such installation and removal.

         (c) Upon request by Tenant from time to time Landlord will execute and
deliver to Tenant a subordination of in favor of a lender or lessor of any lien
rights Landlord may have against Tenant's personal property or leased personal
property at the Leased Premises, such subordination to be substantially in the
form referenced as "Landlord's Subordination and Consent" on the Summary Page
under the heading "Addenda," subject to such modifications as may be agreed to
between Landlord and the applicable lender or lessor. Tenant shall pay to
Landlord, within 30 days of Landlord's request, and as additional rent, the fees
and disbursements of Landlord's counsel incurred in connection with the
preparation and negotiation of such subordination.


         10. ASSIGNMENT AND SUBLETTING. (a) Tenant will not assign this Lease in
whole or part, nor sublet all or any part of the Leased Premises, without the
prior written approval of the Landlord in each instance, which approval shall
not be unreasonably withheld, conditioned or delayed. Notwithstanding any
approved assignment or approved sublease, the Tenant shall remain fully liable
on this Lease and shall not be released from performing any of the terms,
covenants and conditions of this Lease.

         (b) If at any time during the term or any renewal term, Tenant shall
have received a bona fide offer from a prospective subtenant of the Leased
Premises with respect to the proposed occupancy as subtenant of all or a portion
of the Leased Premises, Tenant shall furnish a copy of such offer to Landlord.
In addition to the right to exercise consent with respect to the proposed
subtenancy, Landlord shall have the right, by written notice given to Tenant
within twenty (20) days of Landlord's receipt of the copy of such offer, to
agree to accept the proposed subtenant as a direct tenant of Landlord. In the
event that (i) Landlord shall have given timely notice as aforesaid to Tenant,
(ii) Landlord and the prospective subtenant shall have entered into a written
agreement for direct tenancy by such subtenant, and (iii) such subtenant shall
have entered into occupancy of the Leased Premises and commenced direct payment
of rent to Landlord, then automatically upon the occurrence of all three such
events, Landlord and Tenant hereunder shall be and become released from any
further obligation under this Lease with respect to the portion of the Leased
Premises recaptured and the Lease between Landlord and Tenant hereunder shall be
deemed terminated and of no further force and effect (rental to be adjusted as
of the date of termination) as to such portion of the Leased Premises. It is
understood and agreed that neither party hereto shall be released from its
obligations to the other party as to the recaptured portion of the Leased
Premises unless and until Landlord shall have entered into an agreement in
writing as aforesaid with the proposed subtenant and the term of the tenancy
with such subtenant shall have commenced. Unless and until the said events shall
have occurred by virtue of which Landlord and Tenant shall have been released
from their obligations under this Lease with respect to the recaptured portion
of the Leased Premises this Lease shall remain in full force and effect and
shall continue to be binding upon Landlord and Tenant as to the entire Leased
Premises.

         (c) Notwithstanding anything contained in this Section 10 to the
contrary, Tenant shall have the right on reasonable prior notice to Landlord but
without consent of Landlord to assign this Lease or sublet all or a portion of
the Premises to a person or entity which is an "Affiliate" (as such term is
defined below) of Tenant or which results from a merger or consolidation with
Tenant, or to any person or entity which acquires all the assets or stock of
Tenant as a going concern in the business that is being conducted on the
Premises, provided such entity, in the case of an assignment, assumes all the
obligations of Tenant under the Lease. Tenant shall promptly after any such
assignment or subletting provide notice of such to Landlord. For purposes
hereof, "AFFILIATE" shall mean any person, entity, firm or corporation which


                                       9


shall be controlled by, under the control of, or under common control with
Tenant, and "control" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person, entity, firm or corporation, whether through the ownership of voting
securities, by contract or otherwise. In the event Tenant is a publicly traded
corporation, the sale of stock shall not be deemed to constitute an assignment
or transfer of this Lease. Irrespective of any such assignment, Tenant shall
remain liable for the full and faithful performance of each and every covenant
to be performed by Tenant hereunder.

         11. FIRE OR OTHER CASUALTY LOSS. (a) In case of damage by fire or other
casualty to the building in which the Leased Premises is located, if the damage
is so extensive as to require substantial reconstruction of such building, this
Lease shall cease at the Landlord's option and the rent shall be apportioned as
of the time of damage. Substantial reconstruction shall mean damage so extensive
that the cost of restoration shall be 50% of the entire cost of the demolition
of the damaged building and the erection of a new building of the same size and
design shall exceed 50% of the replacement cost of the building immediately
prior to such damage.

         (b) In all other cases of damages by fire or other casualty to the
Leased Premises or the building of which it is a part, the Landlord shall repair
(using proceeds of insurance claim) the damage with reasonable dispatch, and if
the damage has rendered the Leased Premises untenantable, in whole or in part,
there shall be an apportionment of the rent until the damage has been repaired.
In determining what constitutes reasonable dispatch, consideration shall be
given to delays caused by strikes, governmental approvals, adjustment of
insurance claims and other causes beyond the Landlord's control.

         (c) If the restoration is not completed within nine (9) months after
the occurrence of the fire or other casualty, Tenant shall have the right to
terminate this Lease by forthwith giving written notice thereof to Landlord.

         (d) Notwithstanding anything contained herein to the contrary, if the
Leased Premises are substantially destroyed or damaged during the last
twenty-four (24) months of the term of this Lease, Landlord or Tenant may cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to the other party of its election to do so within thirty (30)
days after the date of occurrence of such damage. Tenant may avoid such
termination election by Landlord by exercising a right of renewal, if
applicable, within fifteen (15) days of Tenant's receipt of Landlord's notice of
termination.

         12. COMPLIANCE WITH LAWS, RULES AND REGULATIONS; NUISANCE.

         (a) (i) Tenant shall, at Tenant's sole cost and expense, without notice
or demand from Landlord, faithfully observe and comply with all laws, rules and
requirements of all county, municipal, state, federal and other applicable
governmental authorities, now in force, or which may hereafter be in force,
pertaining to Tenant's occupancy and use of the Leased Premises and/or Land.
Landlord shall make any improvements or modifications to the Building or Land
which are required to comply with all laws, rules and requirements of all
county, municipal, state, federal and other applicable governmental authorities,
now in force, or which may hereafter be in force, pertaining to the Building or
Land which are not specific to Tenant's occupancy and use of the Leased Premises
and/or Land. Notwithstanding the foregoing, any cost incurred by Landlord in
performance of its obligations under this subparagraph 12(a) shall be amortized
by Landlord on a straight line basis with imputed interest of 10% per annum over
the lesser of the useful life of the improvement or modification or ten (10)
years, and Tenant shall reimburse Landlord as additional rent for the portion of
such amortized cost as is applicable to any period of time within the term or
any renewal term of this Lease.

              (ii) Tenant shall, at Tenant's sole cost and expense, without
notice or demand from Landlord, conduct its operations in a manner so as not to
create a nuisance or otherwise unreasonably disturb the operations of other
tenants of the Building, or the employees or invitees of such other tenants,
including, without limitation, by creating or permitting the production or
accumulation of odors or fumes outside of the Leased Premises in concentrations
which are offensive, disruptive or disagreeable, or threatening to health,
safety or reasonable personal comfort.

           (b) Tenant's NAICS Code and Standard Industrial Classification Number
are as set forth on the summary page of this Lease. Tenant will immediately
notify Landlord of any changes in either number during the term of this Lease.
Tenant agrees to comply with all the requirements of the Industrial Site
Recovery Act ("ISRA") N.J.S.A. l3:1K-6 et seq. and the Spill Compensation and
Control Act ("SPILL ACT") N.J.S.A. 58:l0-23 et seq., and all regulations
promulgated in connection therewith regarding any substances or materials placed
or used upon the Leased Premises by Tenant, its agents, employees or
contractors. All references to ISRA and/or the Spill Act in this Lease shall be
deemed to include any predecessor or successor statute(s) to same.

                                       10


           (c) That in case the Tenant shall fail or neglect to comply with the
aforesaid statutes, ordinances, rules, orders, regulations and requirements or
any of them, or in case the Tenant shall neglect to maintain the Leased Premises
or fail to make any necessary repairs called for in the Lease, then the Landlord
or the Landlord's agents may after twenty (20) days' written notice, (except, in
the case of an emergency, action may be taken immediately) enter Leased Premises
and make such repairs, effect such maintenance and comply with any and all of
the said statutes, ordinances, rules, orders, regulations or requirements, at
the cost and expense (including experts and reasonable attorney's fees) of the
Tenant and in case of the Tenant's failure to pay therefor, the said cost and
expense shall be added to the next month's rent and be due and payable as such,
or the Landlord may deduct the same from the balance of any monies remaining
with Landlord. The failure by the Landlord to take any action hereunder, or the
delay by Landlord in taking any action, shall not place any liability or
obligation on the Landlord. This provision is in addition to the right of the
Landlord to terminate this Lease by reason of any default on the part of the
Tenant.

           (d) To the best of Landlord's knowledge, information and belief, the
Project complies with all applicable laws, rules and regulations, including
environmental laws, as of the date of this Lease and except for violations
resulting from work performed by or on behalf of Tenant or any other tenant of
the Project, will so comply as of the Commencement Date

     13. INSPECTION BY LANDLORD. The Tenant agrees that the said Landlord's
agents, and other representatives, shall have the right to enter into and upon
Leased Premises, or any part thereof, at all reasonable hours for the purpose of
inspecting the same upon reasonable advance notice, except in the event of
emergency, for effecting such maintenance, making such repairs or alterations
therein as may be necessary for the safety and preservation thereof. Landlord
shall use commercially reasonable efforts to avoid interference with Tenant's
business operations during any such entry. Nothing herein shall be construed to
require Landlord to use overtime labor or perform work in other than normal
hours of the construction industry.

     14. RIGHT OF RE-ENTRY. If the Leased Premises, or any part thereof, shall
become vacant due to the Tenant's removal or failure to pay rent and other
charges payable hereunder during the said term, or should the Tenant be evicted
by summary proceedings or otherwise, the Landlord or Landlord's representatives
may re-enter the same, either by force or otherwise, without being liable to
prosecution therefor; and relet the Leased Premises as the Agent of the Tenant
and receive rent thereof; applying the same, first to the payment of such
expenses as the Landlord may incur in reentering, and then to the payment of the
rent due by these presents. The Tenant, however, shall continue to remain liable
for any deficiency.

     15. DEFAULT. (a) It is expressly understood and agreed that subject to the
terms and conditions of the within Lease, in case the Leased Premises shall be
deserted or vacated due to the Tenant's removal or failure to pay rent
punctually, or if default be made in the payment of the rent or other monetary
obligations hereunder to be paid for by the Tenant, or any part thereof as
herein specified, and such default shall continue for a period of ten (l0) days
after written notice from the Landlord to the Tenant, and if such default shall
have not been remedied or cured within said ten (l0) day period; or

           (b) If the Tenant defaults in the prompt and full performance of any
of the provisions of this Lease (except those set forth in Section l5(a)
hereof), or if the Tenant shall fail to comply with any of the statutes,
ordinances, rules, orders, regulations and requirements of the federal, state,
county and municipal government, or if the Tenant shall file a petition in
bankruptcy or arrangement, or be adjudicated a bankrupt or make an assignment
for the benefit of creditors or take advantage of any insolvency act, or any
involuntary petition or similar pleading is filed in any court under any section
of any state or federal bankruptcy act seeking to declare Tenant bankrupt or
seeking a plan of reorganization for Tenant and such petition or pleading is not
removed within thirty (30) days after its filing;

           (c) Then and in any such event of default under (a) and (b) above
Landlord may, with or without any demand whatsoever or further notice, pursue
any one or more of the following remedies: (i) Landlord shall have the right, at
its election, to cancel and terminate this Lease and dispossess Tenant; or, (ii)
Landlord shall have the right without terminating or canceling this Lease to
declare all amounts and rents due under this Lease for the remainder of the
existing term (or any applicable extension or renewal thereof) to be immediately
due and payable, and thereupon all rents and other charges due hereunder to the
end of the initial term or any renewal term, if applicable, shall be
accelerated; (iii) Landlord may elect to enter and repossess the Leased Premises
and relet the Leased Premises for Tenant's account, holding Tenant liable in
damages for all expenses incurred in any such reletting (including without
limitation advertising expenses, brokerage commissions, attorney's fees, and
repairs, replacements, alterations and improvements) and for any difference
between the amount of rent received from such reletting and that due and payable
under the terms of this Lease; or (iv) Landlord may enter upon the Leased


                                       11


Premises and do whatever Tenant is obligated to do under the terms of this Lease
(and Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's obligations under this
Lease and Tenant further agrees that Landlord shall not be liable for any
damages resulting to the Tenant from such action). All such remedies of Landlord
shall be cumulative, and in addition, Landlord may pursue any other remedies
that may be permitted by law or in equity. Forbearance by Landlord to enforce
one or more of the remedies herein provided upon an event of default shall not
be deemed or construed to constitute a waiver of such default.

         Landlord shall credit Tenant (or refund to Tenant if Tenant shall have
already made payment to Landlord) as and when received by Landlord with the
amount of the net rents actually collected by Landlord from such reletting,
after first deducting from the gross rents (A) all expenses incurred or paid by
Landlord in collecting such rents, and (B) any theretofore unrecovered costs
associated with the termination of this Lease or Landlord's reentry into the
Premises, including any theretofore unrecovered expenses of reletting and other
damages payable hereunder. If the Premises or any portion thereof be relet by
Landlord for the unexpired portion of the Term before presentation of proof of
such damages to any court, commission or tribunal, the amount of rent reserved
upon such reletting shall, prima facie, constitute the fair and reasonable
rental value for the Premises, or part thereof, so relet for the term of the
reletting. Landlord shall not be liable in any way whatsoever for its failure or
refusal to relet the Premises, or if the Premises or any part are relet, for its
failure to collect the rent under such reletting, and no such refusal or failure
to relet or failure to collect rent shall release or affect Tenant's liability
for damages or otherwise under this Lease.

           (d) It is expressly understood and agreed, however, that the
Landlord's right to terminate this Lease, pursuant to the terms and conditions
of the foregoing subsection (b) as to failure to comply with said statutes,
etc., of the federal, state, county and municipal government, shall be subject
to the Tenant's right of curing, or beginning to cure, any condition or event
upon which the Landlord relies for terminating this Lease, within thirty (30)
days after the written notice provided in subsection (b) above. If the Tenant
shall (if the same does not cause any forfeiture of title to Landlord), in good
faith, contest any of the rules and regulations or decision of any applicable
federal, state, county or municipal government as aforementioned, the Landlord's
right to terminate this Lease shall be suspended during the period of such
contest, or action to cure, so long as the Tenant prosecutes its objections or
otherwise moves promptly; and provided further, that the Tenant hereby covenants
and agrees, at its own cost and expense, to provide a Bond or Surety
satisfactory to Landlord and to indemnify and defend the Landlord against any
prosecution, fine or judgment, civil or criminal, as a result of any violation
by the Tenant of any federal, state, county or municipal regulation as
aforementioned which the Tenant shall contest.

           (e) Notwithstanding anything contained in this Lease to the contrary,
(i) Tenant shall not be in default of its obligations under this Lease if Tenant
vacates the Leased Premises prior to the termination of the term of the Lease,
provided that there is no uncured default on the part of the Tenant under any
terms, conditions and covenants of this Lease, and Tenant continues to pay to
Landlord fixed annual base rent and additional rent pursuant to Section 3 of
this Lease, and (ii) it is expressly understood and agreed, however, that the
Landlord's right to terminate this Lease pursuant to the terms and conditions of
subsection (i) of the foregoing subparagraph (c) shall be subject to the
provision that if the cause for giving such notice involves the making of
repairs or other matters reasonably requiring a period of time longer than
thirty (30) days, then the Tenant shall be deemed to have cured such default if
Tenant has commenced such cure within said thirty (30) day period and has
proceeded diligently to prosecute completion or compliance within a reasonable
time thereafter.


     16. NOTICES. All notices, demands and requests required or permitted to be
given to Landlord or to Tenant shall be given by certified or registered mail,
return receipt requested, postage prepaid, or by recognized overnight courier
which obtains a signed delivery receipt, shipping prepaid. Notices shall be
addressed to Landlord at c/o Frank A. Greek & Son, Inc., 33 Cotters Lane, East
Brunswick, New Jersey 088l6, and to Tenant at the Leased Premises and the
address set forth in the Lease Summary, and/or such other place as Landlord or
Tenant shall designate in writing. Notices may be served by an attorney on
behalf of Landlord or Tenant. Except where otherwise expressly provided to the
contrary, all notices, demands and requests shall be deemed given upon receipt
as evidenced by the signed return/delivery receipt therefor.


     17. NONWAIVER BY LANDLORD. Failure of Landlord to insist upon the strict
performance of any provisions or to exercise any option or enforce any rules and
regulations shall not be construed as a waiver for the future of any such
provision, rule or option. The receipt by Landlord of rent with knowledge of the
breach of any provision of this Lease shall not be deemed a waiver of such
breach. No provision of this Lease shall be deemed to have been waived unless
such waiver be in writing signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the monthly rent shall be deemed to be other
than on account of the earliest rent then unpaid nor shall any endorsement or
statement on any check or any letter accompanying any check or payment as rent


                                       12


be deemed an accord and satisfaction and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy provided in this Lease.

     18. LIABILITY OF TENANT FOR DEFICIENCY. In the event that the relation of
the Landlord and Tenant may cease or terminate by reason of the re-entry of the
Landlord under the terms and conditions contained in this Lease or by the
ejectment of the Tenant by summary proceedings or otherwise, or after the
abandonment of the premises by the Tenant, it is hereby agreed that the Tenant
shall remain liable to pay in monthly payments the rent which accrued subsequent
to the re-entry by the Landlord, and the Tenant expressly agrees to pay as
damages for the breach of the covenants herein contained the difference between
the rent reserved and the rent collected and received (after deducting costs and
expenses), if any, by the Landlord, during the remainder of the unexpired term,
and such difference or deficiency between the rent reserved herein and the rent
collected, if any, shall become due and payable in monthly payments during the
remainder of the unexpired term, as the amounts of such difference or deficiency
shall from time to time be ascertained.

     19. RIGHT OF TENANT TO MAKE ALTERATIONS AND IMPROVEMENTS.

           (a) Tenant may not make alterations, additions or improvements (for
purposes of this Section 19, "IMPROVEMENTS") to the Leased Premises, the
Building or the Project which require any governmental approval or permit,
including, without limitation, site plan approval or a building, plumbing or
electrical permit, without the written consent of Landlord. Landlord's consent
shall not be unreasonably withheld, conditioned or delayed for non-structural
Improvements which do not, in Landlord's reasonable opinion, adversely affect
the value of the Project or the Building, or the ability of Landlord to relet
the Leased Premises, and which cost, in the aggregate for all such Improvements
made in any period of 12 consecutive months, less than $50,000.00. Landlord
shall endeavor to issue consent or disapproval within thirty (30) days of
receipt of written request for same from Tenant. If Landlord does not timely
respond to Tenant's request, Tenant may serve a second notice which shall advise
Landlord, IN BOLD FACE TYPE, that failure to issue consent or disapproval within
five (5) business days shall be deemed to be approval, and Landlord's failure to
respond within such five (5) business day period shall be deemed to be a consent
to the Improvements. If Landlord disapproves the Improvements, Landlord shall
state its reasons for such disapproval. Such Improvements shall be in conformity
with applicable governmental and insurance company requirements and at the end
of the term of this Lease shall, at the sole option of Landlord (if requested by
Tenant, to be exercised at the time Landlord's consent is given or otherwise to
be exercised at any time prior to the end of the term of this Lease), either be
removed by Tenant or remain as property of Landlord. In the event Landlord
requires that Improvements be removed, Tenant (and in the event that such
Improvements have been damaged by fire or other casualty, or by condemnation or
taking by eminent domain. to the extent removal is not covered by insurance
proceeds of Landlord's coverage or expressly included as an element in the
condemnation award) shall place the Leased Premises, the Building or the Project
in substantially the same condition as prior to such Improvements (reasonable
wear and tear, damage by fire or other insured casualty, or by condemnation or
taking by eminent domain, and repairs which are not the responsibility of
Tenant, excepted) and, if at any time Tenant does not have or maintain a
tangible net worth of at least Fifty Million Dollars ($50,000,000.00), Landlord
may condition its approval on, or thereafter impose the requirement of, Tenant
posting financial security to assure removal and restoration. Cosmetic or
decorative Improvements not requiring a permit are permitted on notice to
Landlord but without consent. Neither consent nor removal are required for the
Improvements constituting Landlord's Work under this Lease.

           (b) Nothing herein contained shall be construed as a consent on the
part of Landlord to subject the estate of Landlord to liability under the
Construction Lien Law of the State of New Jersey, it being expressly understood
that Landlord's estate shall not be subject to such liability. Tenant shall have
no power or right to do any act or make any contract which may create or be the
format for any lien, mortgage or other encumbrance upon the estate of Landlord.
Upon request by Tenant, Landlord shall negotiate with any lessor or lender of
Tenant, and sign in favor of such party, a subordination of Landlord's lien for
unpaid rent, such subordination to be substantially in the form attached hereto
and made a part hereof as SCHEDULE E, subject to such modification as shall be
agreed to by Landlord and such lessor or lender in reasonable and good faith
negotiation.

           (c) Landlord, at no out-of-pocket cost to Landlord, shall cooperate
with Tenant as reasonably required in connection with obtaining any approvals
which may be required for any permitted Improvements, including, without
limitation, signing such applications or affidavits as may be reasonably
required. Nothing herein shall be construed to impose any financial obligation
on Tenant for the costs of permits or approvals required for Landlord's work as
described on Schedule C.

                                       13


     20. NON-LIABILITY OF LANDLORD. It is expressly understood and agreed by and
between the parties to this agreement that the Landlord shall not be liable for
any damage or injury to person or property caused by or resulting from steam,
electricity, gas, water, rain, ice or snow, or any leak or flow from or into any
part of said building, or from any damage or injury resulting or arising from
any other cause or happening whatsoever, nor shall Landlord be liable for any
damage caused by other tenants, if any, or person in, upon or about Leased
Premises. It is expressly understood and agreed, in any event, that the Tenant
assumes all risk of damage to its property occurring in or about the Leased
Premises.

     21. HOLDOVER. If the Tenant remains in the premises beyond the expiration
date of this Lease, as it may have been extended or renewed, such holding over
in itself shall not constitute a renewal or extension of this Lease, but in such
event a tenancy from "month to month" shall arise at two times the then monthly
rent.

     22. QUIET ENJOYMENT. Upon payment by the Tenant of the rents herein
provided, and upon the observance and performance of all the covenants, terms
and conditions on Tenant's part to be observed and performed, Tenant shall
peaceably and quietly hold and enjoy the Leased Premises for the term hereby
demised without hindrance or interruption by Landlord or any other person or
persons lawfully or equitably claiming by, through or under the Landlord,
subject, nevertheless, to the terms and conditions of this Lease.

     23. RESERVATION OF EASEMENT & RIGHT OF ENTRY. The Landlord reserves the
right to grant itself easements on the Project other than the Leased Premises
and to enter on the Project during normal business hours and after reasonable
advance notice to Tenant in order to install, at its own cost and expense,
driveways, storm drains, sewers and/or utility lines in connection therewith as
may be required by the Landlord. The Landlord covenants to use its best efforts
so that the foregoing work and easements shall not interfere with the normal
operation of Tenant's business. In the event that work performed by Landlord
under the right of entry reserved herein prevents ingress to and egress from the
Leased Premises or Project by trucks and passenger vehicles, or precludes
Tenant's use of some or all of the Leased Premises, in either case for a period
of more than three (3) consecutive days during which Tenant's business is
normally in operation, then, and in such event, Tenant shall be entitled to an
abatement of rent for the duration of the time during which Tenant was so
precluded from using the Leased Premises, pro rated, as applicable and
equitable, to reflect the portion of the Leased Premises so affected. There
shall be no abatement of rent in the event that the work performed by landlord
is performed at Tenant's request or is required as the result of damage arising
from the act or omission of Tenant, or any assignee or subtenant of Tenant, or
any agent, employee, licensee, contractor or invitee of any of them.

     24. ENVIRONMENTAL RESPONSIBILITY.
           (a) As used herein, the following terms shall have the following
meanings:

                    (i) "HAZARDOUS MATERIAL" includes any pollutant, dangerous
substance, toxic substances, any hazardous chemical, hazardous substance,
hazardous pollutant, hazardous waste or any similar term as defined in or
pursuant to the Comprehensive Environmental Response Compensation and Liability
Act of 1980, 42 U.S.C. 9601 et seq. ("CERCLA"); the ISRA; the Spill Act; the
Solid Waste Management Act, N.J.S.A. 13:1E-1 et seq. ("SWMA"); the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq. ("RCRA"); the New Jersey
Underground Storage of Hazardous Substances Act, N.J.S.A. 58:10A-21 et seq.
("USTA"); the Clean Air Act, 42 U.S.C. Section 7401 et seq. ("CAA"); the Air
Pollution Control Act, N.J.S.A. 26:2C-1 et seq. ("APCA"); the New Jersey Water
Pollution Control Act, N.J.S.A. 58:10A-1 et seq. ("WPCA"); and any rules or
regulations promulgated thereunder or in any other applicable federal, state or
local law, rule or regulation dealing with environmental protection. It is
understood and agreed that the provisions contained in this Lease shall be
applicable notwithstanding whether any substance shall not have been deemed to
be a hazardous material at the time of its use or "Release" (as hereinafter
defined) but shall thereafter be deemed to be a Hazardous Material.

                    (ii) "RELEASE" means spilling, leaking, disposing, pumping,
pouring, discharging, emitting, emptying, ejecting, depositing, injecting,
leaching, escaping, or dumping however defined, and whether intentional or
unintentional, of any Hazardous Material.

                    (iii) "NOTICE" means any summons, citation, directive,
order, claim, litigation, investigation, proceeding, judgment, letter or other
communication, written or oral, actual or threatened, from the New Jersey
Department of Environmental Protection ("DEP"), the United States Environmental
Protection Agency ("USEPA"), the United States Occupational Safety and Health
Administration ("OSHA") or other federal, state or local agency or authority, or
any other entity or any individual, concerning any act or omission resulting or
which may result in the Releasing of Hazardous Material into the waters or onto


                                       14


the lands of the State of New Jersey, or into waters outside the jurisdiction of
the State of New Jersey, or into the environment.

                    (iv) "ENVIRONMENTAL LAWS" means any and all present or
future laws, statutes, ordinances, regulations and executive orders, federal and
state and local in any way related to the protection of human health or the
environment, including, but not limited to: (i) CERCLA; (ii) RCRA; (iii) ISRA;
(iv) Spill Act; (v) USTA; (vi) WPCA; (vii) APCA; (viii) SWMA; (ix) CAA; and (x)
USTA. For purposes of Environmental Laws, to the extent authorized by law,
Tenant is and shall be deemed to be the responsible party, including, without
limitation, the "owner" and "operator" of Tenant's "facility" and the "owner"
with respect to all Hazardous Material brought on the Leased Premises or the
Project by Tenant, its agents, employees, contractors or invitees, and the
wastes, by-products, or residues generated, resulting, or produced therefrom.

           (b) Except for Hazardous Material: (i) contained in products used by
Tenant in de minimis quantities for ordinary cleaning and office purposes; or
(ii) contained in any packaged materials being handled, stored or transported in
the ordinary course of Tenant's business as described in that certain report
entitled "New Jersey Uniform Construction Code Analysis, Parlux Fragrances
Distribution Center, Woodbridge, NJ, File: PAR-06-01" dated February 27, 2006,
prepared by Alfred J. Longhitano, P.E., LLC (but without opening and with no
mixing, processing or other use on the Leased Premises or the Project), Tenant
shall not permit or cause any party to bring any Hazardous Material upon the
Leased Premises or the Project, or transport, store, use, generate, manufacture,
dispose, or release any Hazardous Material on or from the Leased Premises or the
Project without Landlord's prior written consent. Tenant, at its sole cost and
expense, shall operate its business in the Leased Premises and the Project in
strict compliance with all Environmental Laws and all requirements of this
Lease. Tenant shall complete and certify to disclosure statements as reasonably
requested by Landlord from time to time (not more frequently than once a year
unless there is reason to believe there has been a change requiring a new
disclosure) relating to Tenant's transportation, storage, use, generation,
manufacture, or release of Hazardous Material on the Leased Premises or the
Project, and Tenant and Landlord shall promptly deliver to the other a copy of
any Notice relating to the Leased Premises or the Project.

           (c) Tenant's NAICS Code are as set forth in the Lease Summary. Tenant
will promptly notify Landlord of any changes in this number and/or code during
the term of this Lease. Tenant, at its own cost and expense, agrees to comply
with all applicable present and future Environmental Laws, rules and regulations
of all federal, state, county and municipal governments and of all other
governmental authorities having or claiming jurisdiction over the Leased
Premises, the Project or appurtenances thereto, or any part thereof, which are
applicable to Tenant's operations at the Leased Premises, the Project and/or the
conduct of business thereon, including, but not limited to, ISRA. Further,
Tenant agrees to make submissions to and provide any information required by all
governmental authorities requesting same pursuant to Tenant's obligations under
this Lease.

           (d) Tenant, at its sole cost and expense, shall remediate all
Hazardous Material stored, disposed of or otherwise released by Tenant, its
assignees, subtenants, agents, employees, contractors or invitees onto or from
the Leased Premises and/or the Project, in a manner and to a level ("REMEDIATION
STANDARD") which would comply with the minimum requirements of all Environmental
Laws for property restricted to non-residential use, and does not otherwise
limit any future uses of the Leased Premises or require the recording of any
deed restriction or notice regarding the Project. Tenant shall not be
responsible to remediate any Hazardous Material present on the Premises on or
prior to the Commencement Date as disclosed in the "RAW" (as such term is
defined in Section 24(o) below) and in the event of a dispute as to the presence
of any such Hazardous Material on or prior to the Commencement Date Landlord
shall have the burden of proof that same was not present. Landlord shall
cooperate with Tenant as reasonably required, including by signing any consent
required to effectuate this approach. Tenant shall perform such work at any time
during the period of this Lease upon written request by Landlord or, in the
absence of a specific request by Landlord, before Tenant's right to possession
of the Leased Premises terminates or expires. If Tenant fails to perform such
work within the time period reasonably specified by Landlord or before Tenant's
right to possession terminates or expires (whichever is earlier), Landlord may,
after giving Tenant fifteen (15) days notice and after Tenant's continued
failure to perform, at its discretion, and without waiving any other remedy
available under this Lease or at law or equity (including, without limitation,
an action to compel Tenant to perform such work), perform such work at Tenant's
cost. Tenant shall pay all out-of-pocket costs incurred by Landlord in
performing such work within fifteen (15) days after Landlord's request therefor.
Notwithstanding the foregoing, Landlord shall not have the right to perform any
work on behalf of Tenant if Tenant has commenced a cure within the fifteen (15)
day period and is diligently pursuing such cure. Such work performed by Landlord
is on behalf of Tenant and Tenant remains the owner, generator, operator,
transporter, and/or arranger of the Hazardous Material for purposes of
Environmental Laws. Tenant agrees not to enter into any agreement with any
person, including, without limitation, any governmental authority, regarding the
removal of Hazardous Material that have been disposed of or otherwise released
onto or from the Premises without the written approval of Landlord, which


                                       15


approval shall not be unreasonably withheld, conditioned or delayed so long as
the Remediation Standard would not be diminished or adversely affected thereby.

           (e) If Tenant's operations at the Leased Premises and/or the Project
now or hereafter constitute an "Industrial Establishment" as that term is
defined in ISRA, then prior to: (i) closing operations or transferring ownership
or operations (as defined under ISRA) of Tenant at the Leased Premises; (ii) the
expiration or sooner termination of this Lease; (iii) any assignment of this
Lease or any subletting of any portion of the Leased Premises; or (iv) any other
event caused by Tenant occurs which may trigger ISRA, Tenant shall, at its own
cost and expense, comply with all requirements of ISRA pertaining thereto and
Landlord shall cooperate with Tenant as reasonably required in connection
therewith and if Landlord shall recover under any insurance policy for costs for
which Tenant is responsible under this Lease, then Landlord shall promptly
release the recovery to Tenant. Prior to any event caused by Landlord which may
trigger ISRA, Landlord shall, at its own cost and expense, comply with all
requirements of ISRA pertaining thereto and Tenant shall cooperate with Landlord
as reasonably required in connection therewith. Notwithstanding the foregoing,
should the DEP determine that a clean-up plan be prepared and that clean-up be
undertaken because of any spills or discharges of Hazardous Material or wastes
at the Leased Premises or the Project by Tenant, its assignees, subtenants,
agents, employees, contractors or invitees, which occur during the term of this
Lease, Tenant shall, at Tenant's own expense, prepare and submit the required
plans and financial assurances, and carry out the approved plans. In such event,
without limitation of the foregoing, Tenant's obligations shall include: (1) the
proper filing, with the DEP, of an initial notice under N.J.S.A. 13:1K-9(a); and
(2) the performance of all applicable remediation and other requirements of
ISRA, including, without limitation, all requirements of N.J.S.A. 13:1K-9(b)
through and including (l). Tenant's obligation to pay rent shall continue until
such time as Tenant obtains and delivers to Landlord a negative declaration or
No Further Action and Covenant Not to Sue as defined by ISRA with respect to
Hazardous Material for which Tenant is responsible hereunder. Nothing herein
shall be construed to limit Landlord's obligations to perform an ISRA Cleanup as
a result of any Release for which Landlord is responsible under this Lease.

           (f) The parties acknowledge and agree that pursuant to the provisions
of ISRA, and subject to the provisions of Section 24(d), after the commencement
date of this Lease, Tenant shall be, and is hereby, designated the party
responsible to comply with the requirements of ISRA. In addition, any failure of
Tenant to provide any information and submission as required under ISRA shall
constitute a default under this Lease. Any assignee or subtenant of Tenant shall
be deemed to have, and by entering into such assignment or sublease, and/or by
entering into possession of the Leased Premises, does hereby acknowledge that
they shall be the party responsible, jointly and severally with Tenant, under
the provisions of this Lease.

           (g) In the event that Tenant is not obligated to comply with the
requirements of ISRA, then prior to the expiration or sooner termination of this
Lease, or any subletting of any portion of the Leased Premises, Tenant shall, at
Tenant's expense, and at Landlord's option:

                    (i) obtain from the DEP a "non-applicability letter" if then
     available from the DEP confirming that the proposed termination, assignment
     or subletting shall not be subject to the requirements of ISRA. Any
     representation or certification made by Tenant in connection with the
     non-applicability letter request shall constitute a representation and
     warranty by Tenant in favor of Landlord and any misrepresentation or breach
     of warranty contained in Tenant's request shall constitute a default under
     this Lease; or

                    (ii) undertake Environmental Site Assessment and, if
     applicable, Site Investigation, as those terms are defined in ISRA, and if
     there is indication that a Release of a Hazardous Material has occurred at,
     on, or from the Leased Premises during the term of this Lease, an
     appropriate report shall be filed with the applicable governmental agencies
     and Tenant shall remediate the spill or discharge in accordance with ISRA
     and other applicable Environmental Laws, subject to the Remediation
     Standard set forth in Section 24(d); and

                    (iii) in each case, submit the results of the foregoing
     activity to Landlord. All reasonable costs associated with Tenant's
     compliance with these requirements, including, without limitation,
     Landlord's reasonable out-of-pocket costs in reviewing the sampling plan,
     test results and developing a plan for and monitoring the cleanup and site
     detoxification, shall be paid by Tenant within ten (10) days after demand
     therefor from Landlord, together with reasonable supporting documentation.

           (h) In the event of Tenant's failure to comply in full with the
foregoing provisions, Landlord may, after the giving of fifteen (15) days notice
and Tenant's failure to cure, at its option, perform any and all of Tenant's
obligations as aforesaid and all reasonable costs and expenses incurred by
Landlord in the exercise of this right shall be deemed to be additional rent
payable within ten (10) days after demand therefor from Landlord and with
interest until payment. Such costs and expenses include, but are not limited to,
state agency fees, engineering fees, cleanup costs, filing fees and suretyship


                                       16


expenses. Notwithstanding the foregoing, Landlord shall not have the right to
perform any work on behalf of Tenant if Tenant has commenced a cure within the
fifteen (15) day cure period and is diligently pursuing such cure.

           (i) Landlord shall deliver to Tenant all documents which pertain to
environmental compliance or the recovery or attempted recovery from an insurance
carrier, or both, and to the extent applicable, shall submit such documents to
Tenant prior to submission to any governmental authority, for Tenant's review
and comment. Each party shall promptly provide the other with copies of all
correspondence, reports, notices, orders, findings, declarations and other
materials pertinent to compliance with the provisions of this Section 24 and the
DEP's requirements under ISRA, as they are issued or received.

           (j) Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all losses (including, without limitation, diminution in
value of the Premises or the Project and loss of rental income from the
Project), claims, demands, actions, suits, damages (including, without
limitation, punitive damages), expenses (including, without limitation,
remediation, removal, repair, corrective action, or cleanup expenses) and costs
(including, without limitation, reasonable attorneys' fees, consultant fees or
expert fees and removal or management of any asbestos brought into the Leased
Premises in breach of the requirements of this Section 24 during the term of
this Lease, regardless of whether such removal or management is required by law)
which are brought or recoverable against, or suffered or incurred by Landlord as
a result of any release of Hazardous Material at the Leased Premises during the
term of this Lease, or any breach of the requirements under this Section 24 by
Tenant, its agents, employees, contractors, subtenants, assignees or invitees,
regardless of whether Tenant had knowledge of such noncompliance.
Notwithstanding the foregoing, neither party shall be liable to the other for
consequential damages except as may be expressly provided in this Section 24.

           (k) Landlord may, at Tenant's sole cost and expense, have an
environmental consultant appointed to conduct an environmental survey and
inspection annually (or more often, if reasonably required by Landlord) so that
any environmental violations may be discovered and corrected in the quickest
time possible. Tenant shall have the right to designate an alternate consultant
to complete the annual (or more often, if reasonably required by Landlord)
environmental survey; provided, however, that Landlord must in writing approve
said consultant, which approval shall not be unreasonably withheld, conditioned
or delayed. Access to the Leased Premises shall be granted to Landlord upon
Landlord's prior notice to Tenant and at such times so as to minimize, so far as
may be reasonable under the circumstances, any disturbance to Tenant's
operations. Landlord's receipt of or satisfaction with any environmental
assessment in no way waives any rights that Landlord holds against Tenant. Each
party shall promptly notify the other of any communication or report that such
party makes to any governmental authority regarding any possible violation of
Environmental Laws or Release or threat of Release of any Hazardous Material
onto or from the Leased Premises or the Project, and each party shall, within
five (5) days of receipt thereof, provide the other with a copy of any documents
or correspondence received from any governmental agency or other party relating
to a possible violation of Environmental Laws or claim or liability associated
with the Release or threat of Release of any Hazardous Material onto or from the
Leased Premises or the Project. Landlord agrees to provide Tenant with a copy of
the environmental survey and inspection report promptly after Landlord's receipt
of same and agrees that unless such survey and inspection indicates an
environmental violation, or unless Landlord has a reasonable basis to require
more than one such survey and inspection in any year, the cost of such survey
and inspection shall not exceed $3,500.00 per year.

           (l) If applicable, prior to termination of this Lease, it shall be
the obligation of Tenant to deactivate any identification number, permit,
license, etc. issued by the USEPA, the DEP or any other federal, state or local
entity dealing with the generation, treatment, storage or disposal of
regulated/hazardous or solid waste and comply with any concomitant notification
requirements pursuant to RCRA, the Spill Act, the SWMA and any rules or
regulations promulgated thereunder or in any other applicable federal, state or
local law, rule or regulation dealing with hazardous waste, solid waste and/or
environmental protection.

           (m) In the event there shall be filed a lien against the Leased
Premises or the Project arising out of a claim(s) by the DEP pursuant to the
provisions of the Spill Act or by the USEPA pursuant to the provisions of
CERCLA, which arises from a Release of Hazardous Material for which Tenant is
responsible hereunder, Tenant shall promptly either: (i) pay the claim and
remove the lien; or (ii) furnish a bond, cash receipt or other security
reasonably satisfactory to Landlord in form and amount.

           (n) In addition to all other rights and remedies available to
Landlord under this Lease or otherwise, Landlord may, in the event of a breach
of the requirements of this Section 24 that is not cured within thirty (30) days
following notice of such breach by Landlord, require Tenant to provide financial
assurance (such as insurance, escrow of funds or third party guarantee) in an
amount and form reasonably satisfactory to Landlord. The requirements of this
Section 24 are in addition to and not in lieu of any other provision in this
Lease. Notwithstanding the foregoing, Tenant shall not be required to provide


                                       17


financial assurance if Tenant has commenced a cure within the thirty (30) day
period and is diligently pursuing such cure.

           (o) Tenant hereby acknowledges that the Project was subject to an
ISRA clean up pursuant to that certain "Preliminary Assessment Report" dated
September, 2000, filed for Cardell, Inc. and that certain "Remedial
Investigation Report/Remedial Action Workplan for 1000 Industrial Avenue,
Keasby, NJ," dated September 20, 2000, prepared by Environmental Liability
Management, Inc. (collectively, "RAW") approved by the DEP by letter dated July
3, 2003, copies of which have been provided to Tenant. Landlord shall, at no
cost or expense to Tenant, complete the work required by the RAW and obtain a no
further action letter from the DEP in connection therewith. Landlord shall use
diligent efforts and perform all work necessary to obtain the no further action
letter and upon issuance shall provide a copy to Tenant. Landlord represents
that, to the best of its knowledge, as of the date hereof there are no
violations of ISRA, the Spill Act or any other Environmental Laws, or any other
environmental pollution with regard to the Project or the Leased Premises and
that it has no knowledge of any contamination of the Premises other than as
described in the RAW. Landlord shall indemnify, defend and hold Tenant harmless
from and against any and all losses, claims, demands, actions, suits, damages
(including, without limitation, punitive damages), expenses (including, without
limitation, remediation, removal, repair, corrective action, or cleanup
expenses) and costs (including, without limitation, reasonable attorneys' fees,
consultant fees or expert fees which are brought or recoverable against, or
suffered or incurred by Tenant as a result of the presence or any release of
Hazardous Material at the Premises on or prior to the Commencement Date.
Notwithstanding the foregoing, neither party shall be liable to the other for
consequential damages except as may be expressly provided in this Section 24.

           (p) The obligations of the parties under this Article shall survive
the expiration or termination of this Lease.

     25. SUBORDINATION OF LEASE. This Lease and the term and estate hereby
granted are and shall be subject and subordinate to the lien of all mortgages
which may now or at any time hereafter affect all or any portion of the land or
building of the Landlord's interest therein, and to all renewals, modifications,
consolidations, replacements and extensions thereof. The foregoing provisions
for the subordination of this Lease shall be self-operative and no further
instrument shall be required to effect any such subordination; but Tenant shall,
however, upon request by Landlord, at any time or times execute and deliver any
and all instruments that may be necessary or proper to effect such subordination
or to confirm or evidence the same. If Tenant shall fail or otherwise refuse to
execute a subordination in accordance with this Section, then, and upon such
event, Tenant shall be deemed to have appointed Landlord and Landlord shall
thereupon be regarded as the attorney-in-fact of Tenant, duly authorized to
execute and deliver the required subordination for and on behalf of Tenant, but
the exercise of such power by Landlord shall not be deemed a waiver of Tenant's
default. Landlord shall use its best efforts to obtain from any future mortgagee
an agreement providing that so long as Tenant is not in default under the terms
of this Lease, the leasehold estate of Tenant created hereby and Tenant's
peaceful and quiet possession of the Leased Premises shall be undisturbed by any
foreclosure so long as Tenant continues to comply with the terms of this Lease.
Such agreement may also provide that Tenant shall attorn to such mortgagee if
such holder succeeds to the interest of Landlord in the Project, the Leased
Premises or any part or parts thereof by foreclosure proceedings or as a result
of any conveyance in lieu of foreclosure proceedings. Concurrently with the
execution of this Lease, Landlord, Tenant and Principal Life Insurance Company
("LENDER") shall enter into the Non-Disturbance and Attornment Agreement
attached hereto as Schedule D.

     26. STATEMENTS BY LANDLORD AND TENANT.(a) If the Landlord desires to
procure a mortgage loan (or loans), or desires to recast an existing mortgage on
the premises, then and at the request of Landlord, Tenant will furnish to
Landlord whatever data, including financial statements, which may be reasonably
required by any mortgagee in connection with the Leased Premises. Tenant further
agrees that at any time after the commencement of the term and from time to time
upon not less than ten (l0) days' prior written request by Landlord, to
immediately execute, acknowledge and deliver to Landlord a statement in the form
reasonably requested by the mortgagee in writing certifying that this Lease is
unmodified and in full force and effect (or if there have been modifications or
exceptions, that the same is in full force and effect as modified or excepted,
and stating the modifications and exceptions, if any), and the date to which the
rental and other charges have been paid in advance, if any, it being intended
that any such statement delivered pursuant to this Section may be relied upon by
any prospective purchaser of the fee, or any mortgagee or assignee of any
mortgage upon the fee, of the Leased Premises.

           (b) If any lender with which Landlord has negotiated or may negotiate
financing for the property on which the Leased Premises is located shall require
a change or changes in this Lease as a condition or one of the conditions of its
approval of this Lease for such financing (other than a change in any material
right or obligation of Tenant, including, without limitation, the size of the
Leased Premises, the permitted uses of the Leased Premises, the term, renewal


                                       18


rights, rent or additional rent) and if within thirty (30) days after notice
from Landlord, Tenant fails or refuses to execute with Landlord the amendments
to this Lease accomplishing the change or changes which are stated by Landlord
to be required in connection with approval of this Lease for purposes of such
financing, Landlord shall have the right, on not less than sixty (60) days
written notice to Tenant, to cancel this Lease. In the event of cancellation by
Landlord hereunder, this Lease shall be and become null and void as of the
effective date of Landlord's cancellation set forth in Landlord's notice to
Tenant.

           (c) Upon the Tenant's accepting the Leased Premises and entering
possession, pursuant to the terms and conditions hereof, the Tenant covenants
and agrees that it will furnish to the Landlord a statement that it accepts the
Leased Premises, subject to the terms and conditions of the Lease as herein
contained.

     27. SURRENDER OF LEASED PREMISES. Upon the expiration or other termination
of the term of this Lease, Tenant shall quit and surrender to the Landlord the
Leased Premises in compliance with all governmental regulations as mentioned
herein, broom clean and in good order, ordinary wear and tear excepted. The
Tenant shall remove all property of the Tenant as directed by Landlord, and
failing to do so, Landlord may cause all of said property to be removed at the
cost and expense of the Tenant, and Tenant agrees to promptly pay all costs and
expenses incurred thereby. If the Landlord suffers any costs or expenses,
including loss of rent, due to the fact that Tenant does not surrender on the
date stated herein, Landlord may recover such costs and expenses as Landlord
might incur if Landlord has to assume any of the Tenant's obligations herein.
The Tenant's obligations under this section shall survive the expiration or
termination of this Lease.

     28. CONDEMNATION. (a) If more than 50% of the Project shall be acquired or
condemned by eminent domain for any public or quasi-public use or purpose, then
the term of this Lease shall, at the option of either Tenant or Landlord, cease
and terminate as of the date of title vesting in such proceedings and all
rentals shall be paid up to that date. Tenant shall be entitled to claim against
Landlord or the condemning authority for the value of any unexpired term of this
Lease. Tenant also shall be entitled to seek a separate award against the
condemning authority for its fixtures, equipment, property and moving expenses
but same shall have no affect upon Landlord's claim.

           (b) If the term of this Lease is not terminated as a result of such
condemnation, Landlord shall restore the Project and , if applicable, the Leased
Premises, at Landlord's expense, in accordance with all applicable codes. If
Tenant is unable to utilize the Leased Premises during restoration , all rent
shall abate during the period of such deprivation, and if Tenant is deprived of
part of the Leased Premises, but is operating in a portion of the Leased
Premises, rent shall in such event abate proportionately.

     29. MEMORANDUM OF LEASE. Tenant shall not record this Lease, but if either
party should desire to record a short form Memorandum of Lease setting forth
only the parties, the Leased Premises and the term, such Memorandum of Lease
shall be executed, acknowledged and delivered by both parties upon notice from
either party.

     30. SECURITY. (a) The Landlord acknowledges that the Tenant has deposited
with Landlord the amount shown in the Lease Summary upon signing Lease as
security for the full and faithful performance by Tenant of all the terms and
conditions of this Lease upon the Tenant's part to be performed; which said sum
shall be returned to the Tenant at the end of this Lease, provided the Tenant
has fully and faithfully carried out all of the terms, covenants and conditions
on its part to be performed, and is not in default hereunder. Tenant hereby
agrees not to look to the mortgagee, as mortgagee, mortgagee in possession, or
successor in title to the property, for accountability for any security deposit
required by the Landlord hereunder, unless said sums have actually been received
by said mortgagee as security for the Tenant's performance of this Lease. It is
expressly understood and agreed that the Landlord shall have the right to
commingle the security funds with its general funds and said security shall not
be required to be segregated. It is expressly understood and agreed that the
Tenant shall not and the Tenant represents that it will not mortgage, pledge,
hypothecate, assign, convey or otherwise encumber the security deposited with
the Landlord hereunder.

           (b) Notwithstanding the provisions of subparagraph (a) above and/or
paragraphs 7 and 8 above, Landlord agrees that in lieu of the cash security
deposit provided for in (a) above (and which may include the cash deposits
provided for in paragraphs 7(c) and 8(d) above), Tenant may deposit with
Landlord a negotiable standby letter of credit ("LETTER OF CREDIT"), issued by a
bank reasonably acceptable to Landlord and having a principal office, where the
Letter of Credit may be drawn, in New Jersey or New York City, NY. The Landlord
shall be the beneficiary of the Letter of Credit which shall be for a term of
not less than one (1) year commencing on or before the commencement date of the
Lease. If available without additional cost, the Letter of Credit shall be
"evergreen", i.e., renewable automatically for successive periods absent
Landlord's receipt of not less than ninety (90) days written notice from the


                                       19


bank of intent not to renew. The Letter of Credit shall provide that Landlord
may draw on the Letter of Credit upon presentation of a sight draft to the
bank's office New Jersey or New York City, NY, accompanied by a certificate
signed by an individual purporting to be an authorized signatory for Landlord
stating that (i) Tenant is in default under the terms of the Lease after the
giving of any required notice and the expiration of any cure period, if
applicable, or (ii) if presented within the thirty (30) day period prior to
expiration of the Letter of Credit that Tenant has failed to deliver a
replacement Letter of Credit in the amount and on the terms and conditions set
forth above, and in either case without further proof or conditions. In the
event that the Landlord draws on the Letter of Credit, in whole or in part, the
funds withdrawn shall be held by Landlord as the security deposit or escrows
provided for in this Lease. If Landlord draws on the funds to pay sums owed by
Tenant such payment shall not be deemed to cure Tenant's monetary default unless
Tenant shall replenish the security deposit to its full amount within ten (10)
days of receipt of demand from Landlord. If Landlord draws on the Letter of
Credit Tenant's right to deposit a letter of credit in lieu of cash security
shall be terminated.

     31. EXCUSABLE DELAYS. The Landlord shall not be liable to the Tenant and
shall not be in default under this Lease by reason of delays in performance
under any covenant or condition of this Lease if said delay is caused by present
or future government regulations, restrictions, strikes and lockouts, shortages,
unavailability of materials or labor, weather conditions, or for any other
reason, whether similar or not, which are beyond the control of the Landlord.

     32. BROKERS COMMISSION. Landlord and Tenant hereby warrant and represent
each to the other that it has dealt with no broker in connection with this
transaction other than as noted in the Lease Summary. Landlord agrees to pay
said brokers as provided for in a separate agreement. In the event that it shall
be established that either party did deal with any broker other than as noted in
the Lease Summary, then such party shall be responsible for the payment of any
commission to the other broker and will indemnify and hold the other harmless
from any claims, costs, expenses or damage incurred as a result of a breach of
the aforesaid representation.

     33. FEES AND EXPENSES. (a) In case suit shall be brought for recovery of
possession of the Leased Premises, for the recovery of rent or any other amount
due under the provisions of this Lease, or because of the breach of any other
covenant herein contained on the part of Tenant to be kept or performed, and a
breach shall be established, Tenant shall pay to Landlord all expenses incurred
therefore, including a reasonable attorney's fee.

           (b) In the event Tenant shall fail to pay any rent or other sums due,
and such failure shall continue for thirty (30) days, then, in addition to
Landlord's rights herein, interest shall accrue thereon at the rate of l8% per
annum from the thirty-first day after due date to the date of payment.

     34. NO REPRESENTATIONS BY LANDLORD. Neither Landlord nor Landlord's agents
have made any representations or promises with respect to the physical condition
of the building, the land upon which it is erected or the Leased Premises, the
rents, leases, expenses of operation or any other matter or thing affecting or
related to the Leased Premises except as herein expressly set forth and no
rights, easements or licenses are acquired by Tenant by implication or otherwise
except as expressly set forth in the provisions of this Lease. Tenant has
inspected the building and the Leased Premises and is thoroughly acquainted with
their condition, and agrees to take the same "as is" and acknowledges that the
taking of possession of the Leased Premises by Tenant shall be conclusive
evidence that the Leased Premises and the building of which the same form a part
were in good and satisfactory condition at the time such possession was so
taken, except as to latent defects and Landlord's warranty of Landlord's Work as
set forth in Schedule C. All understandings and agreements heretofore made
between the parties hereto are merged in this contract, which alone fully and
completely expresses the agreement between Landlord and Tenant and any executory
agreement hereafter made shall be ineffective to change, modify, discharge or
effect an abandonment of it in whole or in part, unless such executory agreement
is in writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.

     35. OPTION TO RENEW.(a) The Tenant is hereby given an option to renew this
Lease for two (2) additional terms of five (5) years each upon all the terms and
conditions herein, except as expressly set forth in subsection (b) hereof. The
exercise of each such renewal option shall be subject to the following
conditions: (1) written notice of the exercise of option shall sent in the
manner provided in this Lease for the giving of notices, to Landlord at least
nine (9) months prior to the expiration of the original term for the first such
renewal, and at least nine (9) months prior to the expiration the first renewal
term for the second such renewal, as applicable; (2) that Tenant shall not be in


                                       20


default of any monetary obligation or in default of any material non-monetary
obligation under the terms of this Lease (beyond any applicable periods of
notice and cure) at the time that the renewal is exercised or at the date of the
commencement of the applicable renewal term; and (3) Landlord's right to
relocate as set forth in subsection (c) hereof.

                (b) The annual fixed base rent payable for each month during
such renewal terms shall be 95% of the prevailing fair market rental value (the
"PREVAILING RENTAL RATE"), at the commencement of each such renewal term, for
renewals of space in a building of equivalent quality, size, utility and
location, with the length of the renewal to be taken into account, based on a
willing, comparable and non-equity tenant, a willing landlord, an arm's length
negotiation giving appropriate consideration to rental rates per rentable square
foot, escalation clauses (including, without limitation, operating expenses and
real estate taxes), abatement provisions reflecting, if any, the term of the
lease, the size and location of Leased Premises, and tenant improvement
allowances, if any. In the event that Tenant shall have a tangible net worth of
less than Fifty Million Dollars ($50,000,000.00) then the credit standing of
Tenant shall also be taken into account. Landlord shall notify Tenant not more
than thirteen (13) and no less than twelve (12) months before the commencement
of the applicable renewal term of the Landlord's determination of the Prevailing
Rental Rate. Tenant shall, within twenty (20) days after receipt of Landlord's
notice, notify Landlord in writing whether Tenant accepts or rejects Landlord's
determination of the Prevailing Rental Rate. If Tenant does not timely notify
Landlord that Tenant rejects Landlord's determination of the Prevailing Rental
Rate, then, in the event that Tenant elects to renew, on or before the
commencement date of the renewal term, Landlord and Tenant shall execute an
amendment to this Lease extending the Term on the same terms provided in this
Lease, except as follows:

                    (i)    Fixed Base Rent shall be adjusted to the Prevailing
                           Rental Rate;

                    (ii)   The number of renewal options shall be reduced by one
                           (1) renewal option unless expressly agreed to the
                           contrary by Landlord in writing;

                    (iii)  Landlord may elect to adjust the amount of the
                           security deposit to reflect the adjusted fixed base
                           rent; and

                    (v)    Landlord shall lease to Tenant the Leased Premises in
                           its then-current condition, and Landlord shall not
                           provide to Tenant any allowances (e.g., moving
                           allowance, construction allowance, and the like) or
                           other tenant inducements.

     If Tenant timely rejects the Landlord's determination of Prevailing Rental
Rate, Landlord and Tenant shall use good faith efforts to agree on the
Prevailing Rental Rate. If Landlord and Tenant are unable to agree upon a
Prevailing Rental Rate within ten (10) days after Landlord's receipt of Tenant's
rejection of Landlord's determination, then Landlord and Tenant shall, within
thirty five (35) days of Tenant's receipt of Landlord's determination, each
simultaneously submit to the other in writing its good faith estimate of the
Prevailing Rental Rate. If the higher of said estimates is not more than one
hundred five percent (105%) of the lower of such estimates, the Prevailing
Rental Rate in question shall be deemed to be the average of the submitted
rates. If otherwise, within fifteen (15) days thereafter, Tenant may elect
either to terminate this Lease effective as of the then scheduled expiration of
the Lease term (assuming no renewal) or elect to establish the Prevailing Rental
Rate by appraisal.

     If Tenant elects to established the Prevailing Rental Rate by appraisal,
the appraisal shall be conducted by a mutually agreeable real estate appraiser
who shall be a MAI with not less than ten (10) years experience in industrial
leasing in the Middlesex and Union County area. If the parties are unable to
agree on an appraiser within seven (7) days of the election to establish the
Prevailing Rental Rate by appraisal, then each party shall appoint its own
appraiser with the above qualifications and each appraiser shall determine
Prevailing Rental Rate and submit a written report of its opinion which shall be
exchanged by the parties within thirty (30) days. If the higher of said
appraisals is not more than one hundred ten percent (110%) of the lower of such
appraisals, the Prevailing Rental Rate in question shall be deemed to be the
average of the two appraisals. If otherwise, the two appraisers so appointed
shall appoint a third appraiser of similar qualifications who shall determine
Prevailing Rental Rate within thirty (30) days of his/her appointment. If the
third appraisal is between 100% and 110% of the higher of the two prior
appraisals, or if the third appraisal is between 100% and 110% of the lower of
the two prior appraisals, then Prevailing Rental Rate shall be the average of
such third appraisal and the closer of such prior appraisals. If otherwise the
Prevailing Rental Rate shall be as determined by the third appraiser. Each party
shall pay the costs of its appointed appraiser and 50% of the cost of the third
appraiser.

                (c) Notwithstanding anything herein to the contrary, in the
event that Tenant gives timely written notice of the exercise of option as
provided in subsection (a) hereof, Landlord shall have the right and power to
relocate Tenant within the Building in such space which is comparable in size to
the Leased Premises, such right and power to be exercised by written notice from
Landlord to Tenant of Landlord's determination to exercise such right and power
and the location of the space within the Building to which Tenant is to be
relocated. Such relocation notice shall be given no less than five (5) months


                                       21


before the commencement of the applicable renewal term. Except as provided in
this subsection (c), Landlord shall not be liable or responsible for any claims,
damages, or liabilities in connection with or occasioned by such relocation.
Landlord's exercise of such right and power shall include, but not be limited
to, a relocation to consolidate the rentable area occupied in order to provide
Landlord's services more efficiently or a relocation to provide contiguous
vacant space for a prospective or existing tenant. If Landlord shall exercise
said option, the substituted premises shall thereafter be deemed for the
purposes hereof the "Leased Premises" hereunder, and a new amended Schedule A
showing the new Leased Premises will be substituted for the original Schedule A
attached hereto. Landlord agrees to pay Tenant's reasonable expenses to move its
furniture, fixtures, and equipment to such substituted Leased Premises.

                (d) Tenant's rights to renew under this Section 35 shall
terminate if (1) this Lease or Tenant's right to possession of the Premises is
terminated, (2) Tenant fails to timely exercise its option under this Section
35, time being of the essence with respect to Tenant's exercise thereof, or (3)
Landlord determines, in its sole but reasonable discretion, that Tenant's
financial condition or creditworthiness has materially deteriorated since the
date of this Lease.

     36. RIGHT OF FIRST OFFER. (a)Provided that Tenant is not in default of any
payment due hereunder or of any material performance obligation (after the
giving of any required notice and the expiration of any applicable cure period)
under the terms of this Lease, Tenant, subject to the provisions of subsection
7(b) below, shall have the right of first offer to lease any space which may
become available within the Building from time to time during the term of this
Lease ("EXPANSION SPACE"), upon all the terms and conditions herein except that:
(a) the amount of the annual fixed base rent due and payable for such Expansion
Space shall be the greater of (x) the Prevailing Rental Rate(to be determined as
provided in paragraph 35), or (y) the annual fixed base rent then in effect
under this Lease; (b) the term of the lease for the Expansion Space shall be for
the remainder of the term of this Lease; and (c) the Expansion Space shall be
subject to any unexercised renewal options as provided in this Lease. In the
event that the Expansion Space becomes available, Landlord shall notify Tenant,
in writing, that such space is available ("EXPANSION SPACE NOTICE"). Within
fifteen (15) business days of Tenant's receipt of Landlord's Expansion Space
Notice, Tenant shall provide written notice to Landlord of its election to rent
the Expansion Space pursuant to this Section 36. Failure of Tenant to provide
written notice to Landlord within said fifteen (15) business day period shall be
conclusively deemed to be an election by Tenant not to rent the Expansion Space,
time being of the essence. If Tenant elects to rent the Expansion Space,
Landlord shall deliver the Expansion Space in its "as is" condition; provided,
however, that the Expansion Space shall be vacant, broom clean, free of tenants
and other occupants, in compliance with applicable laws, building codes and laws
applicable to vacant space and without regard to Tenant's use or occupancy
(which shall be conclusively established by the issuance of a certificate of
occupancy or continued occupancy), and free of Hazardous Substances except as
provided in Section 24(p). This right of first offer shall remain in full force
and effect during the initial term of Lease and during any option to renew as
set forth in Section 35.

           (b) Notwithstanding the foregoing, Tenant acknowledges that Landlord
has advised Tenant that P&O Nedlloyd Logistics, an existing tenant in the
Building, has a similar right of first offer. Tenant agrees that Tenant's right
of first offer herein is subject and subordinate to the right of first offer
under the lease with P&O Nedlloyd Logistics, including any renewals.

     37. AMERICAN'S WITH DISABILITY ACT. Landlord agrees that it shall cause the
Leased Premises to comply with the requirements of the Americans with
Disabilities Act ("ADA") of 1990, 42 U.S.C.S. Section 12101 et seq. and to the
rules and regulations promulgated thereunder. Landlord shall indemnify, defend
and hold Tenant harmless from and against any cost, expense, claim or liability
arising as a result of any violation of the ADA existing as of the commencement
date of this Lease, unless such cost, expense, claim or liability arises out of
or is in connection with Tenant's us of the Leased Premises or Tenant's gross
negligence or willful misconduct. Tenant agrees that it shall cause the Leased
Premises to remain in compliance with the requirements of the ADA, as may be
amended from time to time. Tenant shall indemnify, defend and hold Landlord
harmless from and against any cost, expense, claim or liability arising as a
result of any violation of the ADA arising after the commencement date of this
Lease.

     38. SIGNAGE. Tenant may, at Tenant sole cost and expense, place a sign
(without interior or backlight illumination) on the exterior wall of the
Building subject to Landlord's approval as to type, size and location which may
be withheld in Landlord's discretion. Tenant shall be responsible to comply with
all applicable local, state and federal laws, ordinances and codes and to obtain
all required permits and approvals for the installation and removal of such
sign. Tenant shall, at Tenant's sole cost and expense, maintain any such sign in
good condition and repair at all times and remove same at the expiration or
sooner termination of this Lease and restore the exterior of the Building to its
original condition.

                                       22


     39. GUARANTY. Intentionally Omitted

     40. BIND AND INURE. The terms, covenants and conditions of the written
Lease shall be binding upon and inure to the benefit of each of the parties
hereto, their respective executors, administrators, heirs and successors and
assigns, as the case may be.

     41. SUBLEASE. Notwithstanding the references to this document as a "lease,"
Landlord is the tenant of the Project pursuant to a lease entitled "Subground
Lease Agreement" dated as of June 4, 2004 made between Landlord, as subtenant,
and GreDel Urban Renewal, L.L.C., as sublandlord ("PRIME LEASE") and GreDel
Urban Renewal, L.L.C. is the tenant pursuant to a lease entitled "Ground Lease
Agreement" dated as of June 4th, 2004, made between Landlord , as ground lessor,
and GreDel Urban Renewal, L.L.C. as ground lessee ("GROUND LEASE"), a copy of
which was recorded in the Office of the Middlesex County Clerk on June 24, 2004
in Book 5341 at page 180 et seq. Landlord represents and warrants that as of the
date hereof the Ground Lease and the Prime Lease are in full force and effect,
have not been supplemented or amended, and that neither Landlord nor GreDel
Urban Renewal, L.L.C. are in default under either lease. Landlord covenants that
it shall not amend or modify the Ground Lease or the Prime Lease in any manner
that would adversely affect Tenant's rights under this Lease (other than to a de
minimis extent) without Tenant's prior consent, which consent shall not be
unreasonably withheld, conditioned or delayed. Only the terms and conditions
contained in this Lease, however, shall govern the rights and obligations of
Landlord and Tenant; it not being intended that any of the terms or conditions
of the Prime Lease be deemed incorporated herein. Landlord shall obtain from the
landlord under the Prime Lease, and from the fee owner of the Project,
subordination, non-disturbance and attornment agreements, in form and content
substantially as attached hereto and made a part hereof as SCHEDULE F.

                          SIGNATURES ON FOLLOWING PAGE

                                       23


           IN WITNESS WHEREOF, the parties hereto above placed their hands and
seals or caused these presents to be signed by their proper corporate officers
and caused their proper corporate seals to be hereunto affixed, the day and year
first above written.

                                    GREDEL PROPERTIES, L.L.C.,
                                    a New Jersey limited liability company
                                    By:  GREDEL HOLDINGS, L.L.C.,
                                         a New Jersey limited liability company,
                                         its sole member
                                         By:    GREDEL, L.L.C.,
                                                a New Jersey limited liability
                                                company, as manager

                                                By:    /s/ Frank A. Greek, Jr.
                                                       -----------------------
                                                Name:  Frank A. Greek, Jr.
                                                Title: General Manager

                                    PARLUX FRAGRANCES, INC.
                                    a Delaware corporation

                                    By:  /s/ Frank A. Buttacavoli
                                         ------------------------
                                         Frank A. Buttacavoli, Exec. VP/COO/CFO

                                       24

                          DIRECT RECOGNITION AGREEMENT

         THIS DIRECT RECOGNITION AGREEMENT is made as of April 7, 2006 by and
between:

                  GREDEL URBAN RENEWAL, L.L.C., a New Jersey limited liability
                  company, with offices at 33 Cotters Lane, East Brunswick, NJ
                  08816 ("SUB-LANDLORD"); and

                  PARLUX FRAGRANCES,  INC., a Delaware corporation,  with
                  offices at 3725 SW 30th Avenue, Ft. Lauderdale, FL 33312
                  ("SPACE TENANT").

WHEREAS:

         A.   Sub-Landlord represents that it presently holds the tenant's
              interest under that certain "Ground Lease Agreement," dated June
              4, 2004, between Sub-Landlord, as ground lessee, and GreDel
              Properties, L.L.C. ("FEE OWNER"), as fee owner/ground lessor
              ("GROUND LEASE"), for the land ("PREMISES") described on Exhibit A
              annexed hereto, for a term expiring thirty (30) years and thirty
              (30) days from the first day of the calendar month next succeeding
              the date upon which the first temporary certificate of occupancy
              is issued for the building to be constructed on the Premises by
              Sub-Landlord. A copy of said Ground Lease was recorded in the
              Office of the Middlesex County Clerk on June 24, 2004 in Book 5341
              at page 180 et seq.;

         B.   Sub-Landlord has entered into that certain "Subground Lease
              Agreement" ("SUBLEASE"), dated as of June 4, 2004, between
              Sub-Landlord, as sublessor, and Fee Owner, as sublessee, covering
              all of the Premises and the improvements to be constructed thereon
              by Sub-Landlord ("SUBLEASED PREMISES") for a term expiring thirty
              (30) years and twenty-five (25) days from the first day of the
              calendar month next succeeding the date upon which the first
              temporary certificate of occupancy is issued for the building to
              be constructed on the Premises by Tenant; and

         C.   Space Tenant has entered into, or is about to enter into, that
              certain "Lease Agreement" and attached "Lease Agreement Summary"
              (collectively, "SPACE LEASE"), dated of even date herewith for a
              portion of the Subleased Premises ("SPACE LEASED PREMISES") for a
              term of approximately five (5) years (plus renewal options if
              exercised by Space Tenant).

         NOW, THEREFORE, it is agreed by and between Sub-Landlord and Space
Tenant as follows:

         1. Landlord hereby acknowledges receipt of a copy of, and consents to,
the Space Lease and the terms thereof, and agrees that the exercise by Space
Tenant of any of the rights, remedies and options contained therein shall not
constitute a default under the Sub-Lease.

         2. Sub-Landlord agrees that (a) whenever it has an obligation with
respect to the Subleased Premises, or its consent or approval is required for
any action of Fee Owner and/or Space Tenant under the Space Lease, then, to the
extent such obligation, consent or approval relates to the Space Leased Premises
or Space Tenant's use and occupation thereof, Sub-Landlord will perform such
obligation and will not unreasonably withhold, unduly delay or place conditions
on such consent or approval and (b) Sub-Landlord shall not, in the exercise of
any of the rights arising or which may arise out of the Sub-Lease, disturb or
deprive Space Tenant of its rights to possession of the Space Leased Premises
(except however, if Sub-Landlord terminates the Sub-Lease as a result of a
condemnation, in accordance with the terms of the Sub-Lease), or of any right or
privilege granted to or inuring to the benefit of Space Tenant under the Space
Lease.

         3. In the event of (a) the termination of the Sub-Lease by (i)
re-entry, notice, conditional limitation, summary proceeding or other action or
proceeding or otherwise, or (ii) surrender by Fee Owner (except in connection
with a termination of the Sub-Lease as a result of a condemnation in accordance
with the terms of the Sub-Lease), or (b) if the Sub-Lease shall terminate or
expire for any reason before any of the dates provided in the Space Lease for
the termination of the initial or renewal term of the Space Lease (other than in
connection with Sub-Landlord's termination of the Sub-Lease as a result of a
condemnation in accordance with the terms of the Sub-Lease), Space Tenant shall
not be made a party in any removal or eviction action or proceeding (unless
Space Tenant shall be a necessary party) nor shall Space Tenant be evicted or
removed or its possession or right of possession be disturbed or in any way
interfered with, and the Space Lease shall continue in full force and effect as
a direct lease between Sub-Landlord and Space Tenant.

         4. Sub-Landlord covenants and represents that as of the date hereof,
the Sub-Lease is in full force and effect and it knows of no default by Fee
Owner under any of the terms and conditions thereof and of no circumstance which





with the giving of notice or the passage of time or both would constitute a
default by Fee Owner under the Sub-Lease.

         5. Sub-Landlord and Space Tenant agree that any agreement modifying (a)
the Sub-Lease which would (i) effect any increase in Space Tenant's rents or
decrease the term of the Sub-Lease, or (ii) increase Space Tenant's monetary
obligations, or decrease Fee Owner's obligations, under the Space Lease, or (b)
the Space Lease which would (y) alter the size of the leased premises, effect
any decrease in Space Tenant's rents, or the term of the Space Lease, or (ii)
diminish Space Tenant's monetary obligations, or increase Fee Owner's
obligations, under the Space Lease, shall not be binding on Sub-Landlord or the
Space Tenant, as applicable, unless such party has consented thereto in writing.

         6. Any notices, consents, approvals, submissions, demands or other
communications (hereinafter "NOTICES") given under this Agreement shall be in
writing. Unless otherwise required by law or governmental regulation, Notices
shall be deemed given if sent by certified mail, return receipt requested,
postage prepaid, or by a recognized overnight courier service that provides
proof of delivery to the courier service and proof of receipt, shipping prepaid,
addressed: (a) to Sub-Landlord, at the address of Tenant as hereinabove set
forth or such other address as Sub-Landlord may designate by Notice to the other
parties hereto; and (b) to Space Tenant, at the address of Space Tenant as
hereinabove set forth, with a copy(ies) as provided in the Space Lease, or such
other address or persons as Space Tenant may designate by Notice to the other
parties hereto. All Notices shall become effective only on the receipt or
refusal of same by the proper parties.

         7. No modification, amendment, waiver, or release of any provision of
this Agreement or of any right, obligation, claim or cause of action arising
hereunder shall be valid or binding for any purpose whatsoever unless in writing
and duly executed by all of the parties hereto.

         8. This Agreement shall be binding on, and shall inure to the benefit
of, the parties hereto and their respective legal representatives, successors
and assigns.

         IN WITNESS WHEREOF, the parties have caused this instrument to be
executed as of the date first above written.

PARLUX FRAGRANCES, INC.
a Delaware corporation

By:  /s/ Frank A. Buttacavoli
     ------------------------
Frank A. Buttacavoli, Exec. VP/COO/CFO

GREDEL URBAN RENEWAL, LLC
a New Jersey limited liability company
By:  GreDel Holdings, LLC
     a New Jersey limited liability company, its sole member

By:  LIT INDUSTRIAL LIMITED PARTNERSHIP,
     a Delaware limited partnership, member
     By:  LIT Holdings GP, LLC
          a Delaware limited liability company, its sole general partner
          By:  Lion Industrial Properties, L.P.,
               a Delaware limited partnership, its sole member
               By:  LIT GP Sub, LLC,
                    a Delaware limited liability company, its sole general
                    partner
                    By:  Lion Industrial Trust,
                         a Maryland real estate investment trust,
                         its sole member and manager

                         By:  /s/ Frank A. Greek, Jr.
                              Frank A. Greek, Jr.
                              General Manager

By:  GREDEL, LLC,
     a New Jersey limited liability company, member

     By:  /s/ Frank A. Greek, Jr.
          Frank A. Greek, Jr.
          General Manager

EX-10.83

                                                                   EXHIBIT 10.83

                                 LEASE AGREEMENT

      THIS AGREEMENT OF LEASE, by and between PORT 95-2, LTD., a Florida limited
partnership, (hereinafter referred to as the "Landlord") and PARLUX FRAGRANCES,
INC., a Delaware corporation (hereinafter referred to as the "Tenant").

      WITNESSETH, That in consideration of the mutual covenants and agreements
herein contained, it is agreed by and between Landlord and Tenant as follows:

1.    BASIC LEASE PROVISIONS AND DEFINITIONS:

      This Paragraph 1 is an integral part of this Lease and all of the terms
hereof are incorporated into this Lease in all respects. In addition to the
other provisions which are elsewhere defined in this Lease, the following,
whenever used in this Lease, shall have the meanings set forth in this
Paragraph, unless such meanings are expressly contradicted, limited or expanded
elsewhere herein:

      (a) DATE OF LEASE: As of this 2nd day of May 2006.

      (b) LANDLORD'S MAILING ADDRESS: 1812 S. W. 31st Avenue, Pembroke Park,
      Florida 33009.

      (c) TENANT'S MAILING ADDRESS: 3725 SW 30th Avenue; Ft. Lauderdale, FL
      33312.

      (d) GUARANTOR'S ADDRESS (Exhibit "D"): (non-applicable).

      (e) SECURITY DEPOSITS (Par. 12): $50,000.00 as security deposit.

      (f) DEMISED PREMISES: See Exhibit A attached hereto and made a part
      hereof; together with all improvements therein such premises are deemed to
      be 99,000 SQ. ft., (all of Port 95 Commerce Park Building 2) located at
      3725 SW 30th Avenue, Hollywood, Florida, with the mailing address being
      3725 SW 30TH AVENUE, FORT LAUDERDALE, FLORIDA 33312 (presently know as of
      the date of this Lease).

      (g) LEASE TERM ("Lease Term" or "term of this Lease") (Par. 3): The
      commencement date of the Lease Term shall be October 1, 2006 (the "Lease
      Commencement Date") and shall end sixty (60) months from the Lease
      Commencement Date or September 30, 2011, with the payment of Rent to
      commence on the Lease Commencement Date.

      (h) MINIMUM RENT (Par. 4): Four Million Two Hundred Fifty-nine Thousand
      Seven Hundred Fifty-four Dollars and No Cents ($4,259,754.00), PLUS
      applicable sales and/or rent taxes thereon, PLUS any increased Expenses
      pursuant to paragraph 1 (h) (2) below, payable as follows:

                  (1) During the first (1st) lease year ("Base Rent Year"),
         (to-wit: October 1, 2006 through September 30, 2007), the minimum rent
         due the Landlord (the "Rent" or "Minimum Rent") for the Demised
         Premises shall be Eight Hundred Sixteen Thousand Seven Hundred Fifty
         Dollars and No Cents ($816,750.00), consisting of $569,250.00 as Base
         Rent, $64,350.00 as "CAM" (common area maintenance and management
         fees), and $183,150.00 as "Expenses" (real estate taxes and insurance
         as defined in paragraph 1 (h) (2) below), payable monthly, in advance,
         at a rate of Sixty-eight Thousand Sixty-two Dollars and Fifty Cents
         ($68,062.50) per month, PLUS applicable sales and/or rent taxes
         thereon; beginning the second (2nd) lease year (to-wit: October 1, 2007
         through September 30, 2008), the Rent due Landlord annually for the
         Demised Premises shall be Eight Hundred Thirty-three Thousand Eight
         Hundred Thirty-two Dollars and No Cents ($833,832.00), consisting of
         $586,332.00 as Base Rent $64,350.00 as CAM, and $183,150.00 as
         Expenses, payable monthly, in advance, at a rate of Sixty-nine Thousand
         Four Hundred Eighty-six Dollars and No Cents ($69,486.00) per month,
         PLUS any increased Expenses pursuant to paragraph 1 (h) (2) below, PLUS
         applicable sales and/or rent taxes thereon; beginning the third (3rd)
         lease year (to-wit: October 1, 2008 through September 30, 2009), the
         Rent due Landlord annually for the Demised Premises shall be Eight
         Hundred Fifty-one Thousand Four Hundred Twenty-four Dollars and No
         Cents ($851,424.00), consisting of $603,924.00 as Base Rent, $64,350.00
         as CAM, and $183,150.00 as Expenses, payable monthly, in advance, at a
         rate of Seventy Thousand Nine Hundred Fifty-two Dollars and No Cents
         ($70,952.00) per month, PLUS any increased Expenses pursuant to
         paragraph 1 (h) (2) below, PLUS applicable sales and/or rent taxes
         thereon; beginning the fourth (4th) lease year (to-wit: October 1, 2009
         through September 30, 2010), the Rent due Landlord annually for the
         Demised Premises shall be Eight Hundred Sixty-nine Thousand Five
         Hundred Forty-four Dollars and No Cents ($869,544.00), consisting of
         $622,044.00 as Base Rent, $64,350.00 as CAM, and $183,150.00 as
         Expenses, payable monthly, in advance, at a rate of Seventy-two
         Thousand Four Hundred Sixty-two Dollars and No Cents ($72,462.00) per
         month, PLUS any increased Expenses pursuant to paragraph 1 (h) (2)


                                    Page - 1


         below, PLUS applicable sales and/or rent taxes thereon; and beginning
         the fifth (5th) lease year (to-wit: October 1, 2010 through September
         30, 2011), the Rent due Landlord annually for the Demised Premises
         shall be Eight Hundred Eighty-eight Thousand Two Hundred Four Dollars
         and No Cents ($888,204.00), consisting of $640,704.00 as Base Rent,
         $64,350.00 as CAM, and $183,150.00 as Expenses, payable monthly, in
         advance, at a rate of Seventy-four Thousand Seventeen Dollars and No
         Cents ($74,017.00) per month, PLUS any increased Expenses pursuant to
         paragraph 1 (h) (2) below, PLUS applicable sales and/or rent taxes
         thereon.

                  (2) For the purposes of this Lease, "Expenses" shall be
         defined as the Real Property Taxes and insurance (including property,
         general liability, flood, windstorm, umbrella, terrorism and sales tax
         on the foregoing) for the building of which the Demised Premises is a
         part (the "Building"), and the common areas surrounding the Building,
         driveways, and parking areas associated therewith; however, Expenses
         shall not include costs to repair or replace roof, floors or other
         structural elements. Landlord hereby represents that the Base Rent Year
         Expenses referenced in this Lease represent a pro rata portion of
         expenses related to the Building allocable, and allocated, in a fair
         and reasonable manner, to Tenant's pro rata portion thereof. For the
         Base Rent Year, the Expenses payable by the Tenant shall be $1.85 per
         square foot of the Demised Premises (the "Base Rent Year Expenses"),
         with the real estate tax portion of the Base Year Expenses equal to
         $1.45/SF, and the insurance portion of the Base Year Expenses equal to
         $0.40/SF. Beginning with year 2, Tenant shall pay its pro-rata share
         for any increase in the Expenses (to wit: real estate taxes or
         insurance) over the Base Year; however, the C.A.M. shall remain fixed
         for the entire Lease Term. In the event the Expenses incurred by
         Landlord for the Demised Premises or Building in any lease year during
         the Lease Term after the Base Rent Year exceed an amount equal to $1.85
         per square foot of the Demised Premises, Tenant will pay to Landlord
         such additional amount per square foot of the Demised Premises (the
         "Additional Expenses") as additional rent hereunder. Such payment shall
         be in addition to the $1.85 per square foot payment, not in lieu
         thereof. In any lease year after the Base Rent Year in which the
         Expenses incurred by Landlord for the Demised Premises or Building
         exceed an amount equal to $1.85 per square foot of the Demised
         Premises, within a reasonable time after the end of such lease year,
         Landlord shall submit to Tenant a statement of the actual amount of
         Expenses for such lease year, and the actual amount owed by Tenant, and
         Tenant shall pay such amount, in twelve (12) installments, with the
         next twelve (12) payments of Rent hereunder. Provided however, in no
         event shall the Expenses be reduced below $1.85 per square feet of the
         Demised Premises. During the 60-day period after Tenant receives notice
         from Landlord that Landlord desires to collect Expenses in excess of
         the Base Rent Year Expenses, Tenant shall have the right to review
         Landlord's records concerning Expenses at Landlord's location stated in
         Paragraph 1 (b) above.

      (i) PERMITTED USE (Par. 9): The Tenant shall use the Demised Premises
      solely as follows: corporate headquarters for, and the storage and
      distribution of fragrances; the light assembly, storage and distribution
      of watches, handbags, small leather goods, fragrances, cosmetics, hair
      care and skin care items and related accessories, which may contain
      alcohol.

2.    DEMISED PREMISES:

      Landlord leases to Tenant and Tenant rents from Landlord a portion of the
real property described and shown on Exhibit "A", together with the improvements
located therein. Unless stated to the contrary herein, it is expressly
understood and agreed that the Demised Premises together with all equipment,
structures and improvements therein and any and all fixtures, accessories and
utilities located therein or thereon, are delivered to Tenant and accepted by
Tenant in an AS-IS and WHERE-IS condition and repair and that the Landlord makes
no warranties, representations or guarantees of any kind, nature or sort,
express or implied with respect to the Demised Premises, including but not
limited to, any and all fixtures, equipment, improvements, accessories and
utilities located in or upon the Premises, unless stated to the contrary herein.
As of the Lease Commencement Date, Landlord has not received: (i) any notices
from any governmental or quasi-governmental agencies alleging violations of
Title III of the Americans with Disabilities Act of 1990 (ADA) or any regulation
issued thereunder; (ii) any notices of claims made or threatened regarding
noncompliance with the ADA; or (iii) any notices of any governmental or
regulatory actions or investigations instituted or threatened regarding
noncompliance with the ADA as to any portion of the Demised Premises or Building
of which the Demised Premises is a part.

3.    TERM/COMMENCEMENT DATE:

      The term of this Lease, shall be for the number of years in the Lease Term
set forth in Paragraph 1(g) hereof, following the commencement thereof unless
sooner terminated or extended as hereinafter provided.

4.    RENT:

      Minimum Rent: Tenant agrees to pay to Landlord during the Lease Term,
without previous demand therefor and without any setoffs or deductions, the
Minimum Rent, in advance, on the first day of each and every calendar month
throughout the Lease Term together with any and all applicable Florida sales
and/or rent taxes thereon ("Taxes").

                                    Page - 2


5.    ADDITIONAL RENT:

     The Landlord shall receive the rents, additional rents and all sums payable
by the Tenant under this Lease free of all taxes, expenses, charges, damages and
deductions of any nature whatsoever and the Tenant covenants and agrees to pay
all sums which except for this Lease would have been chargeable against the
Demised Premises and payable by the Landlord. The Tenant shall, however, be
under no obligation to pay interest on any mortgage on the fee of the Demised
Premises, any franchise, capital or income tax payable by the Landlord, or any
gift, inheritance, transfer estate or succession tax by reason of any present or
future law which may be enacted during the term of this Lease. All taxes,
charges, costs and expenses which the Tenant is required to pay hereunder,
together with all interest that shall accrue thereon in the event of the
Tenant's failure to pay such amounts and all damages, costs and expenses which
the Landlord may incur by reason of any default of the Tenant or failure on the
Tenant's part to comply with the terms of this Lease shall be deemed to be
additional rent and in the event of nonpayment by the Tenant, the Landlord shall
have all the rights and remedies with respect thereto as a Landlord for the
nonpayment of the Rent. It is further agreed between the parties hereto that any
charges against the Tenant by the Landlord for services or work done on or in
the Demised Premises by written order of the Tenant, or otherwise accruing under
this Lease shall be considered Additional Rent and shall be included in any
demand for rent due and unpaid.

      Landlord, at its election, shall have the right (but not the obligation)
to pay for or perform any act which requires the expenditure of any sums of
money by reason of the failure or neglect of Tenant to perform any of the
provisions of this Lease within the grace period of thirty (30) days if
applicable thereto, and in the event Landlord shall at its election pay such
sums or perform such acts requiring the expenditure of monies, Tenant agrees to
reimburse and pay Landlord, upon demand, all such sums, which shall be deemed
for the purpose of securing the collection thereof to be additional rent
hereunder and payable by Tenant as such.

6.  PAST DUE RENTS: LATE CHARGES, TENANT'S RETURNED CHECKS:

    A. Tenant's failure to pay Rent, Additional Rent (as herein described), or
  any other Lease costs when due under this Lease may cause Landlord to incur
  unanticipated costs, with the exact amount of such costs being impractical or
  extremely difficult to ascertain. Such costs may include, but are not limited
  to, processing or accounting charges and late charges that may be imposed on
  Landlord by any ground lease, mortgage, or deed of trust encumbering the
  Building, a part of which is the Premises.

    B. Therefore, if Landlord does not receive the Rent, Additional Rent, or any
  other Lease costs in full on or before the tenth (10th) business day of the
  month it becomes due, Tenant shall pay Landlord a late charge, which shall
  constitute liquidated damages, equal to five percent (5%) of the amount due
  ("Late Charge"), which shall be paid to Landlord together with such Rent,
  Additional Rent, or other Lease costs then in arrears. However, Tenant shall
  not be in default of this Lease if the Lease payment has been received by
  Landlord, including whatever applicable late charges, subject to the
  applicable grace and cure periods.

    C. For each Tenant's payment check to Landlord that is returned by a bank
  for any reason, other than Landlord's failure to properly endorse the check
  and/or an error on the part of the Landlord's bank, Tenant shall pay both a
  Late Charge (if applicable) and a Returned Check Charge of Twenty-five Dollars
  and No Cents ($25.00) or such amount as shall be customarily charged by
  Landlord's bank at that time, whichever is greater.

    D. All Late Charges and Returned Check Charges shall then become Additional
  Rent and shall be due and payable immediately along with such other Rent,
  Additional Rent, or other Lease costs then in arrears.

    E. Any money paid by Tenant to Landlord shall be applied to Tenant's account
  in the following order: i) to any unpaid Additional Rent, including but not
  limited to, Late Charges, Returned Check Charges, legal fees and/or court
  costs legally chargeable to Tenant, and ii) any unpaid Rent.

    F. Nothing herein contained shall be construed so as to compel Landlord to
  accept any payment of Rent, Additional Rent, or other Lease costs in arrears
  or Late Charge or Returned Check Charge should Landlord elect to apply its
  rights and remedies available under this Lease or at law or equity in the
  event of default hereunder by Tenant. Landlord's acceptance of Rent,
  Additional Rent, or other Lease costs in arrears or Late Charge or Returned
  Check Charge pursuant to this clause shall not constitute a waiver of
  Landlord's rights and remedies available under this Lease or at law or equity.

7.  PLACE OF PAYMENTS OR STATEMENTS:

      All payments required to be paid by Tenant to Landlord shall be made
payable to the Landlord or its designee, and all such payments, statements and
reports required to be rendered by Tenant to Landlord shall be delivered to the
Landlord's mailing address, or at such other place as Landlord may from time to
time designate in writing, without the necessity of any prior demand for same.

                                    Page - 3


8.    TENANT'S WORK:

      Any work, repairs, improvements, fixtures and equipment for the Demised
Premises shall be performed and installed by Tenant at its sole cost and
expense. Tenant acknowledges that Tenant, as an inducement to Landlord to enter
into this Lease, has covenanted and agreed and does hereby covenant and agree to
adequately prepare the Demised Premises for the operation of the Permitted Use,
all in accordance with the terms and provisions of this Lease, and in addition,
Tenant shall fully equip the Demised Premises with all trade equipment and any
other equipment necessary for the operation of Tenant's Business at its sole
cost and expense (any such work performed by or on behalf of Tenant during the
term of this Lease or any extension thereof being herein referred to as
"Tenant's Work").

9.    USE OF PREMISES:

      Tenant shall use the Demised Premises solely for the purpose of conducting
the Permitted Use as set forth in Paragraph 1 (i) and strictly in accordance
with all laws, statutes and ordinances applicable thereto. Tenant shall not use
or permit or suffer the use of the Demised Premises for any other business
purpose without the Landlord's prior written consent, which shall not be
unreasonably withheld or delayed.

10.   LAWS, PERMITS, LICENSES, WASTE, NUISANCE:

      A. Tenant shall, at its own expense and cost: (a) comply with all
    governmental laws, ordinances, orders and regulations affecting the Demised
    Premises now in force or which hereafter may be in force (including without
    limitation, all environmental laws and regulations); (b) apply for, secure,
    maintain in good standing and comply with all licenses, permits and
    franchise agreements which are or may be required for the conduct by the
    Tenant of the Tenant's operations and/or business herein permitted to be
    conducted in the Demised Premises and to pay if, as, and when due, all
    license, permit and franchise fees and charges in connection therewith; (c)
    comply with and execute all rules, requirements and regulations of the Board
    of Fire Underwriters, Landlord's insurance companies and other organizations
    establishing insurance rates; (d) not suffer, permit or commit any waste or
    nuisance; and (e) not conduct any auction, distress, fire or bankruptcy sale
    in or upon the Demised Premises. Landlord, at Landlord's sole cost and
    expense, shall keep the Demised Premises in compliance with ADA laws, unless
    such compliance is necessitated by Tenants use, occupancy or modifications
    to the Demised Premises. Landlord covenants that the shell and structural
    elements of the Premises shall comply with all applicable codes to the
    extent the same are currently applicable to it for the purposes set forth
    hereon. The cost of any governmentally required alternation to the Premises
    attributable solely to Tenant's specific use for such purposes shall be paid
    by Tenant. Tenant shall not be required to make structural or extraordinary
    repairs, improvements or alterations not arising out of Tenant's specific
    use and occupation of the Premises.

      B. It is hereby understood and agreed that any and all signs or
    advertising to be used in connection with the Demised Premises leased
    hereunder, including awnings, designs, monuments, logos, banners, projected
    images, pennants, decals, advertisements, pictures, notices, lettering,
    numerals, graphics, or decoration (hereinafter "Signs"), shall be first
    submitted to the Landlord for approval before installation of same, with
    such approval not to be unreasonably withheld or delayed, provided the Signs
    shall comply with all the requirements in this Paragraph. Tenant shall, at
    its sole cost and expense, i) obtain and maintain during the Lease Term all
    applications, permits, consents, approvals, and licenses required by
    federal, state and local governmental, and quasi-governmental authorities in
    connection with the Signs (including, without limitation, any landmark
    commission); ii) comply with the laws, statutes, ordinances, requirements,
    and codes of all federal, state and local governmental, and
    quasi-governmental authorities having jurisdiction over the Building (of
    which the Demised Premises is a part); iii) comply with all applicable
    insurance requirements of both Landlord's insurer and Tenant's insurer; iv)
    maintain all Signs in good condition at all times during the Lease Term and
    any extensions thereof; v) upon demand by Landlord immediately remove any
    Signs that Tenant has placed or permitted to be placed in violation of this
    Paragraph and repair and restore any damage caused by their installation and
    removal of same; and vi) upon the expiration or sooner termination of the
    Lease remove all Signs and repair and restore any damage caused by their
    installation or removal of same. Copies of all permits and licenses shall be
    delivered to Landlord promptly after Tenant's receipt thereof, and Landlord
    shall have the right to temporarily remove any Signs in connection with any
    repairs in or upon the Demised Premises or the Building.

      C. Landlord has not been notified of any code violation as of the date of
    this Lease. Furthermore, Landlord covenants that the shell and structural
    elements of the Demised Premises comply with all applicable codes to the
    extent the same are currently applicable to it for general warehouse and
    distribution use. As such, the cost of any governmentally or court required
    alteration to the Demised Premises attributable solely to its use for
    general warehouse and distribution purposes shall be paid by Landlord.
    Tenant shall not be required to make structural or extraordinary repairs,
    improvements or alterations not arising out of the use and occupation of the
    Demised Premises by Tenant.

                                    Page - 4


      D. Landlord shall, at its sole cost and expense, cause to be effected any
    remediation, removal, encapsulation, encasement, abatement or other
    treatment of asbestos or any other hazardous materials required by any laws,
    rules, ordinances or regulations of any governmental authority having
    jurisdiction over the Demised Premises as a result of Landlord's, its
    agents', employees' or contractors' placement of same on or in the Demised
    Premises, and if Tenant is required to cease its operation at the Demised
    Premises or interrupt or delay its construction or opening at the Demised
    Premises in order for such abatement work to be performed, then Rent and all
    other charges hereunder shall abate, on a pro-rata basis for such percentage
    or the Demised Premises affected, for the period of time beginning on the
    commencement of the abatement work and ending upon the completion of the
    abatement work.

11.   ASSIGNMENTS AND SUBLETTING:

      Tenant shall not assign, sublet, mortgage or encumber this Lease, in whole
or in part, or sublet all or any portion of the Demised Premises or assign this
Lease or any part thereof without the prior written consent of the Landlord,
which shall not be unreasonably withheld or delayed. The Landlord shall be
entitled to consider all factors which it deems relevant to any requested
consent to subletting or assignment, including, but not limited to, the
following: (a) the financial responsibility of the proposed sub-Tenant or
assignee; (b) the business reputation, experience and acumen of the proposed
sub-Tenant or assignee in the field of the Permitted Use or warehousing,
distribution or light manufacturing uses, and (c) the need for alteration and/or
repair of the Demised Premises; however, in no event shall such sub-tenant or
assignee be an existing occupant or Affiliate of such occupant (as hereinafter
defined) of the Building or Complex (of which the Demised Premises is a part),
unless no other space in the four buildings owned by Landlord, or related entity
to Landlord, in the complex is available. If such consent be obtained then, such
subletting or assignment, as the case may be, shall be subject to and
conditioned upon the following: (i) at the time of any such proposed subletting
or assignment, Tenant shall not be in default under any of the terms, provisions
or conditions of this Lease; (ii) the sub-Tenant or assignee shall occupy the
Demised Premises and conduct its business in accordance with the Permitted Use;
(iii) if the minimum rent, additional rents or other rents or charges required
to be paid by any such sub-Tenant or assignee exceeds the rentals and/or charges
reserved hereunder, then Tenant shall pay to Landlord monthly fifty percent
(50%) of such excess, which shall be deemed additional rent; (iv) Tenant and its
assignee or sub-Tenant shall execute, acknowledge and deliver to Landlord a
fully executed counterpart of a written assignment of lease or sublease, as the
case may be, duly consented to by Tenant's guarantor, if any, by the terms of
which: (1) in case of an assignment, Tenant will assign to such assignee
Tenant's entire interest in this Lease, together with all prepaid rents and
rights to the Security Deposit hereunder, and the assignee will accept said
assignment and assume and agree to perform, directly for the benefit of
Landlord, all of the terms, covenants and conditions of this Lease on Tenant's
part to be performed hereunder; or (2) in case of a subletting, the sublease and
the sub-Tenant's interest therein will in all respects be subject and
subordinate to all of the terms, covenants and conditions of the Lease and the
sub-Tenant thereunder will agree to be bound by and to perform all of the terms,
covenants and conditions of this Lease on Tenant's part to be performed
hereunder, except the payment of rent, additional rents and other charges
reserved hereunder, which Tenant shall continue to pay to Landlord; (v)
notwithstanding any such assignment of subletting under the terms of this
Paragraph, both Tenant and its guarantor, if any, will acknowledge that,
notwithstanding such assignment or sublease and the consent of Landlord thereto,
both Tenant, and its guarantor, if any, will not be released or discharged from
any liability whatsoever under this Lease and will continue to be fully liable
thereon. The consent by Landlord to any assignment or subletting shall not
constitute a waiver of the necessity of such consent to any subsequent
assignment or subletting. This prohibition against any assignment or subletting
shall be construed to include a prohibition against any assignment or subletting
by operation of law. If this Lease be assigned or if the Demised Premises or any
part thereof be occupied by anybody other than Tenant, Landlord may collect rent
from the assignee, or occupant and apply the net amount collected to the rent
herein reserved, but no such assignment, underletting, occupancy or collection
shall be deemed waiver of the provisions of the acceptance of the assignee,
sub-Tenant or occupant as Tenant, or as a release of Tenant from the further
performance by Tenant of the provisions on its part to be observed or performed
herein. Notwithstanding any assignment or sublease, Tenant shall remain fully
liable and shall not be released from performing any of the terms of this Lease.
If Tenant or Tenant's controlling shareholder or controlling partner, if any and
as the case may be, or Tenant's guarantor, if any, is a corporation or
partnership, and if at any time during the term of this Lease the person or
persons who, on the Date of Lease, own or owns fifty (50%) percent or more of
such corporation's voting shares or a general partner's interest in such
partnership, as the case may be, or if Tenant's guarantor, if any, ceases to own
fifty (50%) percent or more of such corporation's voting shares or a general
partner's interest in such partnership or if same is dissolved, then upon such
occurrence there shall be deemed to be an assignment of this Lease, which
assignment shall require the prior written consent of Landlord, as more
particularly set forth above. The preceding sentence shall not be applicable to
any corporation, all the outstanding voting stock of which is listed on a
national securities exchange (as defined in the Securities Exchange Act of 1934,
as amended). For the purposes hereof, an Affiliate means a corporation or other
business entity that directly or indirectly controls, is controlled by, or is
under common control with such occupant. Tenant shall be permitted to assign
this Lease without Landlord's approval to any subsidiary company of Tenant
provided such assignment does not release Tenant from obligations under the
Lease.

                                    Page - 5


12.   SECURITY DEPOSIT:

      A. Tenant has deposited with Landlord the Security Deposit of $50,000.00,
    the receipt whereof, if by check subject to collection, is hereby
    acknowledged, and said Security Deposit shall be held by Landlord, without
    earning interest to the benefit of Tenant, as security for the full and
    faithful performance by Tenant of each and every term, covenant and
    condition of this Lease on the part of Tenant to be observed and performed.
    Such Security Deposit shall not be mortgaged, assigned, transferred or
    encumbered by Tenant without the prior written consent of Landlord. Any such
    act on the part of Tenant shall be without force and effect, shall not be
    binding upon Landlord, and, at the option of Landlord, shall constitute an
    Event of Default under Paragraph 22 hereof.

      B. If any of the rents herein reserved or any other sum payable by Tenant
    to Landlord shall be overdue and unpaid beyond applicable grace and cure
    periods or shall Landlord make payments on behalf of Tenant, or should
    Tenant fail to perform any of the terms of this Lease, then Landlord may, at
    its option, and without notice to Tenant or prejudice to any other remedy
    which Landlord may have on account thereof, appropriate and apply said
    entire Security Deposit or so much thereof as may be necessary to compensate
    Landlord toward the payment of such rents or other sums due from Tenant, or
    towards any loss, damage or expense (including without limitation,
    administrative costs and reasonable attorneys' fees) sustained by Landlord
    resulting from such default on the part of Tenant; and in such event Tenant
    shall forthwith upon demand and without any setoffs or deductions whatsoever
    restore said Security Deposit to the original sum deposited. In the event
    Tenant shall fully and faithfully comply with all of the terms, covenants
    and conditions of this Lease and promptly pay all of the rentals as they
    fall due and all other sums payable by Tenant to Landlord, said Security
    Deposit shall be returned in full to Tenant, within thirty (30) days
    following the date of the expiration of the term hereof and the surrender of
    the Demised Premises by Tenant in compliance with the provisions of this
    Lease. Tenant agrees, upon demand by Landlord, to increase any and all
    pre-paid rents and/or Security Deposits if and when the rental rate should
    increase during the initial and any option or renewal terms of this Lease to
    the same proportionate amount corresponding to the new rental rate.

      C. In the event any bankruptcy, insolvency, reorganization or other
    creditor-debtor proceedings shall be instituted by or against Tenant, or its
    successors or assigns, or any guarantor of Tenant hereunder, such Security
    Deposit shall be deemed to be applied first to the payment of any rents
    and/or other charges due Landlord for all periods prior to the institution
    of such proceedings and the balance, if any, of such Security Deposit may be
    retained by Landlord in partial satisfaction of Landlord's damages.

      D. Landlord may deliver the Security Deposit to the purchaser of
    Landlord's interest in the Demised Premises in the event that such interest
    be sold or transferred and thereupon Landlord shall be discharged and
    released from all further liability with respect to such Security Deposit or
    the return thereof to Tenant; Tenant agrees to look solely to the new
    Landlord for the return of said Security Deposit, and this provision shall
    also apply to any subsequent transferees, provided that new Landlord or
    transferee assumes, in writing, Landlord's obligation under this Lease. If
    the Landlord's interest to the Demised Premises is sold or transferred,
    Landlord is to use its best efforts to provide Tenant with an agreement
    signed by the existing Landlord and the new Landlord acknowledging the
    deposit as being transferred and is subject to terms and conditions of this
    Lease. No holder of a mortgage or deed of trust, or Landlord under a ground
    or underlying lease, if any, to which this Lease is or may be subordinate,
    shall be responsible in connection with the Security Deposit hereunder,
    unless such mortgagee or holder of such deed of trust or Landlord shall have
    actually received same.

13.   REPAIRS:

      A. Except as expressly provided for under "B." or Paragraph 54 herein,
    Landlord shall not be required to make any repairs or improvements of any
    kind or nature whatsoever upon or to the Demised Premises or improvements
    therein, unless stated to the contrary herein.

      B. LANDLORD'S REPAIRS - Landlord, during the lease term shall, at its
    expense, shall be obligated to repair and maintain the following, unless
    such repairs are necessitated by the negligence of or misuse by Tenant: the
    roof; all structural components of the Demised Premises, including the bay
    doors and air conditioning units or systems initially added by Landlord;
    pipes and plumbing; electrical service; sewage facilities; driveways;
    parking areas, paved areas and sidewalks; foundations, floors and sub-floor;
    and exterior walls. Tenant shall give Landlord written notice of any needed
    repairs that are the obligation of the Landlord. Landlord, at Landlord's
    sole cost and expense, shall, within a reasonable time after the signing of
    this Lease, repair the floors in the areas outlined in the attached Exhibit
    B. Said repairs are to be done during normal business hours minimizing the
    inconvenience to the Tenant's activities, and proper precautions shall be
    taken to minimize dust and dirt from the repair process. Landlord, at
    Landlord's sole cost and expense shall continue to repair, replace, and
    maintain the floors in a good and workable condition, provided such repair
    or maintenance is not due to the misuse or abuse by Tenant, its employees,
    agents, contractors or sub-contractors. Landlord shall immediately repair
    the light-post located at the southwest corner of the building and paint the
    exterior or the building. TENANT'S REPAIRS - Tenant shall, during the Lease
    Term at its expense, maintain and repair all interior components of the
    Demised Premises, the ventilation and air conditioning units or systems
    added by Tenant. Tenant further agrees that Tenant shall repair all damages
    or injury done to or on the Demised Premises by Tenant or by any person,
    other than Landlord or Landlord's agents, servants, employees, invitees,
    licensees, and contractors, at its expense. Tenant agrees at the expiration
    of the Lease Term or upon the earlier termination thereof, to surrender the
    Demised Premises in good condition and repair, reasonable wear and casualty
    excepted.

                                    Page - 6


      C. Tenant agrees to make no alterations, improvements or additions in or
    to the Demised Premises, nor to install any equipment therein (other than
    trade fixtures) without, in each instance, obtaining Landlord's prior
    written approval thereof, which consent Landlord shall not unreasonably
    withheld. Any such alterations, improvements or additions shall be made in
    accordance with the terms and provisions of Paragraph 8 hereof.
    Notwithstanding the foregoing, Tenant shall be permitted to make
    non-structural interior alterations, improvements or repairs without the
    Landlord's prior written approval, provided that the cost of same will not
    exceed Fifty Thousand ($50,000.00) Dollars in the aggregate during any
    calendar year. At the time such approval is sought, Tenant shall submit to
    Landlord plans and specifications for such work and the name of the
    contractor who Tenant proposes to engage to perform the same; Landlord's
    approval of Tenant's plans and specifications for work to be completed by
    Tenant shall be approved within a reasonable time period of submittal to
    Landlord, however Landlord does hereby approve the conversion of the
    existing air-conditioned assembly area to office space or new construction
    west of current office space, which may remain in the Demised Premises after
    the termination of the Lease, providing that a) said office runs along the
    front of the building, b) all additions to be performed are done in
    accordance with the terms of this Lease and all applicable Federal, State,
    and Local rules, ordinances, codes and regulations, and c) Landlord receives
    and approves the proposed new office layout prior to commencing with such
    addition, with such approval not to be unreasonably withheld or delayed.
    After having obtained Landlord's written approval, as aforesaid, and prior
    to the commencement of any such work, Tenant agrees to deliver to Landlord
    the approval of any and all governmental authorities and departments having
    jurisdiction thereof together with a policy or certificate of worker's
    compensation insurance in statutory limits from Tenant's contractor and, if
    the cost of the proposed work shall exceed $25,000.00, evidence of the
    maintenance by Tenant of all other insurance coverage to be maintained by
    Tenant hereunder. Such work may thereupon be commenced and shall be
    diligently prosecuted to completion in a first class workmanlike manner in
    accordance with such approved plans and specifications and in accordance
    with all applicable laws and ordinances as well as rules and requirements of
    Landlord's insurance carriers, subject, however, to Tenant's obligation to
    insure such assumed liability under Tenant's Comprehensive General Liability
    Policy.

14.   FAILURE TO REPAIR:

      If Tenant (a) refuses to or neglects to make or begin to make repairs
required of Tenant by this Lease, within thirty (30) days from notice by
Landlord of required repairs, or (b) if Landlord is required to make any repairs
by reason of Tenant's negligent acts or omissions, Landlord shall have the
right, but shall not be obligated, to make such repairs, on behalf of and for
the account of Tenant. In such event, Tenant as Additional Rent shall pay for
such work promptly upon receipt of a bill therefor.

15. COVENANTS AGAINST LIENS:

      Notwithstanding any other provisions of this Lease, Landlord and Tenant
expressly acknowledge and agree that the interest of Landlord in and to, or any
part, including without limitation, the Demised Premises, shall not be subject
to liens for any work, labor, services performed or materials supplied, or
claimed to have been performed or supplied, or any other lien cognizable under
Chapter 713, Florida Statutes (collectively herein "Liens"), by Tenant, or
Tenant's contractors, subcontractors (including sub-contractors), laborers and
material suppliers supplying labor and/or material for the Demised Premises
(collectively herein "Contractors"). Upon the execution of this Lease, Tenant
acknowledges that Landlord, at Landlord's sole option and cost, may then or
thereafter record among the Public Records of Broward County, Florida the Lease
or short form thereof (to which Tenant shall joint in the execution, at
Landlord' s request), or such other memorandum in form and substance
satisfactory to Landlord, in Landlord's reasonable discretion, setting forth the
contents of this Paragraph or any other matter for the purpose of insulating the
interest of Landlord from any and all such Contractor's Liens, without
mitigating or otherwise affecting any other provisions of this Lease. Tenant
hereby acknowledges that Landlord shall further be permitted to do or perform
any act necessary or appropriate, in Landlord's sole discretion, to prevent the
filing of any Lien against the Demised Premises or any part thereof.

      In addition to the foregoing and not in lieu thereof, Tenant shall do all
things necessary to prevent the filing of any Liens against the Demised Premises
or the interest of Landlord or the interest of any mortgagees or holders of any
deed of trust covering the Demised Premises or any ground or underlying
Landlords therein, if any, by reasons of any work, labor, services, or materials
performed or supplied or claimed to have been performed or supplied to Tenant,
or anyone holding the Demised Premises, or any part thereof, by, through or
under Tenant. If any such Lien shall at any time be filed, Tenant shall cause
the same to be vacated and canceled of record within thirty (30) days after the
date of the filing thereof. If any such Lien shall be filed notwithstanding the
provisions of this Paragraph, then, in addition to any other right or remedy of
Landlord resulting from Tenant's said default, Landlord may, but shall not be
obligated to, contest such Lien or vacate or release the same either by paying
the amount claimed to be due or by procuring the release of such Lien by giving
security or in such other manner as may be prescribed by law. Tenant shall repay
to Landlord, as additional rent hereunder on demand, all sums rightfully
disbursed or deposited by Landlord pursuant to the foregoing provisions of this
Paragraph, including Landlord's costs and expenses and reasonable attorneys'
fees incurred in connection therewith; however, nothing contained herein shall
imply any consent or agreement on the part of Landlord or mortgagees or holder
of deeds of trust or any ground or underlying Landlords, if any, of the Demised
Premises to subject their respective estates or interests to liability under any
mechanics' or other lien law, whether or not the performance or the furnishing


                                    Page - 7


of such work, labor, services, or materials to Tenant or anyone holding the
Demised Premises, or any part thereof, by, through or under Tenant, shall have
been consented to by Landlord and/or any of such parties.

16.   UTILITY CHARGES:

      Landlord shall not be liable in the event of any interruption in the
supply of any utilities. Tenant agrees that it will not install any equipment
which will exceed or overload the capacity of any utility facilities, and if any
equipment installed by Tenant shall require additional utility facilities, the
same shall be installed at Tenant's sole cost and expense in accordance with
plans and specifications to be approved in writing by Landlord. Tenant shall be
solely responsible for and shall promptly pay all charges for use or consumption
for heat, air conditioning, sewer, water, gas, electricity or any other utility
services, including trash removal at the Demised Premises. Notwithstanding the
foregoing, in the event of a discontinuance, disruption or interruption of any
utility or related service which is due solely to the gross negligence or
willful misconduct of Landlord, its agents, employees or contractors and which
shall materially interfere with the operation of Tenant's business in the
Demised Premises, Rent and all other charges hereunder shall abate until the
date of restoration of service.

17.   TAXES:

         A. If at any time during the term of this Lease, any additional sales
    tax or excise on rents or other tax on Tenant's consideration for occupancy
    of the Demised Premises, however described {except any ad valorem, estate,
    inheritance, real estate, capital stock, capital gains, income (or any new
    taxes or amendments to existing taxes imposed in replacement thereof) or
    excess profits taxes imposed upon Landlord} is levied or assessed against
    Landlord by any taxing authority on account of Landlord's interest in this
    Lease or the rents and other charges expressly reserved hereunder, as a
    substitute in whole or in part, or in addition to, the Taxes herein before
    described, Tenant agrees to pay Landlord, as additional rent hereunder, the
    amount of such tax or excise on rents, and other charges, but only to the
    extent of the amount thereof which is assessed or imposed as a direct result
    of Landlord's ownership of this Lease or the rentals reserved hereunder. In
    the event any such tax or excise on rents and other charges, or other tax,
    however described, is levied and assessed directly against Tenant by any
    taxing authority on account of Tenant's interest in this Lease or the
    leasehold estate hereby created or the rents and other charges to be paid by
    Tenant hereunder, then Tenant shall be responsible therefor and agrees to
    pay the same before delinquency; or should any taxing authority require that
    any such tax or excise on rents and other charges, or other tax, however
    described, for which Tenant is responsible hereunder, be paid by Tenant, but
    collected by Landlord, for and on behalf of such taxing authority and from
    time to time forwarded by Landlord to such taxing authority, then the same
    shall be paid by Tenant to Landlord at such times as such taxing authority
    shall require and be collectible by Landlord and the payment thereof
    enforced in the same fashion as provided for the enforcement of payment of
    rents and other charges hereunder and for the purpose of enforcing payment
    thereof shall be deemed additional rent hereunder. Tenant at all times shall
    be responsible for and shall pay, before delinquency, all taxes assessed by
    any taxing authority against any personal property of any kind owned,
    installed or used by Tenant in or about the Demised Premises or the rents
    and other charges paid by Tenant hereunder.

      B. Tenant shall have the right to appeal any tax increase, and the cost of
    such appeal shall be split equally between Landlord and Tenant. Tenant shall
    have the right to contest the amount or validity of any real estate tax
    imposition by appropriate proceedings. Tenant shall, nevertheless, promptly
    pay such imposition in accordance with the terms and provisions of this
    Lease, and nothing herein shall imply any right on the part of Tenant to
    postpone or defer such payment for any such purpose, unless such proceedings
    shall operate to prevent or stay the collection of the imposition so
    contested and the sale of the Demised Premises, or any part thereof, to
    satisfy the same, and Tenant shall have deposited with Landlord the amount
    so contested and unpaid together with all interest and penalties in
    connection therewith and all charges that may or might be assessed against
    or become a charge on the Demised Premises, or any part thereof, in said
    proceedings. Upon the termination of any such proceedings, Tenant shall
    deliver to Landlord proof of the amount of any such imposition as finally
    determined in such proceedings, and thereupon Landlord shall, to the extent
    of the sums deposited with it by Tenant as aforesaid, pay the unpaid portion
    of such imposition, and shall refund to Tenant the balance, if any, of the
    sums so deposited, without interest. In the event that sums deposited with
    Landlord shall be insufficient to pay the full amount of such imposition as
    finally determined, together with any costs, fees, interest, and penalties
    or other liabilities in connection therewith, Tenant shall forthwith pay any
    deficiency. Landlord may join in any such contestation proceedings if any
    law now or hereafter in effect shall require that such proceeding be brought
    by and/or in the name of Landlord or any owner of the Demised Premises.
    Landlord shall not be subjected to any liability for the payment of any
    costs, fees or expenses in connection with any such proceeding, and Tenant
    covenants to pay, indemnify and save harmless Landlord from any such costs,
    fees or expenses. Tenant shall be entitled to any refund of any such
    imposition and penalties or interest thereon, which shall have been paid to
    Tenant or paid by Landlord for which Landlord shall have been fully
    reimbursed.

      C. Landlord shall provide Tenant with a copy of the tax notice and bill
    promptly after its receipt of same. In the event any special assessment or


                                    Page - 8


    bond payment to be paid over a period of time may be payable in
    installments, Tenant's proportionate share of same shall be calculated as
    though the payment were made in installments regardless of how Landlord
    actually makes payment, and only the current installment shall be included
    in Tenant's proportionate share. Landlord shall use reasonable commercial
    efforts to pay all real estate taxes during the maximum discount period, and
    Tenant shall not be responsible to pay any penalties imposed for late
    payment of Taxes.

18.   INDEMNITY:

      A. Tenant shall indemnify, defend and protect Landlord and save Landlord
    harmless from suits, actions, damages, liability and expense in connection
    with loss of life, bodily or personal injury or property damage arising from
    or out of any occurrence in, upon or at or from the Demised Premises or the
    occupancy or the use by Tenant of the Demised Premises or any part thereof,
    or occasioned wholly or in part by any act or omission of Tenant, its
    agents, contractors, employees, servants, licensees, suppliers or
    concessionaires; and

      B. Tenant shall store its property in and shall occupy the Demised
    Premises at its own risk, and releases Landlord, to the full extent
    permitted by law, from all claims of every kind resulting in loss of life,
    personal or bodily injury or property damage; and

      C. Landlord shall not be responsible or liable at any time for any loss or
    damage of Tenant's merchandise or equipment, fixtures or other personal
    property of Tenant or to Tenant's business; and

      D. Landlord shall not be responsible or liable to Tenant or to those
    claiming by, through or under Tenant for any loss or damage to either the
    person or property of Tenant that may be occasioned by or through the acts
    of omissions of persons occupying adjacent, connecting or adjoining
    premises; and

      E. Landlord shall not be responsible or liable for any injury, loss or
    damage to any person or to any property of Tenant or other person caused by
    or resulting from bursting, breakage, or by or from leakage, steam, running
    or the overflow of water or sewage in any part of the Demised Premises or
    for any injury or damages caused by or resulting from acts of God or the
    elements, or for any injury or damage caused by or resulting from any defect
    or gross negligence in the occupancy, construction, operation or use of any
    of the Demised Premises, building, machinery, apparatus or equipment by any
    person or by or from the acts of negligence of any occupant of the Demised
    Premises.

      F. Tenant shall give prompt written notice to Landlord in case of damage,
    fire or accidents on the Demised Premises or in the building thereon, or
    defects therein or in any fixtures or equipment.

      G. In case Landlord shall, without fault on its part, be made a party to
    any litigation commenced by or against the Tenant, then the Tenant shall
    protect and hold the Landlord harmless and shall pay all of said other
    parties' costs, expenses and reasonable attorney's fees.

      H. No toxic or hazardous waste, substances or materials or other
    environmentally detrimental materials, including, without limitation,
    asbestos and those toxic or hazardous waste substances or materials now or
    hereafter defined, listed or contemplated under Federal, State or local
    environmental or hazardous waste laws (collectively referred to hereinafter
    as "Hazardous or Toxic Substances") shall be used, stored or generated upon
    the Demised Premises or in connection with or arising out of the operation
    of Tenant's business upon the Demised Premises, unless such use, storage or
    generation is done in strict compliance with all applicable rules,
    regulations, laws, and governmental ordinances. Tenant shall immediately
    advise Landlord in writing of the existence, use, storage or disposition of
    any Hazardous or Toxic Substances in, upon, or under the Demised Premises,
    or the adjoining lands. Upon reasonable advance notice to Tenant, Landlord
    shall have the right, but not the obligation, to enter the Demised Premises
    at all reasonable times to inspect for the presence of Hazardous or Toxic
    Substances. Tenant agrees that in the event Hazardous or Toxic Substances
    are found to exist in, upon or under the Demised Premises as a result of
    Tenant's use or occupancy of the Demised Premises or otherwise due to
    Tenant's fault, or of its employees, agents, contractors or sub-contractors,
    Landlord may, in its sole discretion, require that Tenant, at Tenant's sole
    cost and expense, take all steps necessary to clean up, remove,
    decontaminate, detoxify, resolve or otherwise treat the Hazardous or Toxic
    Substances. Notwithstanding the foregoing, it is hereby understood that the
    Tenant plans to store fragrances which contain alcohol, and Landlord does
    not object the storage of said fragrances, provided Tenant stores same in
    accordance with applicable Federal, State and local rules, ordinances,
    regulations and laws.

      In addition to the foregoing, in the event Hazardous or Toxic Substances
    are found in, upon or under the Demised Premises as a result of Tenant's use
    or occupancy of the Demised Premises or otherwise due to Tenant's fault, or
    of its employees, agents, contractors or sub-contractors, Landlord or
    Landlord's agents, designees or employees shall have the right, but not the


                                    Page - 9


    obligation, and without liability to Tenant for any loss or damage that may
    accrue to Tenant's stock or business by reason thereof, to take such actions
    as Landlord deems necessary or advisable, in its sole judgment, to clean up,
    remove, decontaminate, detoxify, resolve or otherwise treat, any such
    Hazardous or Toxic Substances. All costs and expenses incurred by Landlord
    in the exercise of any such rights shall be payable by Tenant upon demand.
    Tenant agrees to indemnify, defend and hold Landlord harmless from and
    against any and all losses, damages, claims, orders, decrees, judgments,
    expenses and costs (including reasonable attorneys' fees), incurred by or
    imposed upon Landlord or its mortgagees in connection with or arising out of
    (i) Tenant's breach of the covenants and obligations under this Paragraph
    18; or (ii) the existence, use, storage, disposition, treatment or removal
    of any Hazardous or Toxic Substance in, upon or under the Demised Premises,
    or the adjoining lands upon reasonable advance notice to Tenant. In no event
    shall the treatment or removal of Hazardous or Toxic Substances within the
    Demised Premises, or the adjoining lands constitute an eviction of Tenant,
    in whole or in part.

      I. The prevailing party shall recover from the other party all costs,
    expenses, court costs and reasonable attorney's fees that may be incurred or
    paid by the prevailing party in enforcing the terms of this Lease.

      Notwithstanding anything contained in this Paragraph 18, Landlord shall
    not be relieved of any liability for occurrences resulting from the willful
    or negligent acts or omissions of the Landlord or its agents, employees, or
    contractors or resulting from the Landlord's failure to comply with its
    responsibilities under this Lease.

      The provisions of this Paragraph 18 shall survive the termination of the
Lease.

19.   INSURANCE:

      Tenant agrees to secure and keep in full force and effect from and after
the date Landlord delivers possession of the Demised Premises to Tenant and
throughout the term of this Lease at Tenant's sole cost and expense (with
coverage to commence at the time Tenant takes possession of the Demised
Premises, or at the commencement of the term of this Lease, whichever occurs
earlier),

         (a) Comprehensive general liability insurance on an occurrence basis
      with minimum single limits of liability and of bodily injury in an amount
      of Two Million and No/100 ($2,000,000.00) Dollars, and Five Hundred
      Thousand ($500,000.00) Dollars with respect to damage to property; and

         (b) In the event Tenant fails to obtain or maintain the insurance
      required hereunder, Landlord may, at its option, obtain same and any costs
      incurred by Landlord in connection therewith shall be deemed additional
      rent to be paid by Tenant and payable as such; and

         (c) If the Lease shall be canceled for the Tenant's default at any time
      while there remains outstanding any obligation from any insurance company
      to pay for damage or any part thereof, then the claim against the
      insurance company shall, upon the cancellation of the within Lease, be
      deemed immediately to be and become the absolute and unconditional
      property of the Landlord, up to the amount of such default.

         (d) Certificate of Insurance is required naming Landlord as an
      additionally insured to assure Landlord that the Tenant has adequate
      liability and personal property coverage. Any increase in cost of
      insurance premiums to Landlord as a result of operations of Tenant will be
      borne by Tenant, or Tenant may provide for the benefit of Landlord an
      insurance policy on the same terms and conditions as the original provided
      by Landlord.

         (e) Landlord shall have the right, exercisable in its reasonable
      judgment at any time by giving prior written notice to Tenant, to require
      Tenant to: i) Increase the limit of any insurance Tenant is required to
      maintain pursuant to this section to an amount that Landlord, any superior
      mortgagee, or superior landlord may, in its reasonable, deem sufficient;
      or ii) Purchase other insurance and/or endorsements in such amounts or
      types as Landlord, any superior mortgagee, or any superior landlord may
      reasonably require from time to time.

         (f) In the event of hurricane or other severe natural disaster or
      storm, Landlord shall, when safe and practical, promptly, subject to the
      availability of labor, remove the resulting debris that would negatively
      impact the usability of the Demised Premises.

20.   INSURED'S WAIVER, NOTICE:

      Any insurance procured by Tenant as herein required shall be issued in the
name of Tenant by a reputable and responsible company reasonably satisfactory to
Landlord and licensed to do business in the State of Florida, shall name
Landlord as an additionally insured, and shall contain endorsements that

(a)   Such insurance may not be canceled or amended with respect to Landlord
      without sixty (60) days written notice by registered mail to Landlord by
      the insurance company;

                                   Page - 10


         (b) Tenant shall be solely responsible for payment of premiums, and
      Landlord shall not be required to pay any premiums for such insurance.

         (c) Any insurance herein required to be procured by Tenant shall
      contain an express waiver of any right of subrogation by the insurance
      company against Landlord within ten (10) days of issuance of such policy
      by the insurance company, provided, however, that if at any time the
      insurer of Tenant shall refuse to issue any insurance policy due to this
      Lease containing such waiver of subrogation and the decision shall be
      based upon a prior incident of negligence of Landlord, then Tenant may
      revoke said waiver of subrogation effective thirty (30) days from the date
      of notice to Landlord unless, within said thirty (30) day period, Tenant
      is able to secure and furnish, without additional expense, in other
      companies insurance notwithstanding such waiver of subrogation, or if such
      waiver can only be obtained at additional expense, if Landlord agrees to
      pay such additional expense. The minimum limits of any insurance coverage
      required herein shall not limit Tenant's liability under this Lease,
      including, without limitation, Paragraph 18 hereof.

21.   BANKRUPTCIES, ASSIGNMENT, RECEIVERSHIP AND INSOLVENCY:

      A. Tenant agrees that the continued occupancy of the Demised Premises in
    the manner and upon the terms set forth in this Lease are of a special
    importance to the commercial viability of the Demised Premises and,
    accordingly, agrees that in the event this Lease is not canceled and
    terminated as set forth in subparagraph (B) below following the occurrence
    of any of the contingencies therein described, then Tenant, and the trustee
    in bankruptcy or other representative of Tenant, or, in the event of an
    assignment, Tenant's assignee, shall, prior to the assumption of this Lease
    by such representative or trustee or assignee, provide adequate assurance to
    Landlord: (i) of the source of rents and other consideration payable under
    this Lease; (ii) that assumption or assignment of this Lease will not breach
    substantially any provision in any other lease, financing agreement, or
    master agreement relating to the Demised Premises; (iii) of the continued
    use of the Demised Premises in accordance with the Permitted Use only; (iv)
    of the source of funds necessary to pay for Tenant's merchandise and goods
    to be sold in the Demised Premises, all on a current basis, and (v) of such
    other matters as Landlord may reasonably require at the time of such
    assumption or assignment. Tenant agrees that the furnishing of assurances in
    accordance with the foregoing or as may be directed by a court of competent
    jurisdiction shall not be deemed to waive any of the covenants or
    obligations of Tenant set forth in this Lease. In the event that any person
    assuming this Lease or taking the same by assignment shall desire to make
    alterations to the Demised Premises, Landlord may further require adequate
    assurance, by lien and completion bond, cash deposit or such other means as
    Landlord may approve, of the source of payment for the estimated cost of any
    work to be performed in connection therewith, and Landlord may require the
    delivery prior to the commencement thereof of waivers of lien from all
    contractors, subcontractors, laborers or material suppliers engaged to
    perform such alterations or to supply materials therefor. Notwithstanding
    the foregoing, such alterations shall be subject in all respects to the
    rights and obligations of Landlord and Tenant hereunder relating to such
    alterations.

      B. If at any time after the Date of Lease (whether prior to the
    commencement of or during the term of this Lease) (i) any proceedings in
    bankruptcy, insolvency or reorganization shall be instituted against Tenant
    pursuant to any Federal or State law now or hereafter enacted, or any
    receiver or trustee shall be appointed of all or any portion of Tenant's
    business or property, or any execution or attachment shall issue against
    Tenant or any of Tenant's business or property or against the leasehold
    estate created hereby, and any of such proceedings, process or appointment
    be not discharged and dismissed within thirty (30) days from the date of
    such filing, appointment or issuance; or (ii) Tenant shall be adjudged as
    bankrupt or insolvent, or Tenant shall make an assignment for the benefit of
    creditors, or Tenant shall file a voluntary petition in bankruptcy or
    petitions for (or enters into) an arrangement for reorganization,
    composition or any other arrangement with Tenant's creditors under any
    Federal or State law now or hereafter enacted, or this Lease or the estate
    of Tenant herein shall pass to or devolve upon, by operation of law or
    otherwise, anyone other than Tenant (except as herein provided), the
    occurrence of any one of such contingencies shall be deemed to constitute
    and shall be construed as a repudiation by Tenant of Tenant's obligations
    hereunder and shall cause this Lease ipso facto to be canceled and
    terminated effective as soon as permitted by then applicable law without
    thereby releasing Tenant; and upon such termination Landlord shall have the
    immediate right to re-enter the Demised Premises and to remove all persons
    and property therefrom; this Lease shall not be treated as an asset of
    Tenant's estate, and neither Tenant nor anyone claiming by, through or under
    Tenant by virtue of any law or any order of any court shall be entitled to
    the possession of the Demised Premises or to remain in the possession
    thereof. Upon the termination of this Lease, as aforesaid, Landlord shall
    have the right to retain as partial damages, and not as a penalty, any
    prepaid rents and any Security Deposit, and Landlord shall also be entitled
    to exercise such rights and remedies to recover from Tenant as damages such
    amounts as are specified in Paragraph 22 hereof, unless any statute or rule
    of law governing the proceedings in which such damages are to be proved
    shall lawfully limit the amount of such claims capable of being so proved,
    in which case Landlord shall be entitled to recover, as and for liquidated
    damages, the maximum amount which may be allowed under any such statute or
    rule of law.


                                   Page - 11


22.   DEFAULT:

      A. If this Lease be assigned or the Demised Premises be sublet, either
    voluntarily or by operation of law, except as herein provided, or if Tenant
    shall fail (i) to pay, within ten (10) days, when due and notice of
    non-payment of Rent, rental or other sums payable hereunder; or (ii) to
    keep, observe or perform any of the other terms, covenants and conditions
    herein to be kept, observed and performed by Tenant for more than thirty
    (30) days after written notice shall have been sent to Tenant specifying the
    nature of such default (or such greater length of time as may be reasonably
    required to cure such default provided that within such thirty (30) day
    period Tenant has commenced and thereafter diligently continues steps to
    cure the default), then and in any one or more of such events are not timely
    cured (herein sometimes referred to as an "Event of Default"), Landlord
    shall have the immediate right to re-enter the Demised Premises, either by
    summary proceedings, by force or otherwise in compliance with Florida
    statutes, and to dispossess Tenant and all other occupants therefrom and
    remove and dispose of all property therein or, at Landlord's election, to
    store such property in a public warehouse or elsewhere at the cost and for
    the account of Tenant, all without service of any further notice of
    intention to re-enter and with or without resort to legal process (which
    Tenant hereby expressly waives) and without Landlord being deemed guilty of
    trespass or becoming liable for any loss or damage which may be occasioned
    thereby. Upon the occurrence of any such Event of Default, Landlord shall
    also have the right, at its option, in addition to and not in limitation of
    any other right or remedy, to terminate this Lease by giving Tenant a
    written thirty (30) days' notice of cancellation and upon the expiration of
    said thirty (30) days, this Lease and the term hereof shall end and expire
    as fully and completely as if the date of expiration of such thirty (30) day
    period were the date herein definitely fixed for the end and expiration of
    this Lease and the term hereof and thereupon, unless Landlord shall have
    theretofore elected to re-enter the Demised Premises, Landlord shall have
    the immediate right of re-entry, in the manner aforesaid, and Tenant and all
    other occupants shall surrender the Demised Premises to Landlord, but Tenant
    shall remain liable as hereinafter provided; however, that if Tenant shall
    default:

         (1) In the timely payment of any rental or other sum payable hereunder
      and any such default shall continue or be repeated for three (3)
      consecutive months, or for a total of five (5) months in any period of
      twelve (12) months, or

         (2) In the performance of any other covenants of this Lease more than
      six (6) times, in the aggregate, in any period of twelve (12) months,
      then, notwithstanding that such defaults shall have been cured within the
      period after notice as above provided, any further default shall be deemed
      to be deliberate, and Landlord thereafter may serve said written thirty
      (30) day notice of cancellation without affording to Tenant an opportunity
      to cure such further default, as long as Landlord does so in accordance
      with Florida Statutes.

      B. If by reason of the occurrence of any such Event of Default, the term
    of this Lease shall end before the date therefor originally fixed herein, or
    Landlord shall re-enter the Demised Premises, or Tenant shall be ejected,
    dispossessed, or removed therefrom by summary proceedings or in any other
    manner, Landlord at any time thereafter may, in Landlord's sole discretion,
    re-let the Demised Premises, or any part or parts thereof, either in the
    name of Landlord or as agent for Tenant, for a term or terms which, at
    Landlord's option, may be less than or exceed the period of the remainder of
    the term hereof or which otherwise would have constituted the balance of the
    term of this Lease and grant concessions or free rent. Landlord shall
    receive the rents from such re-letting and shall apply the same, first, to
    the payment of any indebtedness other than rent due hereunder from Tenant to
    Landlord; second to the payment of such reasonable expenses as Landlord may
    have incurred in connection with re-entering, ejecting, removing,
    dispossessing, re-letting, altering, repairing, subdividing, or otherwise
    preparing the Demised Premises for re-letting, including reasonable
    brokerage and attorney's fees; and the residue, if any, Landlord shall apply
    to the fulfillment of the terms, covenants and conditions of Tenant
    hereunder, and Tenant hereby waives all claims to the surplus, if any.
    Tenant shall be and hereby agrees to be liable for and to pay Landlord any
    deficiency between the rent, additional rents and other charges reserved
    herein and the net avails, as aforesaid, of re-letting, if any, for each
    month of the period which otherwise would have constituted the balance of
    the term of this Lease. Tenant hereby agrees to pay such deficiency on an
    accelerated basis or at Landlord's sole option, in monthly installments on
    the rent days specified in this Lease, and any suit or proceeding brought to
    collect the deficiency for any month, either during the term of this Lease
    or after any termination thereof, shall not prejudice or preclude in any way
    the rights of Landlord to collect the deficiency for any subsequent month by
    a similar suit or proceeding. Landlord shall in no event be liable in any
    way whatsoever for the failure to re-let the Demised Premises or, in the
    event of such re-letting, for failure to collect the rents reserved
    thereunder. Landlord is hereby authorized and empowered to make such
    repairs, alterations, subdivision or other preparations for the re-letting
    of the Demised Premises as necessary, without in any way releasing Tenant
    from any liability hereunder, as aforesaid. Notwithstanding anything
    contained herein to the contrary, if the Lease is terminated by Landlord due
    to a default on the part of Tenant, Landlord shall use its best efforts to
    mitigate damages by, among other things, attempting to promptly relet the
    Demised Premises to a third party.

      C. No such re-entry or taking possession of the Demised Premises by
    Landlord shall be construed as an election on its part to terminate this
    Lease unless a written notice of such intention is given to Tenant or unless
    the termination thereof shall result as a matter of law or be decreed by a
    court of competent jurisdiction. Notwithstanding any such re-letting without
    termination, Landlord may at any time thereafter elect to terminate this
    Lease for such previous breach or default.

                                   Page - 12


      D. In the event this Lease is terminated pursuant to the foregoing
    provisions of this Paragraph or terminates pursuant to the provisions of
    this paragraph, Landlord may recover from Tenant all damages it may sustain
    by reason of Tenant's default, including the reasonable cost of recovering
    the Demised Premises and reasonable attorney's fees and upon so electing and
    in lieu of the damages that may be recoverable under subdivision (B) above,
    Landlord shall be entitled to recover from Tenant, as and for Landlord's
    damages, an amount equal to the difference between the Minimum Rent,
    additional rents (including taxes and insurance) and other charges reserved
    hereunder for the period which otherwise would have constituted the balance
    of the term of this Lease and the then present rental value of the Demised
    Premises for such period, both discounted at the rate of four (4%) percent
    per annum to present worth, all of which shall immediately be due and
    payable by Tenant to Landlord. In determining the rental value of the
    Demised Premises the rental realized by any re-letting, if such re-letting
    be accomplished by Landlord within a reasonable time after the termination
    of this Lease, shall be deemed prima facie to be the rental value, but if
    Landlord shall not undertake to re-let or having undertaken to re-let, has
    not accomplished re-letting, then it will be conclusively presumed that the
    rents reserved under this Lease represent the rental value of the Demised
    Premises for the purposes hereof (in which event Landlord may recover from
    the Tenant, the full total of all rents and additional charges due
    hereunder, discounted to present value as herein before provided). Landlord
    shall be obliged, however to account to Tenant for the Minimum Rent and
    additional rents received from persons using or occupying the Demised
    Premises during the period representing that which would have constituted
    the balance of the term of this Lease, but only at the end of said period
    and only if Tenant shall have paid to Landlord its damages as provided
    herein, and, only to the extent of sums recovered from Tenant as Landlord's
    damage, the Tenant waiving any claim to any surplus. Nothing herein
    contained, however, shall limit or prejudice the right of Landlord to prove
    and obtain as damages by reason of such termination, an amount equal to the
    maximum allowed by any statute or rule of law in effect at the time when,
    and governing the proceedings in which, such damages are to be proved,
    whether or not such amount be greater, equal to, or less than the amounts
    referred to in this Paragraph.

      E. In the event of any breach or threatened breach by Tenant of any of the
    terms and provisions of this Lease, Landlord shall have the right to
    injunctive relief as if no other remedies were provided herein to such
    breach.

      F. The rights and remedies herein reserved by or granted to Landlord are
    distinct, separate and cumulative, and the exercise of any one of them shall
    not be deemed to preclude, waive or prejudice Landlord's right to exercise
    any or all others.

      G. If Tenant shall default hereunder, beyond applicable grace or cure
    periods, prior to the date fixed as the commencement of any renewal or
    extension of this Lease, if any, whether by a renewal option herein
    contained or by separate agreement, Landlord may cancel such option or
    agreement for renewal or extension of this Lease, upon fifteen (15) days
    written notice to Tenant.

      H. In the event that Landlord should bring suit for the possession of the
    Demised Premises, for the recovery of any sum due hereunder, or because of
    the breach of any covenant of this Lease, or for any relief against Tenant,
    declaratory or otherwise, or should Tenant bring any suit for any relief
    against Landlord, declaratory or otherwise, arising out of this Lease, the
    prevailing party shall recover from the other party, costs, expenses and
    reasonable attorney's fees that the prevailing party may have incurred in
    connection therewith at all levels of proceedings.

      I. Tenant agrees that the venue and/or jurisdiction for any legal actions
    brought by Landlord pursuant to this Paragraph shall be in Broward County,
    Florida.

      J. THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
    COUNTERCLAIM BROUGHT BY EITHER PARTY AGAINST THE OTHER ON ANY MATTER
    WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
    RELATIONSHIP OF LANDLORD AND TENANT CREATED HEREBY, THE TENANT'S USE OR
    OCCUPANCY OF THE DEMISED PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE.

      K. In the event Landlord commences any action or proceeding for
    non-payment of rent, additional rents or other charges due hereunder, Tenant
    agrees not to interpose any permissive non-compulsory counterclaim of any
    nature or description in any such action or proceeding. The foregoing,
    however, shall not be construed as a waiver of Tenant's right to assert such
    claim in a separate action or proceeding instituted by Tenant.

23.   DESTRUCTION:

     If the Demised Premises shall be damaged, in whole or in part, by fire or
other casualty insured under Landlord's insurance policies, then only upon
Landlord's receipt of the insurance proceeds, Landlord shall repair the damage
to the Demised Premises within one hundred twenty (120) days from the date of
such casualty, as long as Tenant is not in default of this Lease ("Landlord's


                                   Page - 13


Post Casualty Repair Period"). Landlord's obligation under this provision will
be limited to the installation of any Building standard improvements installed
by the Landlord in the original construction of the Premises ("Landlord's Post
Casualty Repairs") to the extent the proceeds received by the Landlord from any
insurance policy maintained by the Landlord are allocated to those repairs by
the insurance company. If within thirty (30) days of such casualty to said
Demised Premises, it is determined by the Landlord that the Landlord's Post
Casualty Repairs cannot be completed within one hundred twenty (120) days, it
shall be optional with either party hereto to terminate this Lease. In the event
of such determination, Landlord shall provide written notice to the Tenant that
the repairs cannot be made within 120 days. If Tenant then desires to terminate
the Lease in accordance with this provision, Tenant must provide Landlord with
written notice of same within thirty (30) days receipt of Landlord's notice.

     During the Landlord's Post Casualty Repair Period, Tenant will continue the
operation of its business in the Demised Premises to the extent reasonably
practicable and the Rent will be abated proportional to the area of the Demised
Premises that Tenant is unable to practically use for the conduct of its
business, provided that the damage was not occasioned by the negligence or
willful misconduct of Tenant, its agents, contractors, employees, servants,
licensees, or suppliers. The abatement will continue for the period commencing
with the destruction or damage and ending with the substantial completion by the
Landlord of Landlord's Post Casualty Repairs, provided that the abatement will
be adjusted as portions of the Demised Premises are repaired by the Landlord and
become usable by the Tenant for the conduct of its business. Upon completion of
Landlord's Post Casualty Repairs, Tenant shall promptly repair, restore or
replace Tenant's trade fixtures, personal property, decorations, signs, tenant
improvements and contents in or upon the Demised Premises in a manner and to at
least a condition equal to that existing prior to the damage or destruction.
Tenant's work will be subject to the requirements of the terms herein of this
Lease.

     In the event the Lease is not terminated pursuant to this provision and the
Demised Premises have been substantially damaged so as to prevent any use by the
Tenant for the operation of its business, Landlord may relocate Tenant to
another premises of similar size owned by Landlord while the Demised Premises
are being restored. In such event, there shall be no Rent abatement during the
Landlord's Post Casualty Repair Period from the date the Tenant is given
possession of the substitute premises. Landlord's obligation to restore the
Demised Premises is expressly conditioned upon adequate insurance proceeds being
available to Landlord, which have been allocated by Landlord's insurance carrier
toward restoration of the Premises; in the event that there are not adequate
insurance proceeds available for repairing the damage to the Premises, Landlord
has the right to terminate this Lease upon notice to Tenant.

      If such casualty or destruction occurs during the last twelve (12) months
of the Lease Term or Option Lease Terms as herein defined, Landlord then has the
right to terminate this Lease unless Tenant elects to extend the Lease Term a
minimum of five (5) years from the date of restoration of the Demised Premises.
Tenant shall not be entitled to and hereby waives all claims against Landlord
for any compensation or damage for loss of use of the whole or any part of the
Demised Premises and/or for any inconvenience or annoyance occasioned by any
such damage, destruction, repair or restoration, except for such claims arising
from the gross negligence or willful misconduct of Landlord.

24.   CONDEMNATION:

      A. Total: If the whole of the Demised Premises or such part hereof as will
   render the remainder untenantable shall be acquired or taken by eminent
   domain for any public or quasi public use or purpose or by private purchase
   in lieu thereof, then the Lease and the term thereof shall automatically
   cease and terminate as of the date of title vesting in such proceeding.

      B. Partial: (i) If any part of the Demised Premises shall be taken and
   such partial taking shall render that portion not so taken unsuitable for the
   purposes for which the Demised Premises were leased, or (ii) if more than
   one-fourth (1/4th) of the existing parking spaces are so taken and Landlord
   cannot re-assign the same number of alternate spaces to Tenant, then Landlord
   and Tenant shall each have the right to terminate the Lease by written notice
   given to the other within sixty (60) days after the date of title vesting in
   such proceeding. If any part of the Demised Premises shall be so taken and
   the Lease shall not be terminated, as aforesaid, then the Lease and all of
   the terms and provisions thereof shall continue in full force and effect
   except that the Minimum Rent shall be thereafter reduced in the same
   proportion that the remaining leasable area of the Building upon the Demised
   Premises bears to original leasable area of the Building.

      C. As used herein, the amount received by Landlord shall mean that portion
   of the award in condemnation received by Landlord from the condemning
   authority, which is free and clear of all prior claims or collections by the
   holders of any mortgages or deeds of trust or any ground or underlying
   Landlords.

      D. If the Lease is terminated as provided in this paragraph, all rents
   shall be paid by Tenant up to the date that possession is so taken by public
   authority, and Landlord shall make an equitable refund of any rents paid by
   Tenant in advance and not yet earned.

      E. All damages or compensation awarded or paid for any such taking,
   whether for the whole or a part of the Demised Premises or any part of the
   buildings or improvements thereon, shall belong to and be the property of
   Landlord without any participation by Tenant, whether such damages or


                                   Page - 14


   compensation shall be awarded or paid for diminution in value of the fee or
   in the leasehold estate created hereby, and Tenant hereby expressly waives
   and relinquishes all claims to such award or compensation or any part thereof
   and of the right to participate in any such condemnation proceedings against
   the Landlord; provided, however, that nothing herein contained shall be
   construed to preclude Tenant from prosecuting any claim directly against the
   condemning authority, but not against Landlord, for the value of or damages
   to and/or for the cost of removal of Tenant's movable trade fixtures and
   other personal property which under the terms of the Lease would remain
   Tenant's property upon the expiration of the term of this Lease, as may be
   recoverable by Tenant in Tenant's own right, or for other such claims
   separately cognizable to Tenant, provided further that no such claim shall
   diminish or otherwise adversely affect Landlord's award. Each party agrees to
   execute and deliver to the other all instruments that may be required to
   effectuate the provisions of this Paragraph.

25.   ACCESS TO PREMISES:

         A. Landlord shall have the right to enter the Demised Premises during
    normal business hours, with reasonable prior notice (unless for or during an
    emergency), to inspect or to exhibit the same to prospective purchasers,
    mortgagees, and tenants and to make such repairs, additions, alterations or
    improvements Landlord may deem reasonably necessary. Landlord shall be
    allowed to take all material into and upon said Demised Premises that may be
    required theretofore without the same constituting an eviction of Tenant in
    whole or in part, and the rents reserved shall not abate while said work is
    in progress by reason of loss or interruption of Tenant's business or
    otherwise; Tenant shall have no claim for damages. If Tenant shall not be
    personally present to permit an entry into said premises when for any reason
    an entry therein shall be permissible, Landlord may enter the same by a
    master key or by the use of force without rendering Landlord liable therefor
    and without in any manner affecting the obligations of this Lease. The
    provisions of this paragraph shall not be construed to impose upon Landlord
    any obligation whatsoever for the maintenance or repair of the building or
    any part thereof, unless stated to the contrary herein this Lease. During
    the six (6) months prior to the expiration of this Lease or any renewal
    term, Landlord may place upon the Demised Premises signs indicating that the
    Demised Premises are available for rent, which Tenant shall permit to remain
    thereon.

         B). In exercising its right of access, Landlord shall (i) except in the
    event of an emergency, and provided Tenant shall make an employee of Tenant
    available to accompany Landlord following Landlord's notice to Tenant of the
    necessity therefore, not enter the Demised Premises during the term of this
    Lease without an employee of Tenant accompanying Landlord's representative,
    (ii) use its reasonable efforts to do so during reasonable business hours
    and in such a manner and at such time as not to interfere with the conduct
    of Tenant's business, and if Landlord so interferes with Tenant's operations
    so as to render it impossible for Tenant to do business in the Demised
    Premises, unless Tenant has failed to comply with the terms of, or is
    otherwise in default of, this Lease, then Tenant's obligation to pay rent
    and all other charges hereunder shall thereafter abate until Tenant is able
    to resume its business in the Demised Premises, and (iii) at its sole cost
    and expense, provide adequate security for Tenant's inventory and personal
    property located in the Demised Premises. Landlord may place utility lines
    and pipes in the Demised Premises only above the dropped ceiling and/or
    below the floor, in a manner which shall not unreasonably interfere with the
    conduct of Tenant's business. If any damage to the Demised Premises shall
    occur on account of the performance of the same, the Demised Premises shall
    be restored to its original condition at no cost to Tenant.

26.   SUBORDINATION:

      This Lease is subject and subordinate to each and every mortgage, deed of
trust and/or ground lease which may now or hereafter affect the Demised Premises
(collectively referred to as a "Mortgage") and to all renewals, extensions,
supplements, amendments, modifications, consolidations and replacements thereof
or thereto, substitutions therefor, and advances made under a Mortgage. This
clause shall be self-operative, and no further instrument of subordination shall
be required to make the interest of any holder of a Mortgage superior to the
interest of Tenant hereunder. Tenant covenants and agrees that, except as
expressly provided, Tenant shall not do anything that would constitute a default
under any Mortgage, or omit to do anything that Tenant is obligated to do under
the terms of this Lease so as to cause Landlord to be in default under any
Mortgage. If Tenant's interest in this Lease is subordinate to any Mortgage,
Landlord agrees, following delivery to Landlord of any required subordination
agreement executed and acknowledged by Tenant, to use its best efforts to secure
from such Mortgagee, trustee or ground landlord (collectively referred to as a
mortgagee), an agreement with Tenant to the effect that so long as Tenant will
not be in default under this Lease, Tenant's occupancy of the Demised Premises
will not be disturbed. Any such non-disturbance agreement shall be in the form
customarily used by such mortgagee.

      If at any time prior to the expiration of the Lease Term hereof, the
Demised Premises are sold or a mortgagee receives possession or control of the
Landlord's interest hereunder, then Tenant agrees, at the election and upon
demand of Landlord, or any such owner or mortgagee in possession, to attorn,
from time to time, to any such owner, Landlord or mortgagee, upon the then
executory terms and conditions of this Lease, for the remainder of the term
originally demised in this Lease, provided that such owner, Landlord or
mortgagee, as the case may be, or receiver caused to be appointed by any of the
foregoing, shall then be entitled to possession of the Demised Premises. The
provisions of this subsection shall inure to the benefit of Landlord or a
mortgagee, and shall be self-operative upon any such demand, and no further
instrument shall be required to give effect to said provisions. Tenant, however,
upon demand of Landlord or a mortgagee, agrees to execute, from time to time,
instruments in confirmation of the foregoing provisions of this subsection,
reasonably satisfactory to Landlord or mortgagee, acknowledging such attornment
and setting forth the terms and conditions of its tenancy. Tenant hereby
irrevocably constitutes and appoints Landlord, as Tenant's attorney-in-fact to


                                   Page - 15


execute any such certificates for and on behalf of Tenant. Nothing contained in
this subsection shall be construed to impair any right otherwise exercisable by
Landlord or a mortgagee.

27.   QUIET ENJOYMENT:

      Tenant, upon paying the rents and performing all of the terms on its part
to be performed, shall peaceably and quietly enjoy the Demised Premises subject,
nevertheless, to the terms of this Lease and to any mortgage or agreements to
which this Lease is subordinated.

28.   END OF TERM:

      Tenant shall, on the last day of the term, or on earlier termination and
forfeiture of the Lease, peaceably and quietly surrender and deliver the Demised
Premises, together with all keys to same, to the Landlord. Prior to the end of
the Lease Term, Tenant shall remove all its personal property and equipment, and
all trade fixtures, movable/non-structural alterations, additions, decorations
or any modifications to the Demised Premises not added, performed or installed
in compliance with the terms of this Lease or with Landlord's written approval,
and shall repair any damage caused thereby, provided that Tenant shall not be
required to repaint the Demised Premises, unless such repainted is necessitated
by the misuse, abuse or damage to the Demised Premises by Tenant, its agents,
employees, contractors or sub-contractors. Tenant's obligations to perform this
provision shall survive the end of the term of this Lease. If Tenant fails to
remove its property upon the expiration of this Lease, the said property shall
be deemed abandoned and shall become the property of Landlord, and if Landlord
elects to remove same, excluding non-movable/structural alterations, additions
and improvements added or installed in accordance with the terms of this Lease
or with Landlord's written approval, Tenant shall be liable for all costs
reasonably incurred in connection therewith. If the Demised Premises be not
surrendered as and when aforesaid, Tenant shall indemnify Landlord against all
loss or liability resulting from the delay by Tenant in so surrendering the
same, including, without limitation, any claims made by any succeeding occupant
founded on such delay. Tenant's obligations under this Paragraph shall survive
the expiration or sooner termination of the term of this lease.

29.   HOLDING OVER:

     Should Tenant withhold possession of the Demised Premises from Landlord
after the termination of said Lease, whether by lapse of time or by election of
either party or in any other manner provided herein or by law, the damages for
which the Tenant shall be liable to the Landlord for such detention shall be and
hereby are liquidated at a sum equal to one and one-half (1 1/2) times or one
hundred fifty percent (150%) of the rate of rental stipulated herein for the
period of such detention.

30.   NO WAIVER:

      Failure of Landlord to insist upon the strict performance of any provision
or to exercise any option or any reasonable rules and regulations shall not be
construed as a waiver for the future of any such provision, rule or option. The
receipt by Landlord of rent with knowledge of the breach of or default under any
provisions of this Lease shall not be deemed a waiver of such breach or default.
No provision of this Lease shall be deemed to have been waived by Landlord
unless such waiver is in writing signed by Landlord. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly rent shall be deemed to
be other than on account of the earliest rent then unpaid nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in this Lease or under
the laws of the State of Florida.

31.   RELATIONSHIP OF PARTIES:

      Nothing contained in this Lease shall be deemed to constitute or be
construed to create the relationship of principal and agent, partnership, joint
venturers or any other relationship between the parties hereto, other than the
relationship of Landlord and Tenant.

32.   NOTICES:

      Any notice, demand, request or other instrument which may be or are
required to be given under this Lease shall be delivered in person or sent by
United States Certified or Registered Mail, postage prepaid, or by overnight
courier such as Federal Express, and shall be sent "next business day" and
addressed as follows:

      (a) If to Landlord at the address herein above given; and

                                   Page - 16


      (b) If to Tenant, at the Demised Premises, with additional notice to Frank
      Buttacavoli (954) 316-9008, ext. 117, at the address shown in Paragraph 1,
      Section (c) above.

      Either party may designate such other address as shall be given by written
      notice. Any notice mailed in accordance herewith shall be deemed received
      three (3) business days from the date of mailing.

33.   RECORDING:

      Tenant shall not record this Lease or a memorandum thereof without the
prior written consent of Landlord.

34.   PARTIAL INVALIDITY:

      If any provision of this Lease or application thereof to any person or
circumstance to any extent be invalid, the remainder of this Lease or the
application of such provision to persons or circumstances other than those as to
which it is held invalid shall not be affected thereby and each provision of
this Lease shall be valid and enforced to the fullest extent permitted by law.

35.   BROKERAGE:

      Landlord and Tenant each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder in connection with
the negotiation of this Lease except for CUSHMAN & WAKEFIELD OF FLORIDA, INC.
(the "Broker"), and no other broker or person, firm or entity is entitled to any
commission or finder's fee in connection with this transaction except for the
Broker. Landlord and Tenant do each hereby indemnify, defend, protect and hold
the other harmless from and against any costs, expenses or liability for
compensation, commission or charges which may be claimed by any other broker,
finder or other similar party by reason of any actions of the indemnifying
party. Landlord agrees to pay to Broker a leasing commission subject a separate
agreement between Landlord and Broker.

36.   PROVISIONS BINDING, ETC.:

      Except as otherwise expressly provided, all provisions herein shall be
binding upon and shall inure to the benefit of the parties, their legal
representatives, successors and assigns. Each provision to be performed by
Tenant shall be construed to be both a covenant and a condition, and if there
shall be more than one Tenant, they shall all be bound jointly and severally, by
these provisions. In the event of any sale of the Demised Premises or this
Lease, Landlord shall be entirely relieved of all obligations hereunder,
provided such transferee assumes, in writing, all obligations of the Lease
hereunder.

37.   ENTIRE AGREEMENT, ETC.:

      This Lease and the Addenda, Exhibits or Riders (if attached) set forth the
entire agreement between the parties; any prior conversations or writings are
merged herein and extinguished. No subsequent amendment to this Lease shall be
binding upon Landlord or Tenant unless reduced to writing and signed by both
parties. Submission of this Lease for examination does not constitute an option
for the Demised Premises and becomes effective as a lease only upon execution
and delivery thereof by both Landlord and Tenant. If any provision contained in
an Addendum is inconsistent with the printed provision of this Lease, the
provision contained in said Addendum shall supersede said printed provision. The
captions, numbers and index appearing herein are inserted only as a matter of
convenience and are not intended to define, limit, construe or describe the
scope or intent of any paragraph, nor in any way affect this Lease.

38.   DEFINITIONS:

      The term "Landlord" as used in this Lease shall mean only the owner or the
mortgagee in possession for the time being of the land and building (or the
owner of a lease of the building) of which the Demised Premises is a part, so
that in the event of any sale or sales of said land and building, or of the
underlying lease or ground lease thereof, or in the event of a lease of said
building, Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations on its part to be performed hereunder, and it shall be
deemed without further agreement between the parties or their successors in
interest or between the parties and the purchaser at any such sale, or the said
tenant of the building, that the purchaser or tenant of the building has assumed
and agreed to carry out all covenants and obligations of Landlord hereunder.

39.   ESTOPPEL CERTIFICATE BY TENANT/FINANCIAL STATEMENTS:

      From time to time, within ten (10) days next following Landlord's request,
Tenant shall deliver to Landlord a written statement (prepared by Landlord at


                                   Page - 17


Landlord's expense) executed and acknowledged by Tenant in form reasonably
satisfactory to Landlord (a) stating that this Lease is then in full force and
effect and has not been modified (or if modified, setting forth all
modifications), (b) setting forth the date to which the Minimum Rent, additional
rent and other charges hereunder have been paid, (c) stating whether or not, to
the best knowledge of Tenant, Landlord is in default under this Lease, and, if
Landlord is in default, setting forth the specific nature of all such defaults,
(d) certifying that Tenant has accepted possession of the Demised Premises, and
(e) as to any other matters reasonably requested by Landlord.

40.   GUARANTY:

      (This paragraph purposely omitted.)

41.   LIMITATION OF LIABILITY:

      Tenant shall look solely to Landlord's interest in the Demised Premises
for the satisfaction of any judgment or decree requiring the payment of money by
Landlord, based upon any default under this Lease, and no other property or
asset of Landlord shall be subject to levy, execution or other enforcement
procedure for the satisfaction of such judgment or decree.

42.   CAPTIONS AND HEADINGS:

      Captions and Article headings contained in this Lease are for convenience
and reference only and in no way define, describe, extend or limit the scope or
intent of this Lease nor the intent of any provision hereof.

43.   COUNTERPARTS:

      This Lease may be executed in one or more counterparts, each of which
shall be deemed to be an original but all of which shall constitute one and the
same agreement.

44.   GENDER:

      All terms and words used in this Lease, regardless of the number and
gender in which used, shall be deemed to include any other gender or number as
the context or the use thereof may require.

45.   INTERPRETATION:

      This Lease shall not be construed more strictly against one party than
against the other merely by virtue of the fact that it may have been prepared by
counsel for one of the parties, it being recognized that both Landlord and
Tenant have contributed substantially and materially to the preparation of this
Lease. Wherever used in this Lease, "any" means "any and all"; "include" and
"including" each are without limitation; "indemnify" means that the indemnitor
will defend, indemnify and hold the indemnitee harmless against any claims,
demands, losses or liabilities asserted against or incurred by, the indemnitee
to any third party because of the subject matter of the indemnity; "may not"
other negative forms of the verb "may" each are prohibitory; and "will", "must",
"should" each are mandatory. Unless this Lease expressly or necessarily requires
otherwise (i) any time period measured in "days" means consecutive calendar
days, except that the expiration of any time period measured in days that
expires on a Saturday, Sunday or legal holiday automatically will be extended to
the next business day; (ii) any action is at the sole expense of the party
required to take it; (iii) the scope of any indemnity includes any costs and
expenses, including reasonable attorneys' fees, incurred in defending any
indemnified claim, or in enforcing the indemnity, or both.

46.   TIME OF THE ESSENCE:

      Time is of the essence of this Agreement.

47.   CORPORATE TENANT:

      If Tenant is or will be a corporation, the persons executing this Lease on
behalf of Tenant hereby covenant, represent and warrant that Tenant is a duly
incorporated or a duly qualified (if a foreign corporation) corporation and
authorized to do business in the State of Florida; and that the person or
persons executing this Lease on behalf of Tenant is an officer or are officers
of such Tenant, and that he or they as such officers were duly authorized to
sign and execute this Lease. Upon request of Landlord to Tenant, Tenant shall
deliver to Landlord documentation reasonably satisfactory to Landlord evidencing
Tenant's compliance with the provisions of this Paragraph.

                                   Page - 18


48.   RADON GAS:

      Radon is a naturally occurring radioactive gas that, when it has
accumulated in a building in sufficient quantities, may present health risks to
persons who are exposed to it over time. Levels of radon that exceed federal and
state guidelines have been found in buildings in Florida. Additional information
regarding radon and radon testing may be obtained from your county public health
unit.

49.   REFUSE PREVENTION:

      Tenant will not place or maintain any garbage, trash, rubbish, debris, or
any other refuse in any vestibule or entry of the Demised Premises; on the
pathways or corridors adjacent thereto; or elsewhere on the exterior of the
Demised Premises, which shall include, without limitation, sidewalks, alleyways
and courtyards. Tenant also will not cause or permit odors of any kind to
emanate from the Premises. Notwithstanding the foregoing, Tenant shall be
allowed to maintain dumpsters in the truck court area in the rear of the Demised
Premises, in accordance with all applicable Federal, State and local rules,
regulations, codes and ordinances.

50.   DELAYED OCCUPANCY:

      (This paragraph purposely omitted.)

51.   NO PRESUMPTION AGAINST DRAFTER:

      Landlord and Tenant understand, agree, and acknowledge that i) this Lease
has been freely negotiated by both parties; and ii) that, in any controversy,
dispute, or contest over the meaning, interpretation, validity, or
enforceability of this Lease or any of its terms or conditions, there shall be
no interference, presumption, or conclusion drawn whatsoever against either
party by virtue of that party having drafted this Lease or any portion thereof.

52.   TENANT'S TIME TO SUE:

      A. COMMENCEMENT OF ACTION. Any claim, demand, right, or defense by Tenant
that arises out of this Lease or the negotiations that preceded this Lease shall
be barred unless Tenant commences an action thereon, or interposes a defense by
reason thereof, within six (6) months after the date of the inactions, omission,
event, or action that gave rise to such claim, demand, right, or defense.

      B. TENANT ACKNOWLEDGMENT. Tenant acknowledges and understands, after
having consulted with its legal counsel, that the purpose of Paragraph A above
is to shorten the period within which Tenant would otherwise have to raise such
claims, demands, rights, or defenses under applicable laws.

53.  LEASE RENEWAL OPTION:

         Provided Tenant is in compliance with all of the terms and conditions
      of this Lease both when Tenant gives Landlord notice of Tenant's desire to
      extend the Lease (as herein described) AND at the time this renewal term
      is scheduled to commence, Tenant is hereby granted one (1) five-year
      option to renew this Lease (the "Option Lease Term") under the same terms
      and conditions as the initial five-year term, with the Minimum Rent due
      the Landlord for the Demised Premises during the Option Lease Term equal
      to Four Million Seven Hundred Fifty Thousand Eight Hundred Dollars and No
      Cents ($4,750,800.00), PLUS applicable sales and/or rent taxes thereon,
      PLUS any increased Expenses pursuant to paragraph 1 (h) (2) above, payable
      as follows: (1) During the first (1st) year of the Option Lease Term
      (to-wit: October 1, 2011 through September 30, 2012), the minimum rent due
      the Landlord (the "Rent" or "Minimum Rent") for the Demised Premises shall
      be Nine Hundred Nine Thousand Three Hundred Sixty Dollars and No Cents
      ($909,360.00), consisting of $659,928.00 as Base Rent, $66,282.00 as "CAM"
      (common area maintenance and management fees), and $183,150.00 as
      "Expenses" (real estate taxes and insurance as defined in paragraph 1 (h)
      (2) above), payable monthly, in advance, at a rate of Seventy-five
      Thousand Seven Hundred Eighty Dollars and No Cents ($75,780.00) per month,
      PLUS any increased Expenses pursuant to paragraph 1 (h) (2) above, PLUS
      applicable sales and/or rent taxes thereon; beginning the second (2nd)
      year of the Option Lease Term (to-wit: October 1, 2012 through September
      30, 2013), the Rent due Landlord annually for the Demised Premises shall
      be Nine Hundred Twenty-nine Thousand One Hundred Sixty Dollars and No
      Cents ($929,160.00), consisting of $679,728.00 as Base Rent $66,282.00 as
      CAM, and $183,150.00 as Expenses, payable monthly, in advance, at a rate
      of Seventy-seven Thousand Four Hundred Thirty Dollars and No Cents
      ($77,430.00) per month, PLUS any increased Expenses pursuant to paragraph
      1 (h) (2) above, PLUS applicable sales and/or rent taxes thereon;
      beginning the third (3rd) year of the Option Lease Term (to-wit: October
      1, 2013 through September 30, 2014), the Rent due Landlord annually for
      the Demised Premises shall be Nine Hundred Forty-nine Thousand Five
      Hundred Forty-eight Dollars and No Cents ($949,548.00), consisting of
      $700,116.00 as Base Rent, $66,282.00 as CAM, and $183,150.00 as Expenses,
      payable monthly, in advance, at a rate of Seventy-nine Thousand One
      Hundred Twenty-nine Dollars and No Cents ($79,129.00) per month, PLUS any
      increased Expenses pursuant to paragraph 1 (h) (2) above, PLUS applicable
      sales and/or rent taxes thereon; beginning the fourth (4th) year of the
      Option Lease Term (to-wit: October 1, 2014 through September 30, 2015),
      the Rent due Landlord annually for the Demised Premises shall be Nine
      Hundred Seventy Thousand Five Hundred Forty-eight Dollars and No Cents


                                   Page - 19


      ($970,548.00), consisting of $721,116.00 as Base Rent, $66,282.00 as CAM,
      and $183,150.00 as Expenses, payable monthly, in advance, at a rate of
      Eighty Thousand Eight Hundred Seventy-nine Dollars and No Cents
      ($80,879.00) per month, PLUS any increased Expenses pursuant to paragraph
      1 (h) (2) above, PLUS applicable sales and/or rent taxes thereon; and
      beginning the fifth (5th) year of the Option Lease Term (to-wit: October
      1, 2015 through September 30, 2016), the Rent due Landlord annually for
      the Demised Premises shall be Nine Hundred Ninety-two Thousand One Hundred
      Eighty-four Dollars and No Cents ($992,184.00), consisting of $742,752.00
      as Base Rent, $66,282.00 as CAM, and $183,150.00 as Expenses, payable
      monthly, in advance, at a rate of Eighty-two Thousand Six Hundred
      Eighty-two Dollars and No Cents ($82,682.00) per month, PLUS any increased
      Expenses pursuant to paragraph 1 (h) (2) above, PLUS applicable sales
      and/or rent taxes thereon. Tenant shall give Landlord written notice of
      Tenant's intention to exercise this option at least one hundred eighty
      (180) days prior to the end of the initial Lease Term and first Option
      Lease Term, as the case may be (Certified mail, return receipt requested).
      If Landlord does not receive such notice at least one hundred eighty (180)
      days prior to the end of the initial Lease Term, this Lease paragraph
      shall become null and void as if it never existed.

54.   SCHEDULE OF LANDLORD'S WORK:

      Landlord shall repair the floor of the warehouse portion of the Demised
Premises, and Tenant shall move any of its property or inventory to allow for
Landlord's repair of the floor (See attached Exhibit B for the location of the
necessary floor repairs in the Demised Premises, indicated by the red dots or
red lines).

                                   Page - 20


     IN WITNESS WHEREOF, the parties hereto have executed this instrument for
the purpose herein expressed, the date above first written and is signed, sealed
and delivered in the presence of:

As to Landlord:                             PORT 95-2, LTD.,
                                            a Florida limited partnership,
                                            by its sole general partner,
                                            Kelsey Port 95-2, Inc.,
                                            a Florida corporation
/s/ G. Hulz
- -----------

/s/ Sharon J. Munroe                        By:  /s/ Angela Kelsey Wichmann
- --------------------                             --------------------------
                                                 Angela Kelsey Wichmann, VP

As to Tenant:                               PARLUX FRAGRANCES, INC.,
                                            a Delaware corporation

/s/ Joseph Buvel
- ----------------

/s/ Carole Ramsay                           By: /s/ Frank A. Buttacavoli
- -----------------                               ------------------------
                                                Frank A. Buttacavoli,
                                                Exec. VP/COO/CFO

                                   Page - 21

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements No. 333-95657 on Form S-8 and No. 333-132288 and No. 333-112472 on Form S-3 of Parlux Fragrances, Inc. (the “Company”), of our report dated July 24, 2006, relating to the financial statements and financial statement schedule of the Company (which report expresses an unqualified opinion and includes an explanatory paragraph relating to transactions with related parties as described in Note 2) and of our report also dated July 24, 2006 on management’s report on the effectiveness of internal control over financial reporting, (which report expresses an adverse opinion on the effectiveness of the Company’s internal control over financial reporting because of material weaknesses), appearing in this Annual Report on Form 10-K of the Company for the year ended March 31, 2006.

Deloitte & Touche LLP

Certified Public Accountants

Fort Lauderdale, Florida

July 24, 2006  

EX-31.1

Exhibit 31.1

CERTIFICATIONS PURSUANT TO

RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ilia Lekach, certify that:

1. I have reviewed this annual report on Form 10-K of Parlux Fragrances, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and  have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: July 24, 2006

/s/ ILIA LEKACH

Ilia Lekach,

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS PURSUANT TO

RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Frank A. Buttacavoli, certify that:

1. I have reviewed this annual report on Form 10-K of Parlux Fragrances, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant, and  have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over  financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated: July 24, 2006

/s/ FRANK A. BUTTACAVOLI

Frank A. Buttacavoli,

Executive Vice President,

Chief Operating Officer and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS PURSUANT TO CHAPTER 63 OF TITLE 18 U.S.C.

SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Parlux Fragrances, Inc. (the "Company") on Form 10-K for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ilia Lekach, Chief Executive Officer of the Company, certify, pursuant to Chapter 63 of Title 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ ILIA LEKACH
	Ilia Lekach Chief Executive Officer July 24, 2006

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.

A signed original of the written statement required by Section 906 has been provided to Parlux Fragrances, Inc. and will be retained by Parlux Fragrances, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATIONS PURSUANT TO CHAPTER 63 OF TITLE 18 U.S.C.

SECTION 1350 AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Parlux Fragrances, Inc. (the "Company") on Form 10-K for the period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank A. Buttacavoli, Chief Operating Officer and Chief Financial Officer of the Company, certify, pursuant to Chapter 63 of Title 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ FRANK A. BUTTACAVOLI
	Frank A. Buttacavoli Chief Operating Officer and Chief Financial Officer July 24, 2006

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-K or as a separate disclosure document.

A signed original of the written statement required by Section 906 has been provided to Parlux Fragrances, Inc. and will be retained by Parlux Fragrances, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.