10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-Q

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(Mark One)

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: JUNE 30, 2007

Or

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

PARLUX FRAGRANCES, INC.

(Exact name of registrant as specified in its charter)

______________

DELAWARE	0-15491	22-2562955
(State or other jurisdiction of incorporation or organization)	(Commission file number)	(IRS employer identification no.)

3725 S.W. 30th Avenue, Ft. Lauderdale, FL 33312

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code 954-316-9008

_______________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

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 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

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

Class	Outstanding at August 13, 2007
[Common Stock, $0.01 par value per share]	18,879,912 shares

PART I. – FINANCIAL INFORMATION

UNAUDITED

Item 1.

Financial Statements.

See pages 14 to 28.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Certain statements within this Form 10-Q, 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 our Annual Report on Form 10-K, as filed with the SEC on July 11, 2007. Accordingly, actual results may differ materially from those expressed in the 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.

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. In connection with the Stock Split, we modified outstanding warrants. See Note 1 (B) to the accompanying condensed consolidated financial statements for further discussion of the effect of the modification of warrants in connection with the Stock Split and the related non-cash share-based compensation expense recorded during the quarter ended June 30, 2006.

Recent Developments

Jessica Simpson Fragrance License

On June 21, 2007, we entered into an exclusive license agreement with VCJS, LLC, to develop, manufacture and distribute prestige fragrances and related products under the Jessica Simpson name. The initial term of the agreement expires five years from the date of the first product sales and is renewable for an additional five years if certain sales levels are met. We must pay a minimum royalty, whether or not any product sales are made, and spend minimum amounts for advertising based upon sales volume. We anticipate that the first fragrance under this agreement will be launched during fall 2008.

Nicole Miller Fragrance License

On August 1, 2007, we entered into an exclusive license agreement with Kobra International, Ltd., to develop, manufacture and distribute prestige fragrances and related products under the Nicole Miller name. The initial term of the agreement expires on September 30, 2013 and is renewable for two additional terms of three years each, if certain sales levels are met. We must pay a minimum royalty, whether or not any product sales are made, and spend minimum amounts for advertising based upon sales volume. We anticipate launching a new fragrance under this license in the next twelve to eighteen months as well as immediately assuming the manufacturing and distribution of previously developed Nicole Miller fragrances.

Critical Accounting Policies and Estimates

In the ordinary course of business, we have made a number of estimates and assumptions relating to the reporting of results of operations and financial condition in the preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America. Actual results could differ significantly from those estimates under different assumptions and conditions. We have included in our Annual Report on Form 10-K for the year ended March 31, 2007 a discussion of our most critical accounting policies, which are those that are most important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have not made any changes in these critical accounting policies, nor have we made any material ch ange in any of the critical accounting estimates underlying these

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accounting policies, since the Form 10-K filing, discussed above, except for the adoption of Financial Accounting Standards Board (“FASB”) Interpretation 48 (“FIN 48”) Accounting for Income Tax Uncertainties, discussed below.

On April 1, 2007, we adopted the provisions of FIN 48, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109 Accounting for Income Taxes. FIN 48 prescribes a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements. In making this assessment, a company must determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based solely on the technical merits of the position and must assume that the tax position will be examined by appropriate taxing authority that would have full knowledge of all relevant information. Once the recognition threshold is met, the tax position is then measured to determine the act ual amount of benefit to recognize in the financial statements. In addition, the recognition threshold of more-likely-than-not must continue to be met in each reporting period to support continued recognition of the tax benefit. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the financial reporting period in which that threshold is no longer met. As a result of the implementation of FIN 48, we did not recognize a liability for unrecognized tax benefits or adjust any recorded liabilities for uncertain tax positions and, accordingly, we were not required to record any cumulative effect adjustment to beginning of year retained earnings. As of both the date of adoption and June 30, 2007, there was no ma terial liability for income tax associated with unrecognized tax benefits. We do not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months, however, the outcome of tax matters is uncertain and unforeseen results can occur.

New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measures (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We are currently reviewing the provisions of SFAS No. 157 to determine the impact, if any, on our condensed consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB No. 115 ("SFAS No. 159"). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value in order to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for our fiscal year ending March 31, 2009. We are currently assessing the impact, if any, of this statement on our condensed 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, fragrance 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 conti nue. If one or more of our new product introductions would be unsuccessful, or if 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 consolidated operations resulting in the closing of retail stores 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.

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Historically, as is the case for most fragrance companies, our sales have been influenced by seasonal trends generally related to holiday or gift giving periods. Substantial sales often occur during the final month of each quarter. This practice assumes activities in future periods will support planned objectives, but there can be no assurance that will be achieved and future periods may be negatively affected.

Results of Operations

As more fully discussed in Note P to the condensed consolidated financial statements, on December 6, 2006, we sold the Perry Ellis fragrance brand license back to Perry Ellis International (PEI) at a price of approximately $63 million, including approximately $21 million for inventory and promotional products relating to the brand. Beginning with our third quarter ended December 31, 2006, the Perry Ellis brand activity is presented as discontinued operations. Prior period statements of operations have been retrospectively adjusted. The discussion on results of operations that follow are based upon the results from continuing operations and exclude any discussion of discontinued operations, unless specifically noted.

We do business with fragrance distributors owned/operated by individuals related to our former Chairman and CEO. These sales are included as related party sales in the accompanying statements of operations. For the quarter ended September 30, 2006, we identified and classified additional international distributors as related parties. These distributors had not previously been classified as such. Transactions with these distributors are also included as related party sales for the quarter ended June30, 2007 and comparable period results, when applicable, have been restated. See Note O to the accompanying condensed consolidated financial statements for further discussion. Future sales to these parties may not occur at the same levels, which could have a material adverse effect on our operating results if we are not successful in replacing sales with new or existing customers.

During the current quarter, the former Chairman and CEO’s beneficial ownership interest in the Company has declined to approximately 7.6%. Accordingly, we will continue to evaluate the requirements under SFAS No. 57, “Related Party Disclosures” as to whether transactions with such parties in future periods require related party classification.

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, since we allocate a portion of these distribution costs to costs of goods sold and include the remaining unallocated amounts as selling and distribution expenses. Selling and distribution expenses for the quarters ended June 30, 2007 and 2006 include approximately $1,322,000 and $949,000, 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 these costs is allocated to inventory in accordance with generally accepted accounting principles.

Comparison of the three-month period ended June 30, 2007 with the three-month period ended June 30, 2006.

Net Sales

During the three months ended June 30, 2007, net sales from continuing operations increased 11% to $31,380,468 as compared to $28,248,179 for the same period for the prior year. The increase is mainly attributable to an increase of $11,377,451 in Paris Hilton brand fragrances as a result of the launch of Paris Hilton Heiress and Heir fragrances, which launched domestically in the fall of 2006 and internationally shortly thereafter, along with the continuation of the worldwide launch of Paris Hilton fragrances for women and men. This was partially offset by a decrease in sales of GUESS? fragrances in the amount of $8,246,501, primarily to our international distributors, due to restrictions placed upon us by GUESS?, Inc. (“GUESS?”). These restrictions are more fully discussed in Note J to these condensed consolidated financial statements.

Net sales to unrelated customers, which represents 40% of our total net sales for the three months ended June 30, 2007, decreased 38% to $12,568,507 compared to $20,183,483 for the same period in the prior year, mainly as a result of the GUESS? brand sales discussed above. Net sales to the U.S. department store sector increased 7% to $5,924,115 for the three months ended June 30, 2007 as compared to $5,510,975 for the same period in the prior year, while net sales to unrelated international distributors decreased 55% to $6,644,392, from $14,670,271. The decrease in international net sales was a result of the restrictions placed upon us by GUESS?. Sales to related parties (See Note F to the condensed consolidated financial statements for further discussion of related parties) increased 133% to $18,811,961 for the three months ended ended June 30, 2007, compared to $8,064,696 for the same period in the prior year, mainly as a result of a n increase of $12,197,332 in Paris Hilton fragrance brands partially offset by

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a decrease of $3,225,956 of GUESS? brand sales. We anticipate this trend will continue as sales to Perfumania increase as a result of increased access to their distribution channels. We also expect that sales to international customers will begin to increase in the upcoming quarters as GUESS? continues to review and approve our international distribution channels during the rest of the fiscal year ending March 31, 2008. However, the extent of the increases may be limited by our ability to find distributors that are acceptable to GUESS?.

Cost of Goods Sold

Our overall cost of goods sold decreased as a percentage of net sales to 49% for the three months ended June 30, 2007, compared to 55% for the comparable prior year period. Cost of goods sold as a percentage of net sales to unrelated customers and related parties approximated 47% and 51%, respectively, for the current year period, as compared to 54% and 56%, respectively, for the same period in the prior year. The current year period includes a lower percentage of sales to international distributors, which sales have a lower margin than sales of these products to U.S. department store customers, which generally reflect a higher margin. Cost of goods sold to related parties decreased to 51% compared to 56% for the comparable prior year period due to improved product mix.

Total Operating Expenses

Total operating expenses decreased by 52% compared to the same period in the prior year to $15,602,803, from $32,228,652, decreasing as a percentage of net sales to 50%, from 114%. Operating costs during the three months ended June 30, 2006 included a non-cash share-based compensation charge of $16,201,950 pertaining to previously issued warrants modified in connection with the Stock Split. Other individual components of our operating expenses are discussed below.

Advertising and Promotional Expenses

Advertising and promotional expenses decreased 24% to $7,000,320, compared to $9,214,483 in the comparable prior year period, decreasing as a percentage of net sales from 33% to 22%. The current year period reflects a targeted effort on the part of management to reduce expenses in the current year. In addition, there were no new product launches during the three months ended June 30, 2007, while the prior year comparative period amount includes promotional costs in connection with the continued roll out of Paris Hilton fragrances for women and men on a worldwide basis and the launch of the GUESS? men’s fragrance mainly in U.S. department stores, respectively.

Selling and Distribution Costs

Selling and distribution costs decreased 9% to $2,578,050 compared to $2,829,290 in the comparable prior year period, decreasing, as a percentage of sales, from 10% to 8%. The decrease was mainly attributable to the centralization of all distribution activities to our New Jersey facility, resulting in a decrease of staff in our Florida warehouse facility.

Royalties

Royalties increased by 70% in the current period, to $2,712,341 from $1,595,594 in the corresponding prior year period, increasing as a percentage of net sales to 9% for the current year period from 6% in the prior year period. The increase is due to provisions for minimum royalties related to accessory products (primarily the sunglass and cosmetics licenses).

General and Administrative Expenses

General and administrative expenses decreased 85% compared to the prior year period, from $18,112,255 to $2,705,189, decreasing as a percentage of sales to 9% in the current period from 64% in the prior year. The decreased amount was attributable to the share-based compensation charge taken in the prior year, as discussed above, partially offset by increases in professional fees including legal and accounting fees in connection with our financial statement year-end audit, the review of compliance with the Sarbanes-Oxley Act of 2002 and additions to our accounting staff to focus our remediation efforts and mitigate the material weaknesses in our internal controls.

Depreciation and Amortization

Depreciation and amortization increased 27% in the current year period from $477,030 to $606,903 but remained constant as a percentage of sales at 2%. The increased expense reflects the depreciation and amortization

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of equipment and leasehold improvements related to our New Jersey facility, which were placed in service in September 2006.

Gain on Sale of Property Held for Sale

The prior year period included a gain from the sale of a warehouse facility in Sunrise, Florida. See Note M to the accompanying condensed consolidated financial statements for further discussion.

Operating Income (Loss)

As a result of the aforementioned factors, we generated income from continuing operations of $367,979 for the current period, compared to an operating loss from continuing operations of $18,900,855 for the comparable period in the prior year.

Net interest expense

Net interest expense was $446,669 in the current period as compared to net interest expense of $689,273 for the same period in the prior year, as we utilized less of our line of credit to finance increases in receivables and inventory to support sales growth.

Loss from Continuing Operations Before Income Taxes, Taxes, Discontinued Operations and Net Loss

Loss from continuing operations before income taxes for the current period was $80,022 compared to a loss of $19,575,797 in the same period of the prior year.

Our tax benefits reflect an estimated effective rate of 38% for the current year period and 12% for the comparable prior year period. The lower rate in the prior period resulted from a limitation on the estimated deferred tax benefit that was expected to result from the share-based compensation charge related to the warrant modification. Such benefit was limited by the maximum allowable annual compensation deduction for corporate officers under Section 162 (m) of the Internal Revenue Code. Consequently, the benefit recorded in the prior period reflected management’s best estimate at that time based upon assumptions regarding the timing and market value of our common stock upon exercise of the warrants and the amount and nature of other forms of compensation to be paid to the holders of the warrants using the method in which cash compensation (salary and bonus) of the related individuals takes priority over the share-based compensation in determining the annual limitation. In February 2007, our former Chairman and CEO resigned. The estimated limitation on the deferred tax benefit that was expected to result from the share-based compensation charge related to the warrant modification was reviewed and adjusted accordingly at the time we reported our results of operations for the year ended March 31, 2007.

As a result, we incurred a net loss from continuing operations of $49,613 for the current year period compared to a net loss of $17,235,701 in the comparable period of the prior year

Loss from discontinued operations (See Note P to the accompanying condensed consolidated financial statements for further discussion), net of the tax effect, was $48,015 in the current year period due to returns processed during this quarter, along with certain promotional costs that we committed to prior to the sale of Perry Ellis, compared to income of $3,114,745 in the same period of the prior year.

As a result, we incurred a net loss of $97,628 for the three months ended June 30, 2007 as compared to a net loss of $14,120,958 in the corresponding prior year period.

Liquidity and Capital Resources

Working capital increased to $80,596,003 as of June 30, 2007, compared to $79,459,920 at March 31, 2007, primarily as a result of an increase in the amount of trade receivables from related parties and a decrease in accounts payable offset by a smaller increase in our outstanding borrowings.

During the three months ended June 30, 2007, net cash used in operating activities was $2,368,991 compared to $19,074,483 during the comparable prior year period. The current year activity reflects an increase in trade receivables from related parties and a decrease in accounts payable, offset by a reduction of certain prepaid expenses. The prior year increase was mainly attributable to an increase in inventory to support the anticipated increased sales of the Paris Hilton and GUESS? brands and the decrease in accounts payable, accrued expenses and income taxes payable.

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For the three months ended June 30, 2007, net cash used in investing activities was $1,743,483 as compared to net cash provided from investing activities of $18,739,197 in the prior comparable period. The current year balance reflects an increase in restricted cash, while the prior year amount includes proceeds from the sale of property held for sale and a decrease in the restricted cash balance.

During the three months ended June 30, 2007, net cash provided by financing activities was $4,109,321 compared to $333,672 in the prior year comparable period. The increase was attributable to the drawdown of $4,214,378 under our line of credit to partially finance the increase in trade receivables from related parties.

As of June 30, 2007 and 2006, 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:

	June 30,
	2007		2006
Trade accounts receivable:
Unrelated (1)		117		88
Related:
Perfumania		112		282
Other related		70		51
Total		103		95
Inventories		432		363

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(1)

Calculated on gross trade receivables excluding allowances for doubtful accounts, sales returns and advertising allowances of approximately $5,039,000 and $5,056,000 in 2007 and 2006, respectively.

The increase in the number of days from 2006 to 2007 for unrelated customers was mainly attributable to certain international distributors for whom a portion of their trade receivable balance exceeded 120 days. In addition, due to restrictions on sales of GUESS? products and delays in receiving GUESS? products, certain other international distributors also exceeded their payment terms. We anticipate collection of these past due balances over the next few months. The terms for international distributors range from 60 to 90 days, compared to between 30 and 60 days for U.S. department store customers. We anticipate the number of days for the unrelated customer group will range between 75 and 90 days during the balance of fiscal 2008.

The number of days sales in trade receivables from Perfumania, Inc. (“Perfumania”) historically exceed those of our other customers, due mainly to our long-term relationship and their seasonal cash flow (See Note F to the accompanying condensed consolidated financial statements for further discussion of our relationship with Perfumania). Management closely monitors our activity with Perfumania and holds periodic discussions with Perfumania in order to review their anticipated payments for each quarter. The number of days sales in trade receivables from other related parties continue to be less than their 60 or 90 day payment terms.

Due to the significant number of new product launches during fiscal year 2007, and the forecasted sales increases for these products, in particular, the GUESS? branded products, the number of days sales in inventory has increased. We anticipate that this trend will improve over the next year, as these launched products reach full distribution and GUESS? approves additional international distribution channels (See Note J to the accompanying condensed consolidated financial statements for further discussion). As of June 30, 2007, $16,678,000 of our inventory, including $15,131,000 related to GUESS? Brand products, has been classified as non-current. As of March 31, 2007, $17,392,000 of our inventory, including $16,150,000 related to GUESS? Brand products had been classified as non-current. However, if inventory levels remain relatively high they may warrant further attention and additional inventory write-downs may be necessary. We have revised our production and purchasing forecasts in order to improve our inventory management and believe that the carrying value of our inventory at June 30, 2007, based on current conditions, is stated at the lower of cost or market.

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.

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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 .25% below the prime rate. During May 2006, we exercised our option and increased the line to $35,000,000.

At June 30, 2007, based on the borrowing base at that date, the credit line amounted to $35,000,000, of which $20,989,696 was outstanding. Accordingly, we had $14,010,304 available under the credit line. Restricted cash represents collections of trade accounts receivable deposited with our bank and pending transfer to GMACCC. As of June 30, 2007, $2,877,115 ($1,273,896 as of March 31, 2007) was on deposit with our bank pending transfer.

Substantially all of our assets 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. As of March 31, 2007, we were not in compliance with the fixed charge covenant. We requested an amendment of our agreement from our lender, which was granted on June 27, 2007, and which revised such covenant through March 31, 2008. The Loan Agreement, as amended, also contains certain financial covenants relating to net worth, interest coverage and other financial ratios, which we were in compliance with as of June 30, 2007.

As of June 30, 2007, we did not have any “off-balance sheet” arrangements as that term is defined in Regulation S-K 303, nor do we have any material commitments for capital expenditures.

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 financing. There is no assurance that we could obtain such financing or what the terms of such financing, if available, would be. In addition, the current business environment may increase the difficulty of obtaining new financing, if needed.

Contractual Obligations

There were no material changes during the quarter ended June 30, 2007 in our contractual obligations previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2007.

Item 3.

Quantitative and Qualitative Disclosures About Market Risks

During the quarter ended June 30, 2007, there have been no material changes to our exposures to market risks since March 31, 2007. Please refer to our Annual Report on Form 10-K for the year ended March 31, 2007 for a complete discussion of our exposures to market risk.

Item 4.

Controls and Procedures

Parlux Fragrances, Inc.’s Chief Executive Officer (its principal executive officer) and Chief Financial Officer (its principal financial officer) have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934), as of the end of the period covered by this report, based on the evaluation required by paragraph (b) of Rule 13a-15 under the Securities Act of 1934. They have concluded that, as of such date, material weaknesses existed in our internal controls over financial reporting and consequently, the Company’s disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report.

In light of the material weaknesses described below, in preparing our financial statements at and for the quarter ended June 30, 2007, we performed additional procedures 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 condensed consolidated financial statements included in this Form 10-Q fairly present, in all material respects, the Company’s financial condition, results of operations and cash flows for the periods and dates presented. Based upon their assessment, the material weaknesses identified by our Chief Executive Officer and Chief Financial Officer are summarized as follows:

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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 June 30, 2007, 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 former Chief Financial Officer was responsible for preparing or compiling certain critical portions of the quarterly and annual financial information and was 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 mitig ating 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.

2.

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. 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.

3.

Inadequate access controls with regard to computer master file information − Certain of the Company’s personnel in accounts payable and accounts receivable had access and could make changes to master files without approval. This represents 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.

4.

Inadequate controls over the processing of certain credits to accounts receivable − The Company receives chargebacks from its customers for a variety of items. 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 were not adequately designed or operating in a manner to effectively support the expenditure cycle. Certain adjustments were not processed timely and with proper approval. 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.

7.

Inadequate controls related to the inventory cycle - The internal controls over inventories were not adequately designed or operating in a manner to ensure timely review and approval of changes to the inventory master files; the completeness and accuracy of inventory stored at third party locations including updating of accounting records for inventory movement and receipts; and accuracy of costing and valuation of inventory. This material weakness is the result of aggregate deficiencies in internal control activities and could result in a material misstatement of inventory and cost of sales balances that would not be prevented and detected.

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

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.

A number of Executive Management changes were made effective February 2007 in order to address the weaknesses identified in the Company’s internal control procedures during the prior year. In order to address the weaknesses identified as of March 31, 2007, the Board of Directors was reorganized and a new Chairman and Chief Executive Officer was appointed. Also, the Company appointed a new Chief Financial Officer in May 2007, to further segregate duties previously performed by the Company’s current Executive Vice President and Chief Operating Officer, who was also the Chief Financial Officer. In addition, 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 and Quarterly Reports on Forms 10-K and 10-Q. This file provides memoranda and supporting documentation for all significant areas where estimates and the potential for management ov erride exist.

2.

The Company has hired additional employees in finance and accounting, and has restricted certain responsibilities within accounts payable and accounts receivable in order to segregate incompatible functions.

3.

The Company has implemented procedures whereby computer generated reports are prepared daily, listing all changes to the accounts payable and accounts receivable master files. These reports are reviewed by a designated employee independent of the respective department’s activities.

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 for Accounts Payable area and is in the process of implementing procedures whereby budgeted advertising will be reviewed as part of the month end closing process to determine that billings for such services have been received or accrued during that reporting period.

6.

The Company has implemented specific procedures for processing adjustments to Accounts Payable, including all potential credits thereto.

7.

The Company has implemented procedures whereby computer generated reports are prepared daily, listing all changes to the inventory master files. These reports are reviewed by a designated employee independent of the respective department’s activity. Additional personnel have been added to the department and the Company has implemented a procedure to reconcile significant inventory balances at third party locations on a periodic basis.

The Company was unable to test and assess, during the three months ended June 30, 2007, the effectiveness of the internal control improvements that were implemented.

10

PART II. – OTHER INFORMATION

Item 1.

Legal Proceedings,

Litigation

On June 21, 2006, we were served with 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 Derivative Action named 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 at that date was one of our directors. The Derivative Action related to the proposal from PF Acquisition of Florida LLC (“PFA”), which was owned by Ilia Lekach, to acquire all of our outstanding shares of common stock for $29.00 ($14.50 after the Stock Split) per share in cash (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 Parlux 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 Parlux 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 fair dealing, causing the complete waste of corporate assets, and constituting an abuse of control by the defendants. Before any response to the original complaint was due, counsel for plaintiffs indicated that an amended complaint would be filed. That First Amended Complaint (the "Amended Complaint") was served to our counsel on August 17, 2006.

The Amended Complaint continues to name the then Board of Directors as defendants along with Parlux, as a nominal defendant. The Amended Complaint is largely a collection of claims previously asserted in a 2003 derivative action, which the plaintiffs in that action, when provided with additional information, simply elected not to pursue. It adds to those claims, assertions regarding a 2003 buy-out effort and the recently abandoned buy-out effort of PFA. It also contains allegations regarding the prospect that the Company's stock might be delisted because of a delay in meeting SEC filing requirements. It relies in large measure on a bevy of media articles rather than facts known to the plaintiffs.

We and the other defendants engaged Florida securities counsel, including the counsel who successfully represented us in the previous failed derivative action, and on September 18, 2006, moved to dismiss the Amended Complaint. A Second Amended Complaint was filed on October 26, 2006, which added alleged violations of securities laws, which we moved to dismiss on December 1, 2006. A hearing on the dismissal was held on March 8, 2007. On March 22, 2007, the motion to dismiss was denied and the defendants were provided twenty (20) days to respond, and a response was filed on March 29, 2007. Based on the allegations in the Second Amended Complaint and the information collected in the earlier litigation and presently known to us, it is believed that the Second Amended Complaint is without merit.

Victory Litigation

On August 16, 2006, we entered into a letter of intent to sell our Perry Ellis fragrance rights to Victory International (USA) LLC (“Victory”) for a total of up to $140 million: $120 million for the fragrance rights, payable in sixty (60) monthly installments of $2 million, without interest, and up to $20 million for inventory due at closing. The letter of intent was subject to the execution of a definitive agreement and the approvals associated therewith, including approval by the licensor, PEI. On October 9, 2006, PEI informed us that they would not consent to the assignment of the rights. Victory had paid a deposit of $1 million to us in connection with the letter of intent, which was refunded during October 2006.

11

On December 6, 2006, we entered into an agreement to sell the Perry Ellis fragrance rights and related assets, including inventory, molds and other intangible assets related thereto, to PEI, at a price of approximately $63 million, subject to final inventory valuations which are still pending. The closing took place shortly thereafter. We recorded a pre-tax gain of approximately $34.3 million on the sale for the year ended March 31, 2007.

On March 2, 2007, Parlux, Ilia Lekach and Frank Buttacavoli were named as defendants, along with Perry Ellis International, Inc. and its Chairman and CEO, George Feldenkreis, Rene Garcia, Quality King Distributors, Inc., E Com Ventures, Perfumania, Model Reorg, Inc., Glenn Nussdorf, DFA Holdings, Inc., Duty Free Americas, Inc. Falic Fashion Group, LLC, Simon Falic and Jerome Falic. This action by plaintiff Victory relates to PEI’s failure to consent to the assignment by us of its contractual license to the Perry Ellis brand of perfumes. The plaintiff is alleging that PEI unreasonably withheld its consent and, instead, conspired with a variety of people to prevent Victory from obtaining this license. No direct allegations are made against us. The allegations against Messrs. Lekach and Buttacavoli relate to the recent attempt by Glenn Nussdorf to replace all of our directors with his nominees. The First Amended Complaint alleges that Mr. Nussdorf and certain affiliates are among the alleged co-conspirators with PEI to prevent Victory from obtaining the license.

On May 18, 2007, we filed a motion to dismiss on behalf of Parlux, Messrs Lekach and Buttacavoli on the basis that the complaint fails to state a cause of action against any of them.

To the best of our knowledge, there are no other proceedings threatened or 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 operations and cash flows.

Item 1A.

Risk Factors,

There were no material changes during the quarter ended June 30, 2007 in the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended March 31, 2007.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds,

None.

Item 3.

Defaults on Senior Securities,

None.

Item 4.

Submission of Matters to a Vote of Security Holders,

The Company did not submit any actions for shareholder approval during the quarter ended June 30, 2007.

Item 5.

Other Information,

On June 21, 2007, we entered into an exclusive license agreement with VCJS, LLC, to develop, manufacture and distribute prestige fragrances and related products under the Jessica Simpson name. The initial term of the agreement expires five years from the date of the first product sales and is renewable for an additional five years if certain sales levels are met. We must pay a minimum royalty, whether or not any product sales are made, and spend minimum amounts for advertising based upon sales volume. We anticipate that the first fragrance under this agreement will be launched during fall 2008.

On June 27, 2007, we amended our Loan and Security Agreement with GMAC Commercial Credit LLC. This amendment revised certain debt covenant requirements through March 31, 2008.

12

Item 6.

Exhibits,

(a)

Exhibits:

Exhibit #	Description
4.35	Amendment No. 8 to Revolving Credit and Security Agreement, dated as of June 27, 2007, between the Company and GMAC Commercial Finance, LLC.
10.85	License Agreement, dated June 21, 2007, between the Company and VCJS, LLC (“Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission”).
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.
32.2	Certification of Chief Financial Officer Pursuant to §906 of the Sarbanes-Oxley Act of 2002.

13

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2007			March 31, 2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	11,118		$	14,271
Restricted cash		2,877,115			1,273,896
Trade receivables, net of allowance for doubtful accounts, sales returns and advertising allowances of approximately $5,039,000 and  $6,155,000, respectively		11,102,136			11,508,224
Trade receivables from related parties		19,526,482			14,032,462
Income tax receivable		9,013,956			8,820,296
Receivable from sale of fragrance brand		2,295,904			2,295,904
Inventories		56,434,313			56,183,036
Prepaid expenses and other current assets, net		11,227,116			15,006,230
Deferred tax assets, net		4,930,555			4,930,555
TOTAL CURRENT ASSETS		117,418,695			114,064,874
Inventories, non-current		16,678,000			17,392,000
Equipment and leasehold improvements, net		3,993,307			4,286,194
Trademarks and licenses, net		3,728,848			3,912,783
Deferred tax assets, net		4,663,391			4,823,091
Other		402,360			417,489
TOTAL ASSETS	$	146,884,601		$	144,896,431
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Borrowings, current portion	$	21,928,694		$	17,697,616
Accounts payable		12,914,588			14,496,090
Accrued expenses		1,979,410			2,411,248
TOTAL CURRENT LIABILITIES		36,822,692			34,604,954
Borrowings, less current portion		1,295,019			1,536,959
TOTAL LIABILITIES		38,117,711			36,141,913
COMMITMENTS  AND CONTINGENCIES
STOCKHOLDERS' EQUITY :
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued and outstanding at June 30, 2007 and March 31, 2007		—			—
Common stock, $0.01 par value, 30,000,000 shares authorized, 29,707,289  and 29,417,289 shares issued at June 30, 2007 and March 31. 2007, respectively		297,073			294,173
Additional paid-in capital		102,125,317			102,018,217
Retained earnings		45,521,213			45,618,841
		147,943,603			147,931,231
Less 11,347,377 shares of common stock in treasury, at cost, at June 30, 2007 and March 31, 2007, respectively		(39,176,713	)		(39,176,713	)
TOTAL STOCKHOLDERS' EQUITY		108,766,890			108,754,518
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	146,884,601		$	144,896,431

See notes to condensed consolidated financial statements.

14

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,
	2007			2006
Net sales:
Unrelated customers, including licensing fees of $18,750 in 2007 and 2006	$	12,568,507		$	20,183,483
Related parties		18,811,961			8,064,696
		31,380,468			28,248,179
Cost of goods sold:
Unrelated customers		5,865,105			10,913,456
Related parties		9,544,581			4,501,391
		15,409,686			15,414,847
Operating expenses:
Advertising and promotional		7,000,320			9,214,485
Selling and distribution		2,578,050			2,829,290
Royalties		2,712,341			1,595,594
General and administrative, (including share-based compensation expense of $16,201,950 in 2006)		2,705,189			18,112,255
Depreciation and amortization		606,903			477,030
Total operating expenses		15,602,803			32,228,654
Gain on sale of property held for sale		—			494,465
Operating income (loss)		367,979			(18,900,857)
Interest income		93			11,607
Interest expense and bank charges		(446,762	)		(700,880	)
Foreign exchange (loss) gain		(1,332	)		14,331
Loss from continuing operations before income taxes		(80,022	)		(19,575,799	)
Income tax benefit		30,409			2,340,096
Net loss from continuing operations		(49,613	)		(17,235,703	)
Discontinued operations (Note P):
(Loss) income from operations of Perry Ellis fragrance brand,		(77,443	)		5,023,782
Income tax benefit (provision) related to Perry Ellis brand		29,428			(1,909,037	)
(Loss) income from discontinued operations		(48,015	)		3,114,745
Net loss	$	(97,628	)	$	(14,120,958	)
Income (loss) per common share:
Basic:
Continuing operations	$	(0.00	)	$	(0.95	)
Discontinued operations	$	(0.00	)	$	0.17
Total	$	(0.00	)	$	(0.78	)
Diluted:
Continuing operations	$	(0.00	)	$	(0.95	)
Discontinued operations	$	(0.00	)	$	0.17
Total	$	(0.00	)	$	(0.78	)

See notes to condensed consolidated financial statements.

15

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

THREE MONTHS ENDED JUNE 30, 2007

(Unaudited)

	Common Stock										Treasury Stock
	Number Issued		Par Value		Additional Paid-In Capital			Retained Ernings			Number of Sares		Cost			Total
Balance at April 1, 2007		29,417,289	$	294,173	$	102,018,217		$	45,618,841			11,347,377	$	(39,176,713	)	$	108,754,518
Net loss									(97,628	)							(97,628	)
Excess tax benefit deficiency						(159,700	)										(159,700	)
Issuance of common stock upon exercise of warrants		290,000		2,900		266,800											269,700
Balance at June 30, 2007		29,707,289	$	297,073	$	102,125,317		$	45,521,213			11,347,377	$	(39,176,713)		$	108,766,890

See notes to condensed consolidated financial statements.

16

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended June 30,
	2007			2006
Cash flows from operating activities:
Net loss	$	(97,628	)	$	(14,120,958	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		—			16,201,950
Gain on sale of property held for sale		—			(494,465	)
Depreciation and amortization		606,903			477,030
Provision for doubtful accounts		7,943			90,000
Write downs of prepaid promotional supplies and inventories		285,000			285,000
Deferred income tax provision (benefit)		159,700			(1,058,034	)
Changes in assets and liabilities:
Decrease (increase) in trade receivables - customers		398,145			(747,267	)
Increase in trade receivables - related parties		(5,494,020	)		(1,910,604	)
Increase in income tax receivable		(193,660	)		—
Increase in inventories		(476,277	)		(13,810,413	)
Decrease in prepaid expenses and other current assets		3,719,114			80,117
Decrease in inventories, non-current		714,000			—
Decrease (increase) in other non-current assets		15,129			(226,997	)
Decrease in accounts payable		(1,581,502	)		(2,652,500	)
Decrease in accrued expenses and income taxes payable		(431,838	)		(1,187,342	)
Total adjustments		(2,271,363	)		(4,953,525	)
Net cash used in operating activities		(2,368,991	)		(19,074,483	)
Cash flows from investing activities:
Net (increase) decrease in restricted cash		(1,603,219	)		4,535,506
Purchases of equipment and leasehold improvements, net		(61,840	)		(193,913	)
Purchases of trademarks		(78,424	)		(115,099	)
Net proceeds from the sale of property held for sale		—			14,512,703
Net cash (used in) provided by investing activities		(1,743,483	)		18,739,197
Cash flows from financing activities:
Proceeds - line of credit with GMACCC, net		4,214,378			12,730,256
Repayment - mortgage payable on property held for sale		—			(12,661,124	)
Repayments on capital leases		(215,057	)		—
Reversal of tax benefit from exercise of warrants		(159,700)			—
Proceeds from issuance of common stock		269,700			264,540
Net cash provided by financing activities		4,109,321			333,672
Effect of exchange rate changes on cash		—			(22	)
Net decrease in cash and cash equivalents		(3,153	)		(1,636	)
Cash and cash equivalents, beginning of period		14,271			49,822
Cash and cash equivalents, end of period	$	11,118		$	48,186

See notes to condensed consolidated financial statements.

17

PARLUX FRAGRANCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

A.

Basis of Presentation

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

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.

The Company generated significant net losses from continuing operations in 2007 and has cumulative net losses from continuing operations over the past several years. In addition, during the three months ended June 30, 2007 and 2006 the Company did not generated positive net cash flows from operations. The Company’s business plan for 2008 includes immediate spending reductions, including consolidation of its warehouse and distribution activities to its New Jersey facility, moving from its present office/warehouse facility into smaller, less expensive corporate offices and close monitoring of all advertising and promotional expenditures. The Company has revised its production and purchasing procedures in order to reduce inventory levels. In addition, certain low margin, multiple product value sets, previously sold to international distributors, have been eliminated or modified to reduce their cost of goods. Based on the Company’s business plan for 2008, the Company believes that its current cash and cash equivalents, availability from its revolving credit facility (see Note E) and expected cash from operations will be sufficient to fund its operations and capital expenditures for at least the next twelve months. There can be no assurance, however, that the Company’s business plan will be accomplished and will generate sufficient cash flows to meet the Company’s cash flows and working capital needs. In addition, the current business environment may increase the difficulty of obtaining new financing, if needed.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to those rules and regulations, although the Company believes that the disclosures made herein are adequate to make the information presented not misleading. The financial information presented herein, which is not necessarily indicative of results to be expected for the current fiscal year, reflects all adjustments (consisting only of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of the interim unaudited condensed consolidated financial statements. It is suggested that these condens ed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2007 as filed with the SEC on July 11, 2007.

B.

Share-Based Compensation

The Company has two stock option plans which provide for equity-based awards to its employees other than its directors and officers (collectively, the "Plans"). Under the Plans, the Company reserved approximately 1,000,000 shares of common stock, of which 368,274 options have been granted and exercised. All stock options had an exercise price that was equal to the fair market value of the Company's stock on the date the options were granted. The term of the stock option awards is five years from the date of grant. In addition, the Company had previously issued 3,440,000 warrants to certain officers, employees, consultants and directors (2,704,000 of which are outstanding at June 30, 2007), all of which were granted at or in excess of the market value of the underlying shares at the date of grant, and are exercisable for a ten-year period.

Effective April 1, 2006, the beginning of the Company's first quarter of fiscal 2007, the Company became subject to the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123R "Share Based Payment" (“SFAS No. 123R”), using the modified-prospective transition method. Under this transition method, share based compensation expense is required to be recognized in the consolidated financial statements for stock options and warrants which are granted, modified or vested subsequent to April 1, 2006. As of March 31, 2006, all options and warrants were fully vested, and as such, the result of adopting SFAS No. 123R on April 1, 2006, did not have an effect on the Company’s results of operations or financial position. The compensation

18

expense recognized will include the estimated expense for stock options granted, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R.

Concurrent with the Stock Split, effected on June 16, 2006, the Company modified the outstanding warrants, doubling the number of warrants and reducing the exercise price in half to reflect the Stock Split. Since the warrant terms did not contain an anti-dilution provision, during the three months ended June 30, 2006, the Company was required to record share-based compensation in the amount of $16,201,950, reflecting the change in the warrants’ fair value before and after the Stock Split. This non-cash charge was included as a separate component in operating expenses for the three months ended June 30, 2006. It has been included in general and administrative expenses for the current period presentation. The Company also recorded a deferred tax benefit of $1,058,034 as a result of the charge, which reduced income tax expense for the period. See Note I for further discussion of this tax benefit.

The fair value of the warrants at the date of the modification was estimated using a Black-Scholes option pricing model with the following weighted average assumption.

Expected life (years)	4–7
Expected volatility	65	%
Risk-free interest rates	6	%
Dividend yield	0	%

The expected life of the warrants represented the estimated period of time until exercise and was based on historical experience of similar awards, giving consideration to the remaining contractual terms and expectations of future employee behavior. The expected volatility was estimated using the historical volatility of the Company's stock which management believes is the best indicator at this time. The risk-free interest rate was based on the implied yield available on U.S. Treasury zero coupon issues with an equivalent term. The Company has not paid dividends in the past and does not intend to in the foreseeable future.

The following is a summary of stock option and warrant activity during the three months ended June 30, 2007:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
Outstanding as of March 31, 2007		2,994,000	$	1.14		4.10	$	13,302,145
Granted		—		—		—		—
Exercised		290,000	$	0.93		4.75		1,052,700
Forfeited		—		—		—		—
Outstanding as of June 30, 2007		2,704,000	$	1.16		3.75	$	8,871,085
Exercisable as of June 30, 2007		2,704,000	$	1.16		3.75	$	8,871,085

All warrants outstanding as of June 30, 2007 were fully vested. Upon exercise of the warrants, the Company issues previously authorized but unissued common stock to the warrant holders. During the three months ended June 30, 2007 and 2006, the Company did not recognize any share-based compensation expense in the condensed consolidated financial statements relating to stock option or warrant grants other than amounts recognized in connection with the modification of the outstanding warrants in 2006 as described above.

The intrinsic value of the warrants exercised during the three months ended June 30, 2007 was approximately $1,053,000 and the tax benefit from the exercise of such warrants should approximate $400,000 for income tax purposes. As of March 31, 2007, a deferred tax benefit of approximately $579,000 was provided on these warrants in connection with the share-based compensation charge discussed above. As of June 30, 2007, the Company adjusted the deferred tax asset and reduced additional paid-in capital by $159,700 as a result of the exercise.

19

The following table summarizes information about the options and warrants outstanding at June 30, 2007, all of which are exercisable:

	Options and Warrants Outstanding
Range of Exercise Prices	Amount		Weighted Average Exercise Price	Weighted Average Remaining Life	Aggregate Intrinsic Value
$0.93 - $1.22		2,684,000	$1.15	4	$	8,818,285
$1.80		20,000	$1.80	6		52,800
		2,704,000	$1.16	4	$	8,871,085

C.

Inventories

The components of inventories are as follows:

	June 30, 2007		March 31, 2007
Finished products:
Fragrances	$	48,365,784	$	48,857,570
Watches		1,102,653		1,164,864
Handbags		203,392		31,359
Components and packaging material:
Fragrances		20,337,764		20,352,274
Watches		24,153		24,241
Raw material		3,078,567		3,144,728
		73,112,313		73,575,036
Less non-current portion		16,678,000		17,392,000
Current portion	$	56,434,313	$	56,183,036

The cost of inventories includes product costs and handling charges, including an allocation of the Company’s applicable overhead in the approximate amount of $5,152,000 and $4,333,000 at June 30, 2007 and March 31, 2007, respectively.

As is more fully described in Note J, one of the Company’s licensors, GUESS? Inc., brought an action against the Company alleging that GUESS? fragrance products were being sold in unauthorized retail channels. The Company subsequently entered into a settlement agreement with GUESS? that, among other things, requires pre-approval of each international customer to whom the Company sells GUESS? fragrances. If the Company were to be found in breach of its agreement with GUESS?, at any point in the future, termination or modification of the license agreement could occur.

As of June 30, 2007, our inventories of GUESS? products totaled $28.7 million, of which $15.1 million has been classified as non-current. If the licensing agreement were to be terminated or modified at any time in the future, the Company may be required to record charges to operations to reduce the recorded value of such inventories to the amounts which would be realized upon their sale or liquidation.

D.

Trademarks and Licenses

Trademarks and licenses are attributable to the following brands:

	June 30, 2007			March 31, 2007			Estimated Life (in years)
XOXO	$	4,670,727		$	4,670,727		5
Fred Hayman Beverly Hills (“FHBH”)		2,820,361			2,820,361		10
Paris Hilton		547,115			468,691		5
Other		216,546			216,546		5-25
		8,254,749			8,176,325
Less – accumulated amortization		(4,525,901	)		(4,263,542	)
	$	3,728,848		$	3,912,783

20

During the year ended March 31, 2007, the Company recorded an impairment charge of $1,129,273 in connection with the XOXO license as the estimated future net cash flows for the remaining period of the license were determined to be less than the license’s carrying value.

E.

Borrowings

The composition of borrowings is as follows:

	June 30, 2007		March 31, 2007
Revolving credit facility payable to GMAC Commercial Credit LLC, interest at LIBOR plus 2.75% or prime minus .25% (8.00% at June 30, 2007) at the Company’s option.	$	20,989,696	$	16,775,318
Capital leases payable to Provident Equipment Leasing, collateralized by certain equipment and leasehold improvements, payable in equal quarterly installments of $257,046, including interest, through July 2009.		2,126,652		2,342,069
Capital lease payable to IBM, collateralized by certain computer equipment, payable in equal monthly installments of $3,648, including interest, through December 2009.		107,365		117,188
		23,223,713		19,234,575
Less: long-term borrowings		1,295,019		1,536,959
Borrowings, current portion	$	21,928,694	$	17,697,616

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, 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 0.25% below the prime rate. During May 2006, the Company exercised its option and increased the line of credit to $35,000,000.

On September 13, 2006, the Loan Agreement was further amended, temporarily increasing the loan amount to $40,000,000 until December 13, 2006, at which time the maximum loan amount reverted back to $35,000,000.

At June 30, 2007, based on the borrowing base at that date, available borrowing under the credit line amounted to $35,000,000, of which $20,989,696 ($16,775,318 as of March 31, 2007) was utilized. Restricted cash represents collections of trade accounts receivable deposited with our bank and pending transfer to GMACCC. As of June 30, 2007, $2,877,115 ($1,273,896 as of March 31, 2007) was on deposit with our bank pending transfer.

Substantially all of the assets of the Company, excluding the New Jersey warehouse equipment discussed below, 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. Although the Company substantially exceeded the net worth covenant, it was not in compliance with the fixed charge covenant as of March 31, 2007. An amendment to the agreement was requested from the lender, which was granted on June 27, 2007, and which revised such covenant through March 31, 2008. As of June 30, 2007 the Company was in compliance with all of the financ ial covenants included in the amended Loan Agreement.

On August 16, 2004, GMACCC approved a continuation of the Company’s common stock buyback program not to exceed $8,000,000. During December 2006, the Company effectively completed this program with approximately $198,000 remaining.

21

During May 2006, the Company entered into an agreement with Provident Equipment Leasing (“Provident”) covering approximately $2,761,000 of certain warehouse equipment and leasehold improvements to be purchased for the Company’s new leased distribution center in New Jersey. Provident advanced, on behalf of the Company, progress payments to various suppliers based on the work completed. In accordance with the terms of the agreement, the advances bore interest at a rate of 1% per month until all payments were made, at which time the arrangement converted to a thirty-six month lease, which has been classified as a capital lease. The Company has an option to purchase the equipment and leasehold improvements at the end of the lease term for $1.

On December 15, 2006, the Company entered into a lease agreement with International Business Machines (“IBM”) covering approximately $124,000 of computer equipment which has been classified as a capital lease. The Company has an option to purchase the computer equipment at the end of the lease term for $1.

Management believes that funds from operations and its existing financing will be sufficient to meet the Company’s current operating needs. Management is currently discussing a permanent increase in our line of credit. However, there is no assurance that that we will obtain such financing or what the terms of such financing, if available, would be.

F.

Related Party Transactions

The Company had net sales of $10,807,046 and $1,122,282 during the three-month periods ended June 30, 2007 and 2006, respectively, to Perfumania, Inc. (“Perfumania”), a wholly-owned subsidiary of E Com Ventures, Inc. (“ECMV”), a company in which the Company’s former Chairman and Chief Executive Officer had an ownership interest and held identical management positions until February 2004.

ECMV’s majority shareholders acquired an approximate 12.2% ownership interest in the Company during August and September 2006, and accordingly, transactions with Perfumania will continue to be presented as related party transactions. Perfumania is one of the Company’s largest customers, and transactions with them are closely monitored by management, and any unusual trends or issues are brought to the attention of the Company’s Audit Committee and Board of Directors. Perfumania offers the Company the opportunity to sell its products in approximately 260 retail outlets and its terms with Perfumania take into consideration the relationship existing between the companies for over 15 years. 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 Company’s products prov ided 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 are stated as net ninety days, for over ten years, management has granted longer payment terms, taking into consideration the factors discussed above. Management 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 its limits. Net trade accounts receivable owed by Perfumania to the Company totaled $13,351,059 and $6,101,456 at June 30, 2007 and March 31, 2007, respectively.

In addition to sales to Perfumania, during the three months ended June 30, 2007 and 2006, the Company had net sales of $8,004,915 and $6,942,414, respectively, to fragrance distributors owned/operated by individuals related to the Company’s former Chairman and CEO. These sales are included as related party sales in the accompanying statements of operations. For the quarter ended September 30, 2006, we identified and classified additional international distributors as related parties. These distributors had not previously been classified as such. Transactions with these distributors are also included as related party sales for the quarter ended June 30, 2007 and comparable period results, when applicable, have been restated. See Note O to the accompanying condensed consolidated financial statements for further discussion. Future sales to these parties may not occur at the same levels, which could have a material adverse effect on our operating results if we are not successful in replacing sales with new or existing customers.

During the current quarter, the former Chairman and CEO’s beneficial ownership interest in the Company has declined to approximately 7.6%. Accordingly, we will continue to evaluate the requirements under SFAS No. 57, “Related Party Disclosures” as to whether transactions with such parties in future periods require related party classification. As of June 30 and March 31, 2007 trade receivables from related parties include $6,175,423 and $7,931,006, respectively, from these customers, which were current in accordance with their sixty or ninety day

22

terms. The Company also reimbursed these related party distributors for advertising and promotional expenses totaling approximately $77,000 and $608,000 for the three months ended June 30, 2007 and 2006, respectively.

During the three months ended June 30, 2006 the Company purchased $386,807 in television advertising on the “Adrenalina” show, which is broadcast in various U.S. markets and Latin American countries. The Company’s former Chairman and CEO has a controlling ownership interest in a company, which has the production rights to the show and publishes certain magazines. During the three months ended June 30, 2006, the Company also purchased $16,575 of advertising space in these magazines. There were no such transactions during the three months ended June 30, 2007.

G.

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:

	Three Months Ended June 30,
	2007			2006
Loss from continuing operations	$	(49,613	)	$	(17,235,701	)
(Loss) income from discontinued operations	$	(48,015	)	$	3,114,743
Net loss	$	(97,628	)	$	(14,120,958	)
Weighted average number of shares issued		29,455,531			28,600,388
Weighted average number of treasury shares		(11,347,377	)		(10,564,957	)
Weighted average number of shares outstanding used in basic earnings per share calculation		18,108,154			18,035,431
Basic net loss per common share – continuing operations	$	(0.00	)	$	(0.95	)
Basic net (loss) income per common share – discontinuing operations	$	(0.00	)	$	0.17
Antidilutive securities not included in diluted earnings per share computation(1):
Options and warrants to purchase common stock		2,704,000			3,194,000
Exercise price	$	0.93 to $1.80		$	0.93 to $1.80

———————

(1)

In accordance with paragraph 15 of SFAS No. 128, “Earnings Per Share”, the number of shares utilized in the calculation of diluted (loss) earnings per share from continuing operations, discontinued operations and net income were the same as those used in the basic calculation of earnings per share for the quarters ended June 30, 2007 and 2006, as we incurred a loss from continuing operations for those periods.

H.

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:

	Three Months Ended June 30,
	2007		2006
Cash paid for:
Interest	$	446,668	$	762,814
Income taxes	$	80,836	$	2,633,811

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

Three months ended June 30, 2006:

·

Change in unrealized holding gain of ($351,028) on the investment in ECMV, which was sold during September 2006, net of deferred taxes.

23

I.

Income Taxes for Continuing Operations

The tax benefit (provision) for continuing operations reflects an estimated effective rate of 38% for the current year period and 3% for the comparable prior year period. The lower rate in the prior period results from a limitation on the estimated tax benefit that was expected to result from the share-based compensation charge related to the warrant modification. Such benefit will be limited by the maximum allowable annual compensation deduction for corporate officers under Section 162 (m) of the Internal Revenue Code. Consequently, the benefit recorded in the prior period reflected management’s best estimate at that time based upon assumptions regarding the timing and market value of the Company’s common stock upon exercise of the warrants and the amount and nature of other forms of compensation to be paid to the holders of the warrants using the method in which the cash compensation (salary and bonus) of the related individuals t akes priority over the share-based compensation in determining the annual limitation. Actual tax benefits realized may be greater or less than the amounts recorded, and such differences may be material. The Company will adjust this deferred tax asset as additional information becomes available, with adjustments reflected in the Company’s income tax (benefit) provision for the period in which the adjustments are identified. As of March 31, 2007, the Company adjusted the deferred tax asset due to a change in the maximum allowable annual compensation deduction for corporate officers under Section 162 (m), as a result of the resignation of the Company’s former Chairman and CEO, in February 2007.

On April 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation 48 (“FIN 48”) Accounting for Income Tax Uncertainties, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FASB Statement No. 109 Accounting for Income Taxes. FIN 48 prescribes a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements. In making this assessment, a company must determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based solely on the technical merits of the position and must assume that the tax position will be examined by appropriate taxing authority that woul d have full knowledge of all relevant information. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the financial statements. In addition, the recognition threshold of more-likely-than-not must continue to be met in each reporting period to support continued recognition of the tax benefit. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the financial reporting period in which that threshold is no longer met. As a result of the implementation of FIN 48, the Company did not recognize a liability for unrecognized tax benefits and, accordingly, was not required to record any cumulative effect adjustment to beginning of year retained earnings. As of both the date of adopt ion and June 30, 2007, there was no material liability for income tax associated with unrecognized tax benefits. The Company does not anticipate any material adjustments relating to unrecognized tax benefits within the next twelve months, however, the outcome of tax matters is uncertain and unforeseen results can occur.

J.

License and Distribution Agreements

During the year ended March 31, 2007, the Company held exclusive worldwide licenses to manufacture and sell fragrance and other related products for Paris Hilton, GUESS?, Ocean Pacific (“OP”), Maria Sharapova, Andy Roddick, babyGund, Perry Ellis and XOXO. During December 2006, the Company sold its Perry Ellis licensing rights and other related assets to Perry Ellis International, its Licensor. See Note P for further discussion.

Under all of the existing license agreements, we must pay a minimum royalty, whether or not any product sales are made, and spend minimum amounts for advertising based on sales volume. Except as discussed below, the Company believes it is presently in compliance with all material obligations under these agreements.

The Company received a complaint from GUESS?, Inc. (“GUESS?”) alleging that GUESS? fragrance products were being sold in unauthorized retail channels. Although the Company did not sell such products directly to these channels, it represented a violation of the Company’s license agreement with GUESS?. On May 7, 2007, the Company entered into a settlement agreement with GUESS? which, among other items, requires GUESS?’s reapproval of all international distributors selling GUESS? fragrance products, payment of liquidated damages in the amount of $500,000, in nine equal monthly installments of $55,556, (which was expensed in the year ended March 31, 2007), as well as strict monitoring of distribution channels. Any further violations surrounding

24

unapproved distribution could result in termination of the license agreement. During the quarter ended March 31, 2007, the Company stopped shipments to international distributors. GUESS? has recently approved certain international distributors and the Company has commenced shipments to these approved distributors. The Company continues to submit approval requests for additional international distributors in accordance with procedures outlined in the license agreement.

On June 21, 2007, the Company entered into an exclusive license agreement with VCJS, LLC, to develop, manufacture and distribute prestige fragrances and related products under the Jessica Simpson name. The initial term of the agreement expires five years from the date of the first product sales and is renewable for an additional five years if certain sales levels are met. The Company must pay a minimum royalty to VCJS, LLC, whether or not any product sales are made, and spend minimum amounts for advertising based upon sales volume. The Company anticipates that the first fragrance under this agreement will be launched during fall 2008.

On August 1, 2007, the Company entered into an exclusive license agreement with Kobra International, Ltd., to develop, manufacture and distribute prestige fragrances and related products under the Nicole Miller name. The initial term of the agreement expires on September 30, 2013 and is renewable for two additional terms of three years each, if certain sales levels are met. The Company must pay a minimum royalty, whether or not any product sales are made, and spend minimum amounts for advertising based upon sales volume. The Company anticipates launching a new fragrance under this license in the next twelve to eighteen months, as well as immediately assuming the manufacturing and distribution of previously developed Nicole Miller fragrances.

K.

Segment Information

In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", the Company determined its operating segments on the same basis that it uses to evaluate performance internally.

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 and March 2006, the Company commenced sales of watches and handbags, respectively, both of which are under license agreements with Paris Hilton Entertainment, Inc. Revenues from the sale of watches and handbags during the three month period ended June 30, 2007 totaled $68,450 and $225,367, respectively ($515,738 and $567,943 for the three months ended June 30, 2006, respectively). Included in inventories at June 30, 2007, is approximately $1,126,806 and $203,392 relating to watches and handbags, respectively ($1,189,105 and $31,359 for watches and handbags at March 31, 2007). The Company anticipates preparing full segment disclosure as these operations become more significant.

L.

Legal Proceedings

On June 21, 2006, the Company was served with 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 Derivative Action named 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 was a director of the Company at that date. The Derivative Action related to the proposal (previously disclosed in the Company’s June 14, 2006 Form 8-K) from PF Acquisition of Florida LLC (“PFA”), which was 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 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 fair dealing, causing the complete waste of corporate assets, and constituting an abuse of control by the de fendants. Before any response to the original complaint was due, counsel

25

for plaintiffs indicated that an amended complaint would be filed. That First Amended Complaint (the "Amended Complaint") was served on Company counsel on August 17, 2006.

The Amended Complaint continues to name the then Board of Directors as defendants along with the Company, as a nominal defendant. The Amended Complaint is largely a collection of claims previously asserted in a 2003 derivative action, which the plaintiffs in that action, when provided with additional information, elected not to pursue. It adds to those claims, assertions regarding a 2003 buy-out effort and the abandoned buy-out effort of PF Acquisition of Florida. It also contains allegations regarding the prospect that the Company's stock might be delisted because of a delay in meeting SEC filing requirements. It relies in large measure on a bevy of media articles rather than facts known to the plaintiffs.

The Company and the other defendants engaged Florida securities counsel, including the counsel who successfully represented the Company in the previous failed derivative action, and on September 18, 2006, moved to dismiss the Amended Complaint. A Second Amended Complaint was filed on October 26, 2006, adding alleged violations of securities laws, which the Company moved to dismiss of December 1, 2006. A hearing on the dismissal was held on March 8, 2007. On March 22, 2007, the motion to dismiss was denied and the defendants were provided twenty days to respond, and a response was filed on March 29, 2007. Based on the allegations in the Amended Complaint and the information collected in the earlier litigation and presently known to the Company, it is believed that the Amended Complaint is without merit.

On March 2, 2007, the Company, Ilia Lekach and Frank Buttacavoli were named as defendants, along with Perry Ellis International, Inc. and its Chairman and CEO, George Feldenkreis, Rene Garcia, Quality King Distributors, Inc., E Com Ventures, Perfumania, Model Reorg, Inc., Glenn Nussdorf, DFA Holdings, Inc., Duty Free Americas, Inc. Falic Fashion Group, LLC, Simon Falic and Jerome Falic. This action by Plaintiff Victory International (“Victory”) relates to Perry Ellis International’s failure to consent to the assignment by the Company of its contractual license to the Perry Ellis brand of perfumes. The Plaintiff is alleging that Perry Ellis International unreasonably withheld its consent and, instead, conspired with a variety of people to prevent Victory from obtaining this license. No direct allegations are made against the Company. The allegations against Messrs. Lekach and Buttacavoli relate to the recent attemp t by Glenn Nussdorf to replace all of the directors of the Company with his nominees. The First Amended Complaint alleges that Mr. Nussdorf and certain affiliates are among the alleged co-conspirators with Perry Ellis International to prevent Victory from obtaining the license. On May 18, 2007, the Company, along with Messrs Lekach and Buttacavoli, filed a motion to dismiss on the basis that the complaint failed to state a cause of action against any of them.

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.

M.

Facility Acquisition and Sale

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.

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 for 198,500 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. The Company commenced activities in the New Jersey facility during the latter part of August 2006.

26

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. The Company has recorded a gain of $494,465 from the sale, which is included in the accompanying condensed consolidated statement of operations for the three months ended June 30, 2006.

N.

New Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measures” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measures required under other accounting pronouncements, but does not change existing guidance as to whether or not an instrument is carried at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently reviewing the provisions of SFAS No. 157 to determine the impact, if any, on its condensed consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an amendment of FASB No. 115” ("SFAS No. 159"). SFAS No. 159 permits companies to choose to measure many financial instruments and certain other items at fair value in order to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS No. 159 is effective for the Company's fiscal year ending March 31, 2009. The Company is currently assessing the impact of this statement on its condensed consolidated financial statements.

O.

Financial Statement Effects of Restatements and Discontinued Operations

As a result of the Audit Committee investigation completed during the third quarter of the fiscal year ended March 31, 2007, the Company determined that additional international distributors, not previously so identified, should be classified as related parties. Additionally, due to the sale of the Perry Ellis fragrance brand (as discussed further in Note P), the activity for Perry Ellis is now being presented separately as discontinued operations. Accordingly, the accompanying condensed consolidated financial statements for the three months ended June 30, 2006 have been restated from the amounts previously reported, the effects of which are shown in the table below:

Reclassification	As Previously Reported			Perry Ellis Discontinued Operations			Related Party Restatement			As Restated
Condensed Consolidated Statements of
Operations for the three months ended
June 30, 2006:
Three months ended:
Net Sales:
Unrelated customers	$	31,656,177		$	(6,609,583	)	$	(4,863,111	)	$	20,183,483
Related parties	$	9,127,888		$	(5,926,303	)	$	4,863,111		$	8,064,696
Cost of Goods Sold:
Unrelated customers	$	16,680,056		$	(2,899,473	)	$	(2,867,127	)	$	10,913,456
Related parties	$	4,539,973		$	(2,905,708	)	$	2,867,126		$	4,501,391
Condensed Consolidated Statements of
Cash Flows for the three months ended
June 30, 2006:
Cash flows from operating activities-2006:
Increase in trade receivables-customers	$	(5,353,040	)				$	4,605,773		$	(747,267	)
Increase in trade receivables-related parties	$	2,695,169					$	(4,605,773	)	$	(1,910,604	)

The adjustments discussed above did not result in any restatement of the Company’s net income, earnings per share or working capital amounts from those that were previously reported.

P.

Discontinued Operations

On November 28, 2006, the Company’s Board of Directors approved the sale of the Perry Ellis fragrance brand license back to Perry Ellis International (PEI) at a price of approximately $63 million, including

27

approximately $21 million for inventory and promotional products relating to the brand. A definitive agreement was signed on December 6, 2006 and the closing took place shortly thereafter. The sale included all inventory, promotional products, molds and other intangibles. The transaction generated proceeds of approximately $63 million, and resulted in a pre-tax gain of approximately $34.3 million.

Beginning with the quarter ended December 31, 2006, the Perry Ellis brand activity is being presented as discontinued operations. Prior period statements of operations have been retrospectively adjusted. The activity for this discontinued operation is summarized as follows:

	Three Months Ended June 30,
	2007			2006
Net (returns) revenues	$	(20,086	)	$	12,535,886
Operating (loss) income	$	(77,443	)	$	5,023,782
(Loss) income from discontinued operations	$	(48,015	)	$	3,114,745

* * * *

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SIGNATURES

Pursuant to the requirements 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.

PARLUX FRAGRANCES, INC.

/s/ NEIL J. KATZ

Neil J. Katz, Chairman and Chief Executive Officer

(Principal Executive Officer)

/s/ RAYMOND J. BALSYS

Raymond J. Balsys, Chief Financial Officer

(Principal Financial and Principal Accounting Officer)

Date: August 14, 2007

29

EX-4.35

Exhibit 4.35

GMAC COMMERCIAL FINANCE LLC

1290 Avenue of the Americas

New York, New York 10104

as of June 27, 2007

PARLUX FRAGRANCES, INC.

PARLUX LTD.

3725 S.W. 30th Avenue

Ft. Lauderdale, Florida 33312

Re: Amendment No. 8 to Revolving Credit and Security Agreement

Gentlemen:

Reference is made to certain financing arrangements by and among PARLUX FRAGRANCES, INC. (“Fragrances”) and PARLUX LTD. (each individually, a “Borrower” and collectively, the “Borrowers”) and GMAC Commercial Finance LLC, as successor by merger to GMAC Commercial Credit LLC (“Lender”), pursuant to certain financing agreements with Borrowers, including, but not limited to, that certain Revolving Credit and Security Agreement, dated as of July 20, 2001 (as amended, supplemented, restated, extended or otherwise modified, the “Credit Agreement”) entered into by and among Borrowers and Lender (the Credit Agreement, together with all related documents, agreements, guarantees, instruments or notes delivered in connection therewith, as the same may now exist or may hereafter be amended, modified, supplemented, restated, renewed or extended, are collectively referred to herein as the “Documents”).  All capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Credit Agreement, as amended hereby.

Borrowers have requested that Lender amend certain provisions of the Credit Agreement, which Lender has agreed to do subject to the terms and provisions set forth in this letter agreement (hereinafter, this “Amendment”).

In consideration of the foregoing, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and the respective agreements, warranties and covenants contained herein, the parties hereto agree as follows:

1.

Amendments to Credit Agreement.  The Credit Agreement is hereby amended, as of the date hereof, as follows:

(a)

The definition of “Fixed Charge Coverage Ratio” set forth in Section 1.2 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

““Fixed Charge Coverage Ratio” shall mean as at the end of each quarter, determined on a consolidated basis for Borrowers, the ratio for any given computation period of (a) EBITDA to (b) the sum of (i) the interest expense (including all imputed interest on capital lease obligations of Borrowers), plus (ii)

the aggregate amount of all scheduled debt repayments (including all imputed principal payments on capital lease obligations of Borrowers but excluding all Revolving Credit Advances), plus (iii) cash taxes paid by Borrowers (exclusive of any tax refunds from prior periods received by Borrowers), plus (iv) unfinanced capital expenditures, plus (v) the aggregate amount of all dividends paid or distributions made on shares of the common stock or preferred stock of any Borrower, in all cases for such quarter.”

(b)

Section 6.6 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“6.6

Minimum EBITDA.  Maintain, on a consolidated basis, (a) as at June 30, 2007, an EBITDA for the three (3) month period ending as of such date of not less than $550,000, (b) as at September 30, 2007, an EBITDA for the six (6) month period ending as of such date of not less than $8,500,000, (c) as at December 31, 2007, an EBITDA for the nine (9) month period ending as of such date of not less than $8,500,000, (d) as at March 31, 2008, an EBITDA for the twelve (12) month period ending as of such date of not less than $8,500,000, and, (e) thereafter, as at the end of each  fiscal quarter (June 30, September 30, December 31, March 31 in any given year) an EBITDA for the twelve (12) month period ending as of each such quarter of not less than $8,500,000.”

(c)

Section 6.7 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“6.7

Fixed Charge Coverage Ratio.  Maintain, on a consolidated basis, (a) as at March 31, 2007, a Fixed Charge Coverage Ratio for the twelve (12) month period ending as of such date of not less than 1.05:1, (b) as at September 30, 2007, a Fixed Charge Coverage Ratio for the six (6) month period ending as of such date of not less than 1.25:1, (c) as at December 31, 2007, a Fixed Charge Coverage Ratio for the nine (9) month period ending as of such date of not less than 1.25:1, (d) as at March 31, 2008, a Fixed Charge Coverage Ratio for the twelve (12) month period ending as of such date of not less than 1.25:1, and, (e) thereafter, as at the end of each  fiscal quarter (June 30, September 30, December 31, March 31 in any given year) a Fixed Charge Coverage Ratio for the twelve (12) month period ending as of each such quarter of not less than 1.25:1.”

(d)

Section 7.6 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:

“7.6

Capital Expenditures.  Contract for, purchase or make any expenditure or commitments for fixed or capital assets (including capitalized leases) (a) in the Borrowers’ fiscal year ending March 31, 2008 in an amount in excess of $1,500,000 in the aggregate and (b) in any fiscal year thereafter in an amount in excess of $1,100,000 in the aggregate.”

2.

Amendment Fee.  In consideration of the amendments set forth herein,

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Borrowers unconditionally agree to pay to Lender an amendment fee in the amount of Fifteen Thousand ($15,000) Dollars, which amendment fee shall be fully earned and payable as of the date hereof.  The amendment fee shall not be subject to refund, rebate or proration for any reason whatsoever, and shall be charged by Lender to any account of Borrowers maintained by Lender as of the date hereof.

3.

Release.  As material consideration for the execution of this agreement by Lender and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, effective as of the date hereof, each Borrower for itself and on behalf of its respective directors, officers, administrative agents, employees, representatives, successors and assigns (collectively, the “releasors”) hereby waives, releases, remises, acquits and discharges Lender and all of its affiliates, directors, officers, administrative agents, employees, representatives, shareholders, attorneys, accountants, consultants, advisors, successors and assigns (Lender, together with the foregoing collectively, the “releasees”) of and from any and all controversies, damages, costs, losses, causes of action, suits, judgments, claims, recoupments, counter-claims or demands , of every type, kind, nature, description or character, whether now existing or that could, might, or may be claimed to exist, of whatever kind or name, whether known or unknown, liquidated or unliquidated, fixed or contingent, foreseeable or unforeseeable, each as though fully set forth herein at length, in law, admiralty or equity (any of the foregoing, a “claim”), which any of the releasors previously had from the beginning of the world or now have against any of the releasees through the date hereof, related to or connected with the Credit Agreement and the other Documents, the loans, advances or other financial accommodations provided by Lender to Borrowers or any of them or the transactions contemplated by any of the foregoing.

4.

No Other Modifications; No Other Event of Default.  Except as specifically set forth herein, no other changes or modifications to the Credit Agreement or any of the other Documents are intended or implied, and, in all other respects, the Credit Agreement and the other Documents shall continue to remain in full force and effect in accordance with their respective terms as of the date hereof.  Except as specifically set forth herein, nothing contained herein shall evidence a waiver or amendment by Lender of any other provision of the Documents.  Lender hereby reserves all rights and remedies granted to Lender under the Documents, applicable law or otherwise and nothing contained herein shall be construed to limit, impair or otherwise affect the right of Lender to declare a default or an Event of Default with respect to any future non-compliance with any covenant, term or provision of the Documents now or hereafter executed and delivered in connection therewith.  Borrowers hereby represent and warrant that no Default or Event of Default exists after giving effect to the provisions of this Amendment.

5.

Entire Agreement.  The terms and provisions of this Amendment shall be for the benefit of the parties hereto and their respective successors and assigns; no other person, firm, entity or corporation shall have any right, benefit or interest under this Amendment. This Amendment sets forth the entire agreement and understanding of the parties with respect to the matters set forth herein.  This Amendment cannot be changed, modified, amended or terminated except in a writing executed by the party to be charged.

6.

Effectiveness.  This Amendment shall not be effective unless and until Lender shall have received an original or copy hereof, duly executed and delivered by each Borrower.

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7.

Counterparts.  This Amendment may be signed in counterparts, each of which shall be an original and all of which, when taken together, shall constitute one amendment.  In making proof of this Amendment, it shall not be necessary to produce or account for more than one counterpart signed by the party to be charged.  Delivery of an executed counterpart of this Amendment by telefacsimile or email shall have the same force and effect as the delivery of an original executed counterpart of this Amendment.  Any party delivering an executed counterpart of this Amendment by telefacsimile or email shall also deliver an original executed counterpart, but the failure to do so shall not affect the validity, enforceability or binding effect of this Amendment.

Very truly yours,

GMAC COMMERCIAL FINANCE LLC

By:  /s/ Daniel J. Manella

Titlle:   Director

ACKNOWLEDGED AND AGREED:

PARLUX FRAGRANCES, INC.

By:  /s/ Frank A. Buttacavoli

Title: Executive VP / COO

PARLUX LTD.

By:  /s/ Frank A. Buttacavoli

Title: Executive VP / COO

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EX-10.85

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. The omitted information has been filed separately with the Securities and Exchange Commission.

Exhibit 10.85

SUB-LICENSE AGREEMENT

BETWEEN VCJS LLC

AND PARLUX FRAGRANCES, INC.

THIS AGREEMENT (“Agreement”) is made as of June 21, 2007 (“Effective Date”) between VCJS LLC, a limited liability company organized and existing under the laws of the State of Connecticut, with its principal place of business at 600 West Putnam Ave., Greenwich CT 06830 (“VCJS”) and Parlux Fragrances, Inc., a corporation organized and existing under the laws of Delaware, with its principal place of business at 3725 S.W. 30^th Avenue, Ft. Lauderdale, FL 33312 ("SUB-LICENSEE”).

RECITALS

A.

With You, Inc. (“WYI”) owns and/or controls all of the trademark and merchandising rights relating to Jessica Simpson’s commercial persona and image, including the trademarks associated with her and identified in Schedule A attached hereto as the “Licensed Trademarks.” Ms. Simpson is the owner of all of her rights of publicity in her name, likeness and image (together with the Licensed Trademarks, collectively, the “Licensed Property”).

B

As of July 28, 2005, VCJS acquired the master license for the right to exploit and commercialize the Licensed Property for certain merchandising categories, including the right to enter into sub-license agreements with third party sub-licensees (the “Master License”).

C.

SUB-LICENSEE desires to exploit the Licensed Property for the design, manufacture, sale, distribution and promotion of certain products bearing the Licensed Property as more specifically described in Schedule A attached hereto and collectively referred to as the “Sub-Licensed Products.”

D.

VCJS desires to grant to SUB-LICENSEE a sub-license under the Master License permitting SUB-LICENSEE to design, manufacture, sell, distribute, market, advertise and promote the Sub-Licensed Products subject to the terms and conditions contained in this Agreement.

Based upon the foregoing premises and in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt and legal sufficiency of which the parties hereby acknowledge, the parties hereto agree as follows.

1.

GRANT

1.1.

Grant of Sub-License. Subject to the terms and conditions contained herein, VCJS hereby grants to SUB-LICENSEE an exclusive, non-transferable right to use the Licensed Property to design, manufacture, sell, distribute, market, advertise and promote the Sub-Licensed Products only within the territory described in Schedule A hereto (the “Territory”) and only within the distribution channels described in Schedule A (the “Distribution Channels”) for the Term of this Agreement (as defined in Section 10 and Schedule A).

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1.2.

Limitations of Sub-License.

(a)

Reservation of Rights. All rights other than those expressly granted to SUB-LICENSEE herein are reserved to VCJS, WYI or Ms. Simpson, as applicable. SUB-LICENSEE shall not use the Licensed Property for any purpose other than as expressly permitted herein.

(b)

No Conflict with Third Party Rights; Subordination. SUB-LICENSEE shall have no right to (i) use the Licensed Property in any manner that conflicts with the rights of any third party, provided that such rights have been granted by VCJS, WYI or Ms. Simpson, as applicable, and that such rights do not conflict with any rights granted to Sub-Licensee hereunder; or (ii) sub-license or transfer the rights granted hereunder other than as set forth in Section 15.3. A violation or attempted violation of these provisions shall constitute a material breach of this Agreement, for which SUB-LICENSEE will have thirty (30) days to cure such breach. SUB-LICENSEE acknowledges that this Agreement is a sub-license, and, therefore, the terms of this Agreement are subordinate in all respects to the Master License.

(c)

Celebrity Licenses. SUB-LICENSEE represents and warrants that neither it nor any controlled affiliate is presently a licensee for any female United States entertainment celebrity other than the one(s) specified in Schedule A. SUB-LICENSEE agrees that during the first twelve (12) months after the Effective Date it will not launch any new product line associated with any other young female celebrity without VCJS’s prior written consent. Notwithstanding the foregoing, SUB-LICENSEE shall be permitted to acquire an already existing license for another young female celebrity as a result of a merger, acquisition or purchase. For purposes of this provision, the term “young” shall mean under thirty (30) years of age at the time that SUB-LICENSEE would enter into or acquire any such license.

1.3.

Failure to Exploit.

(a)

Sub-Licensed Products. Without limitation to any other rights or remedies of VCJS hereunder, failure by SUB-LICENSEE to meet either the Product Introduction Date (the date on which the first prototypes are presented to the department store customers for review prior to issuance of the first purchase order) or the First Sale Date (the date on which the first sale of Sub-Licensed Products that are not samples or prototypes is made to a customer of SUB-LICENSEE for the purposes of resale by such customer) for any Sub-Licensed Product, provided that such failure is not caused by events, acts or occurrences beyond the reasonable control of SUB-LICENSEE or by force majeure events (as defined in Section 15.8), shall constitute a material breach hereof, giving VCJS the right to terminate this Agreement if, with respect to the sale of Sub-Licensed Products in the United States, SUB-LICENSEE does not fully cure said breach by introducing and selling the Sub-Licensed product in commercially significant quantities by no later than November 1, 2008 and, with respect to countries other than the United States, no later than November 1, 2009.

(b)

Territory. Without limitation to any other rights or remedies of VCJS hereunder, VCJS shall also have the right to terminate this Agreement with respect to a country within the Territory for a Sub-Licensed Product if SUB-LICENSEE fails to commence sales in such country within the Territory in commercially significant quantities by the First Sale Date for such Sub-Licensed Product in such country, provided that such failure is not caused by events, acts or occurrences beyond the reasonable control of SUB-LICENSEE or by force majeure events (as defined in Section 15.8), and subject to SUB-LICENSEE’s right of first negotiation during the thirty (30) day period following VCJS’s written notice of its intention to market Sub-Licensed Products in such country to re-acquire such country for its Territory as set forth in paragraph 2 of Schedule A hereto or, if such right is not in voked by SUB-LICENSEE, then subject to SUB-LICENSEE’s right to exclusively manufacture and distribute to any sub-licensee appointed by VCJS to service such country. In the event that VCJS appoints such a sub-licensee in such country, VCJS acknowledges that such sub-licensee will be subject to anti-diversion restrictions preventing the re-

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distribution of Sub-Licensed Products outside such country. SUB-LICENSEE will sell the Sub-Licensed Products to such sub-licensee appointed by VCJS in such country at a price that is the lower of (i) the lowest price previously charged by SUB-LICENSEE to its own distributor/sub-sub-licensee in such country, or (ii) suggested retail list price less 75%. Notwithstanding the foregoing, in the event of any such failure, SUB-LICENSEE shall have six (6) months following written notice thereof to cure such failure before VCJS shall be entitled to terminate this Agreement with respect to the country as to which such failure has occurred.

SUB-LICENSEE will provide six (6) months written notice to VCJS before entering into a country within the Territory to allow VCJS the opportunity to ensure that the Licensed Property is properly trademarked and protected in said Territory.

(c)

Distribution Channel. Without limitation to any other rights or remedies of VCJS hereunder, VCJS shall also have the right to immediately terminate this Agreement with respect to any Distribution Channel (defined as an identifiable segment of the population of customers for the Sub-Licensed Products, the two principal channels being the department and specialty store channel and the non-department and specialty store channel) for a Sub-Licensed Product if SUB-LICENSEE fails to commence sales in such Distribution Channel within the Territory in commercially significant quantities by the First Sale Date for such Sub-Licensed Product for such Distribution Channel or, having commenced such sales, fails to sell a Sub-Licensed Product in such Distribution Channel in commercially significant quantities for three (3) consecutive Royalty Periods following the First Sale Date applicable to such Distribution Ch annel, unless any such failure is caused by events, acts or occurrences beyond the reasonable control of SUB-LICENSEE-Licensee or by force majeure events (as defined in Section 15.8).

1.4

TRADEMARKS.

(a)

VCJS, at its own expense, shall register and maintain in the United States all of the Licensed Trademarks and, upon written request by SUB-LICENSEE, will register and maintain such Licensed Trademarks in any foreign country in which SUB-LICENSEE intends to sell the Sub-Licensed Products as soon as practicable following such request from SUB LICENSEE. SUB-LICENSEE shall cooperate with VCJS in such efforts and shall execute any documents required by VCJS, supply VCJS with any samples or other materials or take any actions necessary for VCJS to register and maintain the Licensed Trademarks in the United States and such foreign countries in the Territory in which SUB-LICENSOR intends to sell the Sub-Licensed Products. SUB-LICENSEE shall not, directly or indirectly, use, register or cause to be used or registered, any word, symbol, character or set of words, symbols or characters, trademark, tradename, service m ark or copyright consisting of, related to, similar to and/or confusingly similar to any of the Licensed Trademarks or Licensed Property.  A schedule of trademarks and countries in which such trademarks are registered or pending registration is set forth on Schedule A hereto.

2.

CERTAIN OBLIGATIONS OF SUB-LICENSEE

2.1.

General. SUB-LICENSEE shall use its best efforts to promote, advertise, market, sell and distribute the Sub-Licensed Products in the Territory, including, without limitation, selling commercial quantities on a timely basis and maintaining a sales force sufficient to provide effective distribution of the Sub-Licensed Products throughout the entire Territory and in all Distribution Channels, subject to the timetables by Distribution Channel set forth in Schedule A. Without limitation to the foregoing, SUB-LICENSEE agrees to meet the Minimum Net Sales obligations set forth in Schedule A.

2.2.

Specific Obligations.

(a)

Customers. SUB-LICENSEE shall sell and distribute the Sub-Licensed Products only to approved customers (including distributors) in the Distribution Channels as identified in Schedule A.

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Except for, during the Initial Launch Period as defined in paragraph 4 of ScheduleA, non-department store customers in foreign countries and duty free customers in foreign countries and at the United States borders, and after the Initial Launch Period non-department store customers in the United States, to the extent that such customers, if retailers, carry, or if wholesalers sell to retailers who carry, other celebrity prestige fragrance such as Paris Hilton, Sarah Jessica Parker, Britney Spears and/or Jennifer Lopez, any customer not appearing on Schedule A as of the date of this Agreement must be submitted for VCJS’s approval, which approval by VCJS will not be unreasonably withheld or delayed, using the Customer Approval Form (Exhibit A). SUB-LICENSEE’s sale to any unapproved customer will constitute a material breach of this Agreement, for which SUB-LICENSEE wi ll have thirty (30) days to cure such breach. VCJS may, with reasonable cause and upon thirty (30) days prior written notice, withdraw approval of any customer at any time, whereupon SUB-LICENSEE shall cease all sales to such customer, except those sales that were already on open purchase orders at the time of receipt of such written notice. In the event that VCJS determines that a customer to whom SUB-LICENSEE has sold Licensed Products is unacceptable, VCJS, upon thirty (30) days prior written notice may disapprove such customer to the extent sales to such customer are causing material damage to the Licensed Property. If such customer carries other brands that are comparable in quality and prestige in quantities that are comparable to the quantities of Licensed Products that such customer carries, such customer shall not be deemed to be causing material damage to the Licensed Property unless such customer engages in conduct oth er than simply purchasing and selling the Licensed Property that causes material damage to the Licensed Property. Except as permitted by VCJS, SUB-LICENSEE shall not sell, distribute, market advertise or promote the Sub-Licensed Products to customers outside of the Distribution Channels. SUB-LICENSEE at all times will keep VCJS informed of where it maintains inventories of the Sub-Licensed Products.

(b)

Internet; Catalogue Sales. SUB-LICENSEE shall not, and shall not permit its distributors or customers to, advertise, promote or sell any Sub-Licensed Products on a direct basis, e.g., through catalogues or through the internet or any other electronic or computer-based system, without VCJS's prior written consent, which consent shall not be unreasonably withheld, except that website and catalogue sales by retail chain customers shall be permitted without prior consent from VCJS.

3.

APPROVAL OF PRODUCTS AND ANCILLARY MATERIALS

3.1.

Quality of the Sub-Licensed Products; Product Approval.

(a)

Designs. For each new product introduction, prior to the commencement of manufacture of the Sub-Licensed Products, SUB-LICENSEE shall submit, at its sole expense (including without limitation, all expenses relating to freight, applicable duties and similar costs), to VCJS for prior written approval, at such location or locations indicated by VCJS, concepts, scents, sketches, renderings or boards and bottle and packaging designs for all proposed Sub-Licensed Products (collectively, the “Designs”) using the Licensed Product Approval Form (Exhibit B). Within fourteen (14) calendar days after such presentation, VCJS shall provide written notice of design approval or disapproval. Failure by VCJS to give written approval or disapproval within such fourteen (14) day period shall be deemed disapproval by VCJS, in which event SUB-LICENSEE shall have the right to provide written notice to VCJS of its failure to communicate its approval or disapproval to SUB-LICENSEE. If VCJS, within three (3) business days following such written notice shall still fail to communicate its approval or disapproval, VCJS shall thereupon be deemed to have approved such Designs. If VCJS disapproves any Designs, it shall accompany its disapproval with a written explanation of the reasons for such disapproval. Notwithstanding the time periods set forth above, VCJS will endeavor to provide written approval or disapproval as soon as practicable during the time prior to the initial Product Introduction Date. VCJS’s approval shall not be unreasonably withheld.

(b)

Prototypes. Upon written approval of the Designs, and prior to the commencement of manufacture, presentation to the trade, sale or distribution of the Sub-Licensed Products, SUB-LICENSEE

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shall submit, at its sole expense (including without limitation, all expenses relating to freight, applicable duties and similar costs), to VCJS for prior written approval, at such location or locations indicated by VCJS, three (3) full set(s) of prototype samples one of the sample sets will be used for public relations or prototypes of the Sub-Licensed Products (the “Prototypes”) that SUB-LICENSEE intends to manufacture and distribute, created from the approved Designs using the Licensed Product Approval Form (Exhibit B). Within fourteen (14) calendar days after such presentation, VCJS shall provide written notice of approval or disapproval to SUB-LICENSEE. Failure by VCJS to give written approval within such fourteen (14) day period shall be deemed disapproval, in which event SUB-LICENSEE shall have the right to provide written notice to VCJS of its failure to communicate its approval or disapproval to SUB-LICENSEE. If VCJS, within three (3) business days following such written notice shall still fail to communicate its approval or disapproval, VCJS shall thereupon be deemed to have approved such Prototypes. VCJS’s approval shall not be unreasonably withheld.

(c)

Compliance. Once such Designs and Prototypes have been approved, the materials, standards, specifications, designs and processes used to manufacture the Sub-Licensed Products shall not depart from the approved Designs and Prototypes without the express written consent of VCJS. If Sub-Licensed Products (including any components or packaging) found in the marketplace are different from the Prototypes previously approved, VCJS shall give SUB-LICENSEE written notice of any such non compliance, which notice shall specify the details thereof. SUB-LICENSEE shall as soon as practicable following receipt of such notice suspend sales of all such non-compliant Sub-Licensed Products. Within thirty (30) calendar days after its receipt of such notice, SUB-LICENSEE shall correct any problem specified by VCJS. If such Sub-Licensed Product, as corrected by SUB-LICENSEE, is still not approved by VCJS (which approval s hall not be unreasonably withheld), or if SUB-LICENSEE fails to correct any such problem, SUB-LICENSEE shall be deemed to be in material breach of this Agreement. VCJS may order SUB-LICENSEE to recall any non-compliant Sub-Licensed Products at SUB-LICENSEE’s sole expense. If SUB-LICENSEE fails to promptly recall such non-compliant Sub-Licensed Products, VCJS may purchase such Sub-Licensed Products at SUB-LICENSEE's expense, and SUB-LICENSEE will be deemed to have materially breached this Agreement. SUB-LICENSEE will immediately pay VCJS all reasonable costs incurred in connection with VCJS's purchase of such non-compliant Sub-Licensed Products.

(d)

Production Samples. Within seven (7) calendar days after each style is first manufactured as a finished Sub-Licensed Product, SUB-LICENSEE shall submit at its sole expense (including without limitation, all expenses relating to freight, applicable duties and similar costs) to each of VCJS and WYI, at such location or locations indicated by them, two (2) complete set(s) of production samples of each Sub-Licensed Product that SUB-LICENSEE is manufacturing and intending to sell or distribute and two (2) complete sets of all Ancillary Material (defined below) associated therewith. The production samples of each Sub-Licensed Product shall be from the initial production run of Sub-Licensed Products and dispatched to VCJS by express courier. At least once during each season (for each Sub-Licensed Product), VCJS may require that SUB-LICENSEE submit to VCJS and to WYI (each) one ( 1) set of production samples of each Sub-Licensed Product, at no cost to VCJS or to WYI.

3.2

Approval of Ancillary Materials. Notwithstanding the submission requirement set forth in Section 3.1 above, SUB-LICENSEE shall not produce, use or disseminate any advertising or packaging or other business materials bearing the logo, signature or likeness of Ms. Simpson, including, without limitation, invoices, business cards, labels, advertising, promotions, packaging, shopping bags, press releases and announcements to the trade or media regarding Ms. Simpson’s involvement with the Sub-Licensed Products, etc. “Ancillary Material”) that has not been previously approved in writing by VCJS. Any submission not approved in writing by VCJS within fourteen (14) calendar days shall be deemed disapproved, in which event SUB-LICENSEE shall have the right to provide written notice to VCJS of its failure to communicate its approval or disapproval to SUB-LICENSEE. If VCJS, within three (3) business days following such written notice, shall still fail to communicate its approval or disapproval,

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VCJS shall thereupon be deemed to have approved such Ancillary Materials. VCJS’s approval shall not be unreasonably withheld. No Ancillary Material shall include or otherwise refer to SUB-LICENSEE’s name except as required by law. Ancillary Materials shall not include ordinary business documentation such as stationary, business cards, invoices, labels and other day to day transactional documentation unless any such materials bear the logo, signature or likeness of Ms. Simpson.

3.3

Ancillary Material: Special Requirement for Media Advertising. Ancillary Materials bearing the Licensed Property consisting of media advertising such as packaging, point of sale posters, etc. shall be submitted for approval using the Licensed Property Use Approval Form (Exhibit C). Ancillary Materials bearing the Licensed Property consisting of media advertising such as magazine insertions, advertorials, billboards, press releases, trade advertising, etc. shall be submitted using the Advertising Approval Form (Exhibit D). The right of approval shall also encompass creative execution and media placement to the extent that such placement is reasonably likely to cause material damage to the Licensed Property. SUB-LICENSEE further agrees that it shall maintain the high standards and consistency of the Licensed Trademarks and the Sub-Li censed Products associated therewith in all advertising, packaging and promotion of the Sub-Licensed Products.  

3.4

Intellectual Property Notices; Tags. Each Sub-Licensed Product and Ancillary Material shall bear the Licensed Trademarks in the form approved by VCJS in accordance with this Agreement, with all legally required legends, markings and notices. In addition, SUB-LICENSEE shall affix permanently to each Sub-Licensed Product a style, item or UPC number that shall be identical to the style, item or UPC number used to identify the respective Sub-Licensed Product in all of SUB-LICENSEE's books and records. If SUB-LICENSEE purchases labels, tags or other materials bearing the Licensed Trademarks from third parties, or produces any such materials itself or through an affiliate, SUB-LICENSEE shall provide to VCJS, together with the quarterly Statement of Royalties (as defined below in Section 4.5), copies of invoices for all such materials purchased and/or equivalent detailed information if any such materials are produced by SUB-LICENSEE or an affiliate, and shall obligate all providers of such materials to comply with all applicable provisions of this Agreement relating to the use and misuse of the Licensed Trademarks.

3.5

Manufacturers and Compliance with Labor Compliance Rules; Access to Premises.

(a)

Approval of Manufacturing Facilities. The manufacture of the Sub-Licensed Products shall be carried out only at premises reasonably approved by the VCJS in writing from time to time. Upon execution of this Agreement, and at such other times as VCJS reasonably requests, SUB-LICENSEE shall provide VCJS a list of all its manufacturing facilities along with contact information and addresses, and shall promptly notify VCJS of any changes thereto. SUB-LICENSEE shall supply such other information as VCJS may reasonably request with respect to its manufacturers, subcontractors and suppliers. SUB-LICENSEE and its manufacturers shall comply in all material respects with the LIMA Code of Business Practices (Schedule B).

(b)

Access by VCJS. SUB-LICENSEE shall ensure that VCJS shall be able at any time, upon at least ten (10) days prior notice, to enter any premises used by SUB-LICENSEE or its manufacturers, sub-contractors, sub-subcontractors and suppliers in connection with the manufacture, storage or distribution of the Sub-Licensed Products, to inspect such premises, all plant, workforce and machinery used for manufacture, packaging or storage of Sub-Licensed Products and all other aspects of the manufacture of Sub-Licensed Products.

(c)

Supervision by SUB-LICENSEE. SUB-LICENSEE shall be responsible for supervising and controlling the acts of its own factory(ies) and of its manufacturing subcontractors and sub-subcontractors to prevent the manufacturing or sale of Sub-Licensed Products and components thereof that is not expressly authorized by VCJS.  VCJS shall have the right to require that SUB-LICENSEE

6

terminate its relationship with any subcontractor or sub-subcontractor or supplier who is behaving or operating in a manner that is causing material damage to VCJS or to the Licensed Property. Upon expiration or termination of the relevant manufacturing or supply contract, SUB-LICENSEE shall cause the subcontractor or supplier thereof to cease manufacture of the Products and/or components thereof and to immediately cease using the Licensed Property in any manner.

3.6

Non-Conforming Products and Distribution Channels. SUB-LICENSEE shall not, under any circumstances, sell or distribute forms of a Sub-Licensed Product that do not comply with the requirements of this Section, or have otherwise been disapproved by VCJS, nor shall SUB-LICENSEE sell or distribute Sub-Licensed Products to any customer that is not in one of the permitted Distribution Channels as set forth in Schedule A .

4.

PAYMENT

4.1

Trademark Royalty. In partial consideration for the rights being conveyed herein, each calendar quarter (the “Royalty Period”) on the dates specified in Schedule A, SUB-LICENSEE shall account for and pay to VCJS the Trademark Royalty or the Guaranteed Minimum Trademark Royalty (as such terms are defined and in the amounts identified in Schedule A) for the applicable Royalty Period, whichever of said amounts is greater. Such accounting and payments are due within thirty (30) days following the end of each applicable Royalty Period. The obligation of SUB-LICENSEE to pay the Trademark Royalty and/or the Guaranteed Minimum Trademark Royalty, as the case may be, is absolute, notwithstanding any claim that SUB-LICENSEE may assert against VCJS. SUB-LICENSEE shall not have the right to set off, compensate or make any deduction from payments of the Trademark Royalt y or the Guaranteed Minimum Trademark Royalty for any reason whatsoever.

4.2

Marketing Fee. As partial consideration for the license granted hereunder, SUB-LICENSEE shall be obligated to expend a certain sum to cover marketing and advertising (the “Marketing Fee”), which sum shall be a percentage of Net Sales or a Guaranteed Minimum Marketing Fee, whichever is greater. The Marketing Fee shall include two components: one component that SUB-LICENSEE shall pay to VCJS for VCJS to expend on promotion of all licensed products sub-licensed to bear the Licensed Property, in its own discretion (the “Pooled Marketing Fee Component”), and the other component to be expended directly by SUB-LICENSEE, subject to the approval procedures set forth in Section 6 (the “Direct Payment Marketing Fee Component”). The relative percentages of Net Sales for each of the two components is also set forth in Schedule A. During each year of the Term, as specified in Schedule A, SUB-LICENSEE shall expend through a combination of the Pooled Marketing Fee Component and the Direct Payment Marketing Fee Component, a Marketing Fee or Guaranteed Minimum Marketing Fee in the amount recited in Schedule A, whichever of said amounts is greater. All marketing or advertising conducted with respect to the Direct Payment Marketing Fee Component is subject to the approval process under Sections 3.2 and 3.3 above. SUB-LICENSEE shall provide proof of expenditure for the Direct Payment Marketing Fee Component by using the Marketing Expenditure Form (Exhibit G). The obligation of SUB-LICENSEE to pay the Marketing Fee or the Guaranteed Minimum Marketing Fee, as the case may be, is absolute and independent of the Trademark Royalty, notwithstanding any claim that SUB-LICENSEE may assert against VCJS. SUB-LICENSEE shall not have the right to set off, compensate or make any deduction from payments of the Marketing Fee or the Guar anteed Minimum Marketing Fee for any reason whatsoever. Any amount that SUB-LICENSEE may directly spend on marketing and advertising in excess of the amount required herein shall be used to offset the required Guaranteed Minimum Marketing Fee for the subsequent year.

4.3

Royalty Basis, Net Sales, Foreign Withholding. The Trademark Royalty and, if applicable, the Marketing Fee shall be calculated on the basis of SUB-LICENSEE’s Net Sales (defined below). The term “Net Sales” shall mean the total of gross sales of Sub-Licensed Products less only credits to, or deductions taken by, customers for returns, trade discounts, rebates, markdowns, payment terms discounts, closeouts

7

and, allowances actually stated on the invoice or granted to the customer by agreement with SUB-LICENSEE or its distributor, taxes directly applicable to the sale of such Sub-Licensed Products, and as otherwise specifically permitted hereunder. The combined total of allowances, trade discounts and payment discounts shall not exceed twenty percent (20%) of the total gross sales on a calendar year basis during the Term of this Agreement and any shortfalls in any annual period shall be usable to offset any overages in subsequent periods. Notwithstanding the foregoing, the combination of any dollar shortfall of allowances, trade discounts and payment discounts in any previous year with any allowances, trade discounts and payment discounts given in any subsequent year shall not exceed thirty (30%) of total gross sales in such subsequent year. Net Sales shall only include sales by SUB-LICENSEE and it s Affiliates to non-Affiliates. For purposes hereof, “Affiliate” shall mean any business entity controlled by, controlling or under common control with SUB-LICENSEE with “control” meaning the right or power to vote a majority of the outstanding stock, membership interests or equity interests of the entity being controlled. Net Sales of Sub-Licensed Products to wholesaler Affiliates shall not exceed 40% of total Net Sales of Sub-Licensed Products for any Contract Year during the Term of this Agreement. Prices charged by SUB-LICENSEE to wholesaler Affiliates shall be at arms length and competitive with pricing charged by SUB-LICENSEE to non-Affiliate wholesalers. If the Affiliate is a retailer, then the Trademark Royalty shall be computed based on the sale by SUB-LICENSEE to such Affiliate, which sale shall be deemed to be at suggested retail list price less 75% without taking into account allowances, trade discounts, payment discounts or returns. Returned units of Sub-Licensed Products sha ll not exceed seven and a half percent (7.5%) of the total gross sales per calendar year during the Term of this Agreement and any shortfalls in any calendar year period shall be usable to offset any overages in subsequent periods. . Notwithstanding the foregoing, the combination of any dollar shortfall of returns in any previous year with any returns in any subsequent year shall not exceed fifteen (15%) of total gross sales in such subsequent year. Any deduction claimed by SUB-LICENSEE must be verifiable and actual. If any amount payable to VCJS is subject to any non-US tax, charge or duty, SUB-LICENSEE shall furnish to VCJS proof of such payment, including official proof of receipt of SUB-LICENSEE’s payment to the government entity imposing such tax, charge or duty. If VCJS does not receive full and complete U.S. tax credit for any such tax, charge or duty, then the amount payable by SUB-LICENSEE shall be increased to provide to VCJS such amount as would be payable to VCJS in the absence of any s uch tax, charge, duty or impost.

4.4

Trademark Royalty Advance / Marketing Fee Advance. Upon its execution of this Agreement SUB-LICENSEE shall pay VCJS (a) a non-refundable advance (the “Royalty Advance”) creditable against the SUB-LICENSEE’s earned Trademark Royalty obligation hereunder, including the Guaranteed Minimum Trademark Royalty, in the amount as specified in Schedule A.

4.5

Statements and Reports. Together with the payments required by Sections 4.1 and 4.2, SUB-LICENSEE shall furnish to VCJS, in hard copy and electronic copy, a complete and accurate statement on the Statement of Royalties Form (Exhibit E) as modified by VCJS from time to time, showing, for the relevant Royalty Period (a) gross sales of all Sub-Licensed Products for the applicable Royalty Period, itemized by SKU (b) Net Sales on which the royalties are based; (c) all related party sales and employee sales, parking lot, warehouse or similar sales, and any other unusual sales transactions; (d) allowed deductions or credits taken against gross sales; and (e) quantity and dollar amount of Sub-Licensed Products sold to each customer, broken down by quarter and each country within the Territory. In addition, not later than thirty (30) calendar days after the end of each Royalty Pe riod, SUB-LICENSEE shall send to VCJS a report containing all of the information required by the Quarterly Sales Report Form (Exhibit F) modified by VCJS from time to time. Failure to deliver statements and reports in a timely manner as provided by this Section 4.5 shall constitute a material breach of this Agreement, for which SUB-LICENSEE will have ten (10) calendar days to cure such breach.

8

4.6

Invoices. Upon the request of VCJS, SUB-LICENSEE shall submit to VCJS copies, which can be electronic or physical, of invoices, credit memoranda, price lists, line sheets and customer lists related to the sale of Sub-Licensed Products.

4.7

Time of the Essence. Time is of the essence with respect to timely delivery of statements and payments as herein provided and SUB-LICENSEE’s failure to comply shall constitute a material breach of this Agreement. If such breach is not cured within ten (10) business days, such breach shall be grounds for immediate termination of this Agreement by VCJS without further opportunity to cure.

4.8

Interest. Without prejudice to any other rights of VCJS, SUB-LICENSEE shall pay VCJS interest on all late payments at the annualized rate of prime as reported in the Wall Street Journal plus 2% payable on a monthly basis accruing from the date that is ten (10) days following written notice that such payment was past due, reduced to the extent required by any applicable usury laws. Such interest shall accrue from such due date until the date VCJS receives such late payment, and shall be a non-recoupable expense.

4.9

Foreign Exchange Rate. All amounts due under this Agreement shall be payable in U.S. currency by check or wire transfer drawn on a U.S. bank or in such other manner as VCJS shall specify. If any sale included in Net Sales was transacted in any currency other than U.S. currency, the U.S. currency equivalent of such sale, for all purposes under this Agreement, including the reporting and payment of the Trademark Royalty hereunder, shall be calculated using the average rate of exchange in effect during the entire month in which such sale was transacted, as reported in The Wall Street Journal.

4.10

Acceptance of Payment Not a Waiver; Manner of Payment Required. Acceptance by VCJS of any payments under this Agreement shall not prevent VCJS at any later date from disputing the amount owed or from demanding more information from SUB-LICENSEE regarding payments finally due, and shall not constitute a waiver of any breach of this Agreement by SUB-LICENSEE if any such breach shall have occurred.

4.11

VCJS Purchases of Sub-Licensed Products. VCJS and WYI shall have the right to purchase from SUB-LICENSEE a reasonable number of Sub-Licensed Products for a seventy-five (75%) percent discount from the Suggested Retail Price in the United States or SUB-LICENSEE’s lowest wholesale price, whichever is lower, up to a maximum dollar amount that is no greater than 1% of SUB-LICENSEE’s Net Sales in any twelve-month period.

5.

BOOKS AND RECORDS; AUDITS

5.1

Duty to Maintain. At all times while this Agreement in effect, and thereafter until the later to occur of (a) the completion of three (3) years after the expiration or termination of this Agreement; and (b) the resolution of any dispute arising out of or otherwise related to the transactions contemplated hereby, SUB-LICENSEE shall keep and maintain accurate detailed books and records to account for all operations within the scope of this Agreement, including the quarterly production or manufacture, sale and inventory on hand of the Sub-Licensed Products separately for each SKU covering all transactions arising out of or otherwise relating to this Agreement including, without limitation, separate and appropriate books of account and records sufficient to reconcile the number of Sub-Licensed Product units manufactured with the number of Sub-Licensed Product units sold. SUB-LICENSEE shall maintain its books and records at a location in the United States of America.

5.2

Periodic Financial Statements. Within one hundred twenty (120) calendar days after the end of each of its fiscal years SUB-LICENSEE shall provide VCJS (all in English) with (a) an annual composite statement, certified by its chief financial officer, showing the aggregate gross sales, trade discounts, returns, allowances, payment term discounts and closeout discounts and any other deduction taken to

9

arrive at the Net Sales price of all Sub-Licensed Products sold by SUB-LICENSEE; and (b) an annual inventory report, certified by its chief financial officer, including computer reports summarizing inventory by SKU.

5.3

Access. At all times during the Term and within three (3) years following its termination or expiration, VCJS shall have the right, from time to time, time, upon not less than five (5) business days advance notice and during regular business hours, to examine and/or audit, and make copies and extracts from the books of account and records, and all other documents, materials and inventories in the possession of or under the control of SUB-LICENSEE with respect to the Sub-Licensed Products, including, but not limited to, manufacturing, inventory and sales records relating to the Sub-Licensed Products. VCJS shall have reasonable access for such purposes and for the purpose of making copies and extracts therefrom and SUB-LICENSEE shall fully cooperate with VCJS in connection therewith including providing advance copies and electronic files of information and materials reasonably requested by VCJS. Any audit hereunder shall be made by VCJS at its own expense, except as provided below.

5.4

Audit and Results of Examination. If the audit reveals that SUB-LICENSEE's reporting and/or record keeping are not in accordance with VCJS's requirements, or that that SUB-LICENSEE has understated Net Sales for any Royalty Period by an amount that is in excess of five (5%) the amount of Net Sales reported by SUB-LICENSEE to VCJS for period being examined or audited, then, without prejudice to any other amounts due to VCJS or to any of its rights hereunder or other legal or equitable rights, all reasonable costs and expenses incurred by VCJS in connection with such inspection and audit, including the audit and attorneys fees and costs incurred by VCJS in connection with such audit or examination shall be borne by SUB-LICENSEE. SUB-LICENSEE shall pay any amounts revealed by the audit as due (including interest at the prime rate as reported in the Wall Street Journal plus 2% from the date such amounts were originally due until paid), and the cost of such audit (if applicable), within ten (10) calendar days after VCJS’s demand therefor. If any such audit or examination reveals an underpayment of Trademark Royalty payments or Marketing Fee payments due in excess of ten percent (10%) of the Trademark Royalties and Marketing Fees actually due or owing for the period being examined or audited, then SUB-LICENSEE shall have ten (10) days following written notice of any such underpayment to cure such payment deficiency, failing which, in addition to any and all other rights, legal and/or equitable, of VCJS, VCJS shall have the right to immediately terminate the Agreement upon notice to SUB-LICENSEE. In the event that, as a result of audits performed hereunder, SUB-LICENSEE is found on more than one occasion pursuant to separate audits to have underreported Trademark Royalties for any period audited by more than ten (10%) percent, provided tha t such period is for at least three consecutive calendar months, VCJS shall have the right on thirty (30) days notice to terminate this Agreement.

6.

MARKETING AND MERCHANDISE COORDINATORS

6.1

Marketing Plan; Budget. SUB-LICENSEE shall develop a marketing and advertising plan and budget for the Sub-Licensed Products including plans for the development, marketing, promotion, advertising (including advertising to be done as part of the Direct Payment Marketing Fee Component discussed above in Section 4.2), distribution and sale of the Sub-Licensed Products in a form reasonably acceptable to VCJS (“Marketing Plan”) and provide a copy of same to VCJS ninety (90) calendar days following the Effective Date. Subsequently, no later than August 1^st of each calendar year during the Term, SUB-LICENSEE shall provide to VCJS SUB-LICENSEE’s proposed Marketing Plan and budget for the Sub-Licensed Products for the ensuing calendar year, along with list of current customers, discontinued customers, and proposed new customers. SUB-LICENSEE, at its own cost, shall execute the Marketing Plan, including the development of suitable Sub-Licensed Products.  

6.2

Cooperation With Other Sublicensee Marketing. SUB-LICENSEE acknowledges that VCJS has granted and will continue to grant other sub-licenses of the Licensed Property in other product categories and

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that it will be important from time to time for all of its sub-licensees to cooperate with each other so as to present to the industry and the purchasing public a uniform and consistent image of the Licensed Property. To this end, SUB-LICENSEE shall cooperate with overall marketing initiatives for the Licensed Property, including, without limitation, by participating in marketing meetings convened by VCJS and in special events or promotions sponsored by VCJS and/or other of its sub-licensees, and attending trade and fashion shows as reasonably requested by VCJS.

6.3

VCJS’s Assistance in Marketing Efforts. VCJS shall provide commercially reasonable assistance to SUB-LICENSEE in marketing and promoting the Sub-Licensed Products, at SUB-LICENSEE’s request, but shall not be required to expend material amounts of time or money in doing so. VCJS shall use commercially reasonable measures to secure Ms. Simpson’s participation in marketing and promotional efforts for the Sub-Licensed Products. In this connection, VCJS shall have the absolute right to coordinate Ms. Simpson’s promotional appearances, if any, for the benefit of all of VCJS’s sub-licensees and not any particular sub-licensee. Unless expressly set forth in this Agreement, neither VCJS, WYI nor Ms. Simpson make any representation or warranty concerning the availability of Ms. Simpson for personal appearances on behalf of the SUB-LICENSEE or the Sub-Licensed Produc ts.

6.4

Brand Management Program. SUB-LICENSEE will hire or assign a person currently under its employment to have the responsibility to act as a Marketing Brand Manager for the Sub-Licensed Products who shall report to the Vice President – Marketing of SUB-LICENSEE. Such Marketing Brand Manager shall perform coordinator functions in line with the best practices implemented by similar companies within this industry and in line with the reasonable requests of VCJS. The Marketing Brand Manager shall spend no less then 50% of his or her time focused on the Licensed Property. Without limitation to the foregoing, the Marketing Brand Manager, along with the Vice Presidents of Domestic and International Sales, will manage and review all domestic, customers’ activities and sales points and shall support department stores within the United States to ensure that the Sub-Licensed Product is being displayed/me rchandised/advertised according to the standards required by this Agreement. If at any time during the Term of this Agreement, VCJS determines in good faith that the 50% commitment by the Marketing Brand Manager is not in VCJS’s opinion sufficient to properly support the brand, SUB-LICENSEE agrees to engage in good faith negotiations with VCJS to make such mutually agreeable staffing changes, if any, that are necessary to give proper support to the brand. For countries other than the United States, SUB-LICENSEE will ensure that each distributor will assign a person to handle similar tasks within its area of distribution. SUB-LICENSEE will provide VCJS a representative display of Sub-Licensed Product to be incorporated in the VCJS showroom.

7.

INTELLECTUAL PROPERTY

7.1

Ownership of Licensed Trademarks.

(a)

WYI’s and Ms. Simpson’s Rights. SUB-LICENSEE acknowledges that VCJS has represented that WYI and/or Ms. Simpson either individually or collectively are the exclusive owners of the Licensed Property and that SUB-LICENSEE’s uses of the Licensed Property shall inure to the benefit of WYI or Ms. Simpson, as the case may be. SUB-LICENSEE will not at any time do or cause to be done any act or thing contesting or in any way impairing or tending to impair any part of the Licensed Property, either during the Term of this Agreement or thereafter.

(b)

Cooperation in Enforcement. SUB-LICENSEE shall promptly notify both VCJS and WYI in writing of any unauthorized use, threatened or actual, of the Licensed Property that comes to SUB-LICENSEE’s attention. SUB-LICENSEE shall assist VCJS and WYI, at the request and expense of VCJS or WYI, in protecting the rights of WYI and/or Ms. Simpson in and to the Licensed Property and any rights pertaining thereto. VCJS and/or WYI shall assume full responsibility for the commencement of any actions

11

against infringers and shall be entitled to retain all proceeds or recoveries as a result thereof.

7.2

Assignment of Related Works and Property. All intellectual property rights, whether copyrights, trademark rights, or patent rights, in the Sub-Licensed Products and/or relating to the Licensed Property or used in the advertising or promotion thereof, shall be deemed, as between SUB-LICENSEE and WYI, the property of WYI. In the case of copyrightable materials, such materials shall be considered to be “works made for hire” under the Copyright Act. In the case of trademarks (including trade dress) all use of such trademarks and trade dress relating to the Sub-Licensed Products and/or Licensed Property, whether now in existence or developed by SUB-LICENSEE during the Term of this Agreement, shall be deemed owned by WYI and all use thereof by SUB-LICENSEE, including all good will relating thereto, shall inure to the exclusive benefit of WYI. In the case of patentable inventions and concepts as w ell as copyrightable materials that do not constitute “works made for hire,” SUB-LICENSEE hereby assigns to WYI all of SUB-LICENSEE’s rights in and to such patentable inventions and concepts and such copyrightable materials, without further compensation from VCJS or from WYI. Under no circumstances shall SUB-LICENSEE continue to use any intellectual property rights approved for use with the Sub-Licensed Products after termination or expiration of this Agreement or any trademarks, trade dress, designs, artwork or graphics that could reasonably be considered to be associated with the Sub-Licensed Products or the Licensed Property other than in order to sell off remaining inventory of Sub-Licensed Products during the sell-off period following termination or expiration as described in Section 11.2(b).

7.3

Intellectual Property Notices. All Sub-Licensed Products shall state that the Licensed Trademarks are owned by WITH YOU, INC., under License from VCJS, and shall contain the following copyright notice, which VCJS and WYI can change from time to time by notice to SUB-LICENSEE:

“© 2006 (or year introduced) With You, Inc.

Under License from VCJS LLC”

Such notices shall appear in full-form on the Sub-Licensed Products, or on any label or tag /Instructional books/box and packaging affixed to the Sub-Licensed Products, as VCJS may approve. The parties recognize and agree, however, that there will be instances where the product is so tiny, where it will not be possible to contain a full copyright notice. In such event, they will agree upon an appropriate “short form” or abbreviated version of such notice. Notwithstanding the foregoing, VCJS acknowledges SUB-LICENSEE’s right and obligation to imprint on the labeling and packaging of Sub-Licensed Products such information as would be required under the federal Fair Packaging and Labeling Act and under other applicable federal and state laws.

7.4

Non-Disturbance. In the event that VCJS or WYI pledges or assigns the Licensed Property or Licensed Trademarks in order to secure any loans or obligations of VCJS or WYI, VCJS agrees to provide prior written notice of such pledge or assignment to SUB-LICENSEE and to execute such documents as are necessary to assure that such pledge or assignment is subject to the rights of SUB-LICENSEE hereunder and that SUB-LICENSEE’s rights hereunder shall not be disturbed or interfered with by such pledge’s or assignee’s exercise of its rights under such pledge or assignment.

8.

INDEMNITY, INSURANCE

8.1

SUB-LICENSEE Indemnity. SUB-LICENSEE shall indemnify, protect, hold harmless and defend VCJS, WYI and Jessica Simpson, and each of their respective officers, directors, affiliates, agents and employees from and against any and all claims, suits, losses, liabilities, expenses and damages, including costs of suit and reasonable attorneys' fees, arising out of or in any way connected with: the design, creation, manufacture, sale, distribution, marketing, promotion, labeling or advertisement of any Sub-Licensed Product by or on behalf of SUB-LICENSEE; any alleged defect in a Sub-Licensed Product or related to a Sub-

12

Licensed Product; any claim of harm or injury resulting from the use of a Sub-Licensed Product; the claim of any broker, finder or agent in connection with the making of this Agreement or any transactions contemplated by this Agreement, or the claim of any entity that actions taken or omitted to be taken by SUB-LICENSEE bind or otherwise obligate VCJS or WYI in any way (except as specifically provided herein); the claim of any landlord, distributor, retailer, agent or other person or entity that termination or expiration of this Agreement caused it damage; the breach of this Agreement; or the inaccuracy of any representation or warranty made by SUB-LICENSEE herein. Compliance by SUB-LICENSEE with the insurance provisions of this Agreement shall not relieve SUB-LICENSEE of its duty to indemnify and defend VCJS and WYI under this Section. SUB-LICENSEE shall defend VCJS, WYI and Ms. Simpson with separate counsel acceptable to each, with respect to each and every claim for which they are indemnified by SUB-LICENSEE under this Agreement. SUB-LICENSEE shall pay for the services of such counsel upon counsel’s presentation of legal bills or requests for retainer. The duty to indemnify and defend survives the termination or expiration of this Agreement.

8.2

VCJS Indemnity. VCJS shall indemnify, protect, hold harmless and defend SUB-LICENSEE, and each of its respective officers, directors, affiliates, agents and employees from and against any and all claims, suits, losses, liabilities, expenses and damages, including costs of suit and reasonable attorneys' fees, arising out of or in any way connected with: the breach of this Agreement; or the inaccuracy of any representation or warranty made by VCJS, WYI or Ms. Simpson herein. VCJS shall defend SUB-LICENSEE with separate counsel acceptable to SUB-LICENSEE, with respect to each and every claim for which they are indemnified by VCJS under this Agreement. VCJS shall pay for the services of such counsel upon counsel’s presentation of legal bills or requests for retainer. The duty to indemnify and defend survives the termination or expiration of this Agreement.

8.3

Insurance.

(a)

SUB-LICENSEE’s All Risk Coverage. For the period starting with the Effective Date and ending one (1) year after the later of (a) the last day of the Term and (b) the completion of SUB-LICENSEE’s sales of the Sub-Licensed Products pursuant to this Agreement, SUB-LICENSEE shall carry insurance from a carrier having a Best rating of B+ or better covering all risks of loss arising from alleged product and contractual liability (including, without limitation, claims relating to the design, manufacture, distribution, and/or use of the Sub-Licensed Products manufactured during the Term of this Agreement, e.g., product liability insurance, and including without limitation for “advertising injury”), with a limit of liability of not less than Three Million Dollars ($3,000,000) per occurrence with a deductible not to exceed $100,000, and SUB-LICENSEE shall cause VCJS and WYI to be named an a dditional insured thereunder. From time to time as may be reasonably requested by VCJS, and no later than thirty (30) calendar days after the Effective Date, SUB-LICENSEE shall provide to VCJS certificates of insurance evidencing such coverage. SUB-LICENSEE shall give notice to VCJS at least thirty (30) calendar days prior to any changes in limits or termination of such policy of insurance, any intention of SUB-LICENSEE not to pay the premium thereon, or the cancellation or revocation thereof.

(b)

Key Man Life and Disability Insurance. SUB-LICENSEE may at any time prior to the first anniversary of the Effective Date elect, at its cost, to insure the life of Jessica Simpson and/or to insure Ms. Simpson for any disability with SUB-LICENSEE as the beneficiary, which such insurance carriers and under such insurance plans as SUB-LICENSEE in its sole discretion may determine. To the extent VCJS has applied for any such key man life or disability insurance relating to Ms. Simpson, VCJS agrees to cooperate with SUB-LICENSEE in SUB-LICENSEE’s application for such coverages by sharing any medical information it has obtained and which is necessary for completion of any such applications by SUB-LICENSEE, provided that VCJS is not otherwise prohibited from sharing such information.

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9.

CONFIDENTIAL INFORMATION

9.1

Non-Disclosure. Subject to the provisions of this Agreement, both the SUB-LICENSEE, VCJS, and WYI shall keep confidential and not use or disclose to any person any information whether written or oral and in whatever medium which comes into its possession and relates to the business, Sub-Licensed Products, financial and management affairs, customers, employees or authorized agents, plans, proposals, strategies or trade secrets of SUB-LICENSEE, VCJS and WYI or the terms of this Agreement (the “Confidential Information”) except as absolutely necessary in order for SUB-LICENSEE, VCJS, or WYI to exercise the rights granted hereunder. In this connection, VCJS shall only disclose the Confidential Information to those of its employees and to the extent that they need to know the same in order to exercise the rights granted hereunder and provide that those employees are bound by written oblig ations of confidentiality and non-use in favor of VCJS or WYI and such obligations apply to the Confidential Information disclosed to them, with the same being applied to SUB-LICENSEE.

9.2

Exclusions. The provisions of this paragraph shall not apply to any Confidential Information that:

(a)

is or becomes generally available to the public other than as a result of any act or omission of SUB-LICENSEE;

(b)

after the date of this Agreement comes into the possession of SUB-LICENSEE, WYI or VCJS, and is received from a person lawfully in possession of the information and owing no obligation of confidentiality to SUB-LICENSEE, VCJS or WYI or any of their affiliates in respect of the information; or

(c)

is required to be disclosed by SUB-LICENSEE, WYI or VCJS by any court or governmental or administrative authority competent to require disclosure including the SUB-LICENSEE’s requirements to disclose this Agreement as a public company.

10.

TERM OF AGREEMENT. Unless earlier terminated, or extended by the mutual written agreement of the parties, the Term of this Agreement shall be as specified in Schedule A.

11.

TERMINATION OF AGREEMENT

11.1

Termination. This Agreement may be terminated as follows:

(a)

Immediately by VCJS. VCJS may immediately terminate this Agreement by written notice to SUB-LICENSEE, and except as expressly indicated below or if cure rights are expressly granted in other provisions of this Agreement, then subject to such cure rights, without being obligated to accord SUB-LICENSEE an opportunity to cure, should SUB-LICENSEE:

(i)

fail to meet its obligations to a majority of its creditors when due or cease conducting business or make an assignment for the benefit of its creditors;

(ii)

cease to carry liability insurance in the amount and type required herein thirty (30) days following written notice thereof from VCJS;

(iii)

fail to make timely payments following the expiration of the applicable cure period, or to timely deliver the statements and reports required pursuant to Section 4 following the expiration of the applicable cure period more than twice in any calendar year;

(iv)

be the subject of a product recall by the Consumer Product Safety Commission for any of the Sub-Licensed Products, unless the cause of such recall was due to events, acts or

14

occurrences that are outside the reasonable control of SUB-LICENSEE;

(v)

fail to introduce the Sub-Licensed Products by the Product Introduction Date recited in Schedule A attached hereto;

(vi)

fail to commence sales of the Sub-Licensed Products in commercial quantities by the First Sale Date recited in Schedule A attached hereto subject to 1.3(a) herein;

(vii)

sell Sub-Licensed Products to a customer that has not been approved in advance by VCJS;

(viii)

undergo a change of control of more than 50% of its outstanding shares, or merge, consolidate with or into any other corporation or other entity, or directly or indirectly sell or otherwise transfer, sell or dispose of all or a substantial portion of its business or assets, subject to the exceptions set forth in Section 15.3, and unless the surviving entity, together with its related companies, has a combined balance sheet with net equity equal to or greater than the net equity set forth on the combined balance sheet of SUB-LICENSEE and its related companies;

(ix)

understate royalties by more than ten (10%) as provided in Section 4.5, make any unreported sales or cash sales, or intentionally report incorrect or false manufacturing, sales or financial information;

(x)

itself, or any of its manufacturing subcontractors or sub-subcontractors, manufacture or sell Sub-Licensed Products or products or materials incorporating the Licensed Property, without the express permission of VCJS as herein provided, or manufacture or sell any disapproved products;

(xi)

offer to sell or ship the Sub-Licensed Products to customers or distributors outside the Distribution Channels or the Territory, or to customers or distributors whom SUB-LICENSEE knows will resell or ship the Sub-Licensed Products outside the Distribution Channels or the Territory following written notice from VCJS and the expiration of a sixty (60) day cure period unless such offer to sell or ship is made with knowledge that such sale or shipment would be in violation of this Agreement;

(xii)

make unauthorized commitments to any customer or retailer regarding promotional or advertising commitments or appearances by Ms. Simpson that were not previously approved in writing by VCJS, WYI or Ms. Simpson;

(xiii)

use or authorize the use of Ancillary Material that has not been approved in advance by VCJS; or

(xiv)

commit any other material breach of this Agreement following notice and the expiration of a sixty (60) day cure period .

Notwithstanding the foregoing, if VCJS elects to provide SUB-LICENSEE with notice and an opportunity to cure any breach described in this Section which does not otherwise require by its terms notice and an opportunity to cure (in VCJS’s sole discretion), such action will not constitute a waiver of or bar to VCJS’s right to strictly enforce immediate termination in the future, without any right to cure, in the event of the same or any other applicable breach.

15

In addition, no assignee for the benefit of creditors, receiver, liquidator, sequestrator, trustee in bankruptcy, sheriff or any other officer of the court or official charged with taking over the custody of SUB-LICENSEE’s assets or business shall have any right to continue the performance of SUB-LICENSEE’s obligations hereunder. In the event that SUB-LICENSEE becomes the subject of a bankruptcy proceeding, VCJS, in addition to any and all other remedies hereunder or at law or equity, shall have the right to immediately convert the sub-license grant herein to a non-exclusive sub-license.

(b)

By either party, unless a shorter notice/cure period is provided for herein, upon thirty (30) calendar days prior written notice to the other party if such other party fails to comply with any other provision of this Agreement and fails to cure such failure within such thirty (30) day period.

(c)

By SUB-LICENSEE, if at any time during the Term, the commercial value of Ms. Simpson’s name and image is substantially impaired by reason of her conviction of a felony or any other crime involving moral turpitude or her engaging in illegal or immoral conduct that is publicly disclosed and which materially damages the value of the Licensed Property, and SUB-LICENSEE reasonably believes that such conduct will materially diminish the ability of SUB-LICENSEE to sell Sub-Licensed Products. In the event of Ms. Simpson’s death or disability, SUB-LICENSEE shall have the right to continue to utilize the Sub-Licensed Property in accordance with the terms of this Agreement for the remainder of the Term, and shall continue to perform its obligations hereunder, notwithstanding such event.

11.2

Effects of Termination. In the event of termination of this Agreement:

(a)

Termination of Rights. Subject to the provisions of subsection (b) of this Section 11.2, upon the termination or expiration of this Agreement, all rights of SUB-LICENSEE to use the Licensed Property shall automatically terminate or, as appropriate, be assigned to VCJS. SUB-LICENSEE shall execute any instruments requested by VCJS that are necessary or desirable to accomplish or confirm the foregoing. Any such assignment, transfer or conveyance shall be without consideration other than the mutual covenants contained in this Agreement. Additionally, SUB-LICENSEE hereby grants, and agrees to cause the appropriate third party to grant, to VCJS an irrevocable power of attorney, on behalf of SUB-LICENSEE or such third party, as the case may be, to execute any registered user termination documents or agreements in any jurisdiction, and other related or similar documentation, that V CJS determines are necessary or advisable in connection with the termination of SUB-LICENSEE's rights hereunder. Following such termination or expiration, VCJS may thereafter license the right to use the Licensed Property in connection with the manufacture, wholesale, offer for sale at wholesale, distribution and advertising of the Sub-Licensed Products in the Territory without any restriction or obligation to SUB-LICENSEE.  Except as provided herein any and all royalties and other amounts due under this Agreement and accrued to the date of termination shall become immediately due and payable. Following termination or expiration, SUB-LICENSEE shall continue to make all payments to VCJS as provided hereunder as long as SUB-LICENSEE shall continue to sell the Sub-Licensed Products as permitted under Subsection (b) of this Section 11.2.

(b)

Post-Termination Sales. If this Agreement terminates by reason of SUB-LICENSEE’s uncured breach, SUB-LICENSEE shall immediately cease all sales and marketing of the Sub-Licensed Products and VCJS shall purchase all remaining inventory of Licensed Products and work in process relating thereto at SUB-LICENSEE’s cost to the extent that such inventory is in conformity with the requirements of Section 3 of this Agreement. If the Agreement expires or terminates for any other reason, SUB-LICENSEE shall have the right to complete its work in process as of the date of termination, and market and sell the Sub-Licensed Products in inventory as of the date of termination for a period not to exceed six (6) months thereafter, in accordance with the applicable requirements of this Agreement. SUB-

16

LICENSEE shall not be permitted to sell Sub-Licensed Products during this period at a price point discounted by more than 50% of its listed wholesale selling prices.

(c)

No Further Use of Property. Except in order to sell off inventory and work in process as permitted in Section 11.2(b) above, or as permitted by VCJS, after the termination or expiration of this Agreement, SUB-LICENSEE shall refrain from further use of the Licensed Property and any other trademark, trade name, trade dress or other industrial or intellectual property that is substantially or confusingly similar to the Licensed Property or is associated with, or suggests an association with, the Licensed Property in any way. Except as permitted above, SUB-LICENSEE recognizes and agrees that the continued use of any similar trademark, trade name, trade dress or other industrial or intellectual property after termination or expiration of this Agreement has the potential to cause significant consumer confusion and will take all appropriate and reasonable measures to prevent such consumer confusion. < /FONT>

(d)

Acceleration; Other Rights Unaffected by Termination. Termination of this Agreement by VCJS due to SUB-LICENSEE’s breach shall obligate SUB-LICENSEE to pay to VCJS the Guaranteed Minimum Trademark Royalty and the Guaranteed Minimum Marketing Fee obligations contracted for through the effective date of termination. Termination by VCJS shall be without prejudice to any other rights or remedies that VCJS may have.

11.3

Right to Publicize and Offer for Sale. At any time during the three (3) months preceding expiration of this Agreement or at any time after notice of termination is provided, VCJS or any new licensee thereof shall have the right to show, publicize, advertise and take orders for the Sub-Licensed Products and any similar products or seek out replacement sub-licensees.

12.

REPRESENTATIONS AND WARRANTIES OF VCJS. VCJS hereby represents and warrants that:

12.1

Right to Grant License. (a) VCJS has the right to grant the license with respect to the Sub-Licensed Products and the use of the Licensed Trademarks as set forth herein,; (b) VCJS has the exclusive right to use and grant third party sub-licensees the right to use the Licensed Property, including the Licensed Trademarks in the Distribution Channels in the Territory in connection with the Sub-Licensed Products, subject to the provisions of this Agreement and the Master License (c) there is no claim, litigation, proceeding, arbitration, investigation or controversy pending before any court, tribunal, governmental body or governmental agency to which VCJS is a party and by which it is bound, which is likely to have a material adverse effect on the ability of VCJS to consummate the transactions contemplated hereby, and, to the best of the their knowledge and information, no such claim, litigation, proceeding, arbitration, inv estigation or controversy has been threatened or is contemplated about which SUB-LICENSEE has not been advised; (d) other than as set forth in section 12.3, neither VCJS, WYI nor Ms. Simpson has granted any other license or right to use the Licensed Property in the Territory during the Term of this Agreement; (e) the execution of and performance under this Agreement shall not conflict with or result in the breach of, or constitute a default under, any agreement to which VCJS is party or by which it is bound; (e) WYI owns and/or controls the trademarks that are associated with Ms. Simpson and that are identified on Schedule A attached hereto as the Licensed Trademarks; (f) Ms. Simpson is the owner of all of her rights of publicity in her name, likeness and image; and (g) the Master License is in full force and effect and, to the best of VCJS’s knowledge, there are no pending and uncured breaches of the Master License.

12.2

Value of Licensed Property; Express Disclaimer. VCJS makes no representations or gives any warranty or guarantee of any kind to SUB-LICENSEE concerning the value of the Licensed Property or SUB-LICENSEE’s prospects for the level of sales or profits that it may realize as a result of its sales of such Sub-Licensed Products. Other than as set forth herein, VCJS makes no representation or warranty,

17

either express or implied, as to any matter whatsoever, including, without limitation, the design, merchantability, durability, and suitability of any product or other item or the fitness of any product or other item for a particular purpose.

12.3

“Dessert” Sub-License. VCJS represents that as of December 31, 2006, the sub-license of certain Licensed Property from VCJS and/or WYI to Cake Beauty Inc. has either been terminated in its entirety or expired by its terms and that the sub-licensee thereunder has no further rights to use any of the Licensed Property.

13.

WARRANTIES OF SUB-LICENSEE. SUB-LICENSEE hereby represents and warrants that:

13.1

Authority. SUB-LICENSEE has the power and authority, and is duly authorized, to enter into this Agreement and perform the terms thereof.

13.2

Authorization. This Agreement has been duly executed by an authorized representative of SUB-LICENSEE and constitutes the valid and binding obligation of SUB-LICENSEE, enforceable against SUB-LICENSEE in accordance with its terms.

13.3

Best Efforts. SUB-LICENSEE will use its best efforts to promote, advertise, market and sell the Sub-Licensed Products in all Distribution Channels in the Territory and will maintain adequate inventories to fulfill all potential orders for Sub-Licensed Products.

13.4

No Conflict or Violation; Non-infringement. The execution and delivery of this Agreement and the performance by SUB-LICENSEE of its obligations hereunder, do not and will not conflict with or violate any provision of law applicable to SUB-LICENSEE and its business, or any judgment or order of a court or other tribunal having jurisdiction over SUB-LICENSEE, or any agreement or instrument to which SUB-LICENSEE is a party. Any intellectual or industrial property materials (including without limitation designs, patterns, labels, packaging, containers, logos and promotional items) submitted by SUB-LICENSEE to VCJS for approval are original and, to the best knowledge of SUB-LICENSEE, do not infringe the rights of any other person, and are not confusingly or substantially similar to any other intellectual or industrial property.

13.5

Fiscal Year End. SUB-LICENSEE represents and warrants that its fiscal year ends on the date indicated in Schedule A.

14.

NO AGENCY RELATIONSHIP. Nothing contained in this Agreement shall create or be deemed to create any agency, partnership, joint venture, franchise, or employment relationship between VCJS and SUB-LICENSEE, and neither party shall hold itself out as having such a relationship. Neither party shall have the right or power to bind or obligate the other party in any manner whatsoever.

15.

GENERAL PROVISIONS

15.1

Notices. Any notice required or desired to be given with respect to this Agreement shall be in writing and sent if by registered or certified mail, return receipt requested or by overnight express courier, e.g., FedEx courier or UPS next day, or by electronic facsimile to the addresses identified in Schedule A, which may be changed by any party upon reasonable notice to the other parties.

15.2

Binding Effect. This Agreement is binding upon, and shall inure to the benefit of, each of the parties, and their respective affiliated persons and entities, and their respective successors and assigns (to the extent permitted by this Agreement), and each party warrants to the other party that this Agreement has been executed on its behalf by its duly authorized representative.

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15.3

No Assignment or Transfer. Neither this Agreement, nor any of the rights or obligations of SUB-LICENSEE herein, may be assigned or otherwise transferred by SUB-LICENSEE without the prior written consent of VCJS, which consent will not be unreasonably withheld or delayed.  It being understood and agreed that VCJS’s reasonable determination that a proposed assignee is not likely to be capable of performing SUB-LICENSEE’s obligations herein or that the association of Ms. Simpson with such proposed assignee is reasonably likely to cause damage to her image shall be deemed to be a reasonable basis for withholding consent. Any sale or transfer of the Licensed Property by VCJS or WYI shall be subject to this Agreement. Notwithstanding the foregoing, VCJS acknowledges and agrees that SUB-Licensee shall be permitted, without VCJS’s or WYI’s consent, to assign this Agreement to an y of its corporate subsidiaries or affiliates, or to any companies controlled by, controlling or under common control with SUB-LICENSEE, provided that the net worth of such corporate subsidiary or affiliate is equal to or greater than the net worth of SUB-LICENSEE at the time of such assignment. Any sale or transfer of assets, sale of stock, sale of membership interests, merger, consolidation or corporate restructuring with or to any companies controlled by, controlling or under common control with SUB-LICENSEE shall not be deemed an assignment requiring VCJS’s consent hereunder. For purposes hereof, “control” shall mean (i) to have or acquire or have the right to acquire, directly or indirectly, beneficial ownership of more than 30% of the combined voting power of the then outstanding stock or equity interests of an entity, or (ii) to have majority voting control of the board of directors by reason of the fact that a majority of board members were proposed for election to the board by the par ty deemed to have control; provided, however, that SUB-LICENSEE shall remain jointly and severally liable for all of its obligations hereunder.

15.4

Waivers. The failure or delay of either party at any time to exercise any right under any provision of this Agreement shall not limit or operate as a waiver thereof.

15.5

Applicable Law and Disputes. This Agreement shall be governed by and construed in accordance with the laws of the State of New York and all disputes shall be resolved by litigation in the state or federal courts of New York in New York City. The parties expressly consent to the jurisdiction of such courts and expressly waive any jurisdictional or venue defenses otherwise available to them and agree to accept service of process by mail.

15.6

Severability. If any provision of this Agreement is held by a court or arbitrator of competent jurisdiction not enforceable to its full extent, then such provision shall be enforced to the maximum extent permitted by law, and the parties hereto consent and agree that such scope may be modified by such court or arbitrator accordingly and that the whole of such provision of this Agreement shall not thereby fail, but that the scope of such provision shall be curtailed only to the extent necessary to conform to the law.

15.7

Further Assurances Each party agrees to execute and deliver all documents and to perform all further acts and to take any and all further steps that may be requested by the other party and are reasonably necessary to carry out the provisions of this Agreement and the transactions contemplated hereby.

15.8

Force Majeure. In the event VCJS or SUB-LICENSEE is unable to complete the performance of its obligations under the terms of this Agreement due to circumstances beyond its control, including, but not limited to, by reason of "acts of God", fires, strikes, accidents, embargoes, riots, floods, earthquakes, wars, governmental actions, such party shall be entitled to suspend the Term of this Agreement as well as the performance of the services to be provided by the other party hereunder for a period equal to the period during which such party is unable to commence or complete performance of its obligations for any of the reasons set forth herein. In the event that one party’s performance is suspended for a period of one hundred twenty (120) days, the other party shall have the right to terminate the Agreement upon thirty (30) days written notice.

19

15.9

Interpretation; Headings; Language. This Agreement shall be interpreted to give VCJS control of the Licensed Property. Any uncertainty or ambiguity with respect to any provision of this Agreement shall not be construed for or against any party based on attribution of drafting to either party. The headings contained herein are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

15.10

Counterparts This Agreement or any amendment hereto may be executed in several counterparts and, as executed, shall constitute one agreement binding on all the parties hereto, notwithstanding that all of the parties are not signatory to the original or the same counterpart.

15.11

Complete Agreement; Amendment. This Agreement (including the Schedules and Exhibits attached hereto and referenced herein) contains the entire agreement between the parties with respect to the subject matter hereof and shall incorporate any prior or contemporaneous agreements, representations, warranties, or other matters relating to the subject matter of this Agreement. The terms of this Agreement may be altered only in a writing signed by both parties.

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the Effective Date.

VCJS LLC

PARLUX FRAGRANCES, INC.

By:    /s/ Joseph L. Kelly Jr.

By:   /s/ Neil J. Katz

Name: Joseph L. Kelly Jr.   

Name: Neil J. Katz

Title:  Chief Financial Officer

Title: Chairman and CEO

20

SCHEDULE A

1.

Licensed Trademarks

The following are the Licensed Trademarks:

(a)

JESSICA SIMPSON (Signature). Serial number 78907170. Application filed on June 13, 2006. Applicant: With You, Inc.:

(b)

JESSICA SIMPSON (Standard Character). Serial number 78748561. Application filed on November 7, 2005. Applicant: With You, Inc.

In addition to the foregoing, the Licensed Trademarks shall include all other current and future trademarks that VCJS has the right to associate with Ms. Simpson.

The rights licensed are independent of any rights relating to any role or character that Ms. Simpson has played or may play in any motion picture or television show, which rights are specifically excluded from this Agreement. Ms. Simpson shall not promote or license any other fragrance products other than the Sub-Licensed Products in the name of or in association with any role or character that she plays.

2.

Sub-Licensed Products

The Sub-Licensed products consist only of: fragrances and bath and body products namely, body lotions, body crème, body mist, hand crème, bath and shower gel, massage oil, dusting powder and bath soap, candles as well as seasonal or selected color items. SUB-LICENSEE shall have the right of first negotiation to add cosmetics, skin care and hair care products (collectively, the “Additional Products”) to the list of products comprising the Sub-Licensed Products within the Territory. Notwithstanding the foregoing, if VCJS does not sub-license the Licensed Property to SUB-LICENSEE in the cosmetics, skin care or hair care categories, VCJS will only be permitted to sub-license the Licensed Property in the cosmetics, skin care or hair care categories to other sub-licensees provided that any such sub-license shall be on terms (including any distribution restrictions) no less favorable to VCJS th an the best offer made by SUB-LICENSEE.

3.

Territory

The Territory consists of: Worldwide

1

4.

Distribution Channels and Pre-Approved Customers

SUB-LICENSEE shall have the right to all Distribution Channels, however, for the period from the First Sale Date of any Sub-Licensed Product through the end of the first calendar fourth quarter following such First Sale Date (the “Initial Launch Period”), which period must be at least five (5) months long, SUB-LICENSEE shall focus its distribution efforts and achieve at least seventy-five (75%) of its Net Sales in VCJS-approved department store and selected specialty stores and their related catalogs and websites, including the following approved department and specialty stores:

MACY’S

DILLARD’S

BELK

BON-TON/ CARSON PIRIE SCOTTS

BOSCOV’S

GOTTSCHALKS

VON MAUR

PERFUMANIA

ULTA

SAKS INC

NORDSTROM

LORD & TAYLOR

YOUNKERS

MILITARY EXCHANGE

STAGE STORES

DUNLAPS

CENTURY 21

ROGERS DEPARTMENT STORES

PARFUMERIE DOUGLAS

JC PENNEY/SEPHORA

VICTORIA’S SECRET

QVC/HSN

In addition to the department store and specialty store channel referred to above, during the Initial Launch Period, SUB-LICENSEE shall also be permitted to sell up to twenty-five (25%) percent of its Net Sales to non-department store customers in foreign countries, including duty free customers in foreign countries and at the United States borders, to the extent that such non-department store customers, if retailers, carry, or if wholesalers sell to retailers who carry, other celebrity prestige fragrance such as Paris Hilton, Sarah Jessica Parker, Britney Spears and/or Jennifer Lopez. The percentage of Net Sales permitted to be sold to non-department store customers in foreign countries during the Initial Launch Period shall be revisited by VCJS and SUB-LICENSEE following the Product Introduction Date after SUB-LICENSEE receives feedback from the department store and specialty store markets regarding the Sub-Licensed Products. The par ties agree to negotiate in good faith to attempt to arrive at a different percentage mix during the Initial Launch Period in the event that such feedback from the department/specialty store market is negative or mixed.

2

The above shall be deemed “Approved Customers” during the Initial Launch Period subject to the above percentage limitation and for any periods thereafter without percentage limitation for any Sub-Licensed Products.

Following the expiration of the Initial Launch Period, SUB-LICENSEE shall be permitted, without any percentage limitation, to sell to non-department store customers in the United States, including Northern Group, Inc. and its corporate affiliates such as its parent and sister companies, a list of which is annexed hereto as Schedule C, and duty free customers, to the extent that such non-department store customers, if retailers, carry, or if wholesalers sell to retailers who carry, other celebrity prestige fragrance such as Paris Hilton, Sarah Jessica Parker, Britney Spears and/or Jennifer Lopez, such customers being deemed Approved Customers during the period following the expiration of the Initial Launch Period.. SUB-LICENSEE shall secure distribution relationships with distributors in all significant countries outside the United States within 12 months following the initial launch of any Sub-Licensed Products.

Under no circumstances may the Distribution Channels include venue sales (e.g., at concerts, performances, etc. of Ms. Simpson) unless specifically authorized by VCJS, however where possible and appropriate VCJS will help sub-licensee to access those venues as well as things like the fan club for sampling purposes.

VCJS shall not grant other sublicenses for the Sub-Licensed Products bearing the Licensed Trademarks during the Term, but may utilize distributors for purposes of distributing the Sub-Licensed Products throughout the Territory.

5.

Term

This Agreement shall commence as of the Effective Date and shall extend for an initial term of five (5) years extending through and including the date that is five (5) years following the First Sale Date, (the “Initial Term”) (with the first contract year of the initial term extending from the Effective Date through the expiration of twelve (12) months following the First Sale Date). This Agreement may be extended through the date of expiration of the Master License (the “Extended Term”), if SUB-LICENSEE: (a) requests renewal in writing at least one hundred and eighty (180) calendar days but no more than two hundred twenty (220) calendar days before the expiration of the Initial Term; and (b) at the time it requests renewal and as of the end of the Initial Term, it is in compliance with all of its obligations hereunder; and (c) agrees that for each Contract Year of the Exte nded Term it will meet a minimum Net Sales requirement equal to 70% of the average of actual Net Sales for the immediately preceding two Contract Years, but in no event less than the Minimum Net Sales, Guaranteed Minimum Trademark Royalty and Guaranteed Minimum Marketing Fee requirements that had been in effect for Contract Year 5 of the Initial Term.

6.

Other Celebrity Licenses

As of the date hereof, SUB-LICENSEE acts as licensee for only the following celebrity licenses: Paris Hilton, Maria Sharapova and Andy Roddick.

7.

Fiscal Year

SUB-LICENSEE’s fiscal year-end is March 31.

8.

Marketing Fee(s)

A Guaranteed Minimum Marketing Fee having the following two components is required: the Pooled Marketing Fee component and the Advertising/Promotional Spend component. The Pooled Marketing Fee component shall equal (*) of Net Sales. The Advertising/Promotional Spend component shall equal at least

3

(*) of Net Sales in each of the Contract Years (including a minimum of (*) of Net Sales to department stores in Contract Year 1 and (*) of Net Sales to department stores in Contract Year 2), and shall include, but not be limited to, the following items of expenditure:

Media-magazines print and /or scented

Television, newspaper, radio and/or billboard advertising

Point of sale materials (POS) i.e. testers, displays, sampling, blotters, gifts with purchase (including the free items included in seasonal value sets)

Coop advertising scented and/or unscented

In store events

Store commissions deducted by the retailer

Demonstration either paid direct or deducted by the retailer

Freelance/modeling personnel direct or deducted by the retailer

Retail Development Managers/Account coordinators

Public relations support either in house or third party

Training support either in-house or third party

Personal appearance/special event appearance-related expenses

The Pooled Marketing Fee component is payable as set forth in Section 11 below.

9.

Minimum Net Sales and Corresponding Minimum Payments

SUB-LICENSEE shall meet the following Minimum Net Sales and make the corresponding minimum guaranteed payments. Any overages in any given year can be applied against previous or future years.

Initial Term	Minimum Net Sales	Guaranteed Minimum Trademark Royalty	Guaranteed Minimum Marketing Fee
Contract Year 1	$ *	$ *	$ *
Contract Year 2	$ *	$ *	$ *
Contract Year 3	$ *	$ *	$ *
Contract Year 4	$ *	$ *	$ *
Contract Year 5	$ *	$ *	$ *

10.

Trademark Royalty

The Trademark Royalty shall equal * percent (*) of SUB-LICENSEE’s Net Sales.

4

11.

Payment Schedule.

The Guaranteed Minimum Trademark Royalty and Guaranteed Minimum Marketing Fee are payable quarterly as follows:

Payment Date	Guaranteed Minimum Trademark Royalty	Guaranteed Minimum Marketing Fee	Combined
Upon Signing contract	$ *	$ *	$ *
Signing + 120 days	$ *	$ *	$ *
January 1,2008	$ *	$ *	$ *
February 1, 2008	$ *	$ *	$ *
April 1, 2008	$ *	$ *	$ *
July 1, 2008	$ *	$ *	$ *
October 1, 2008	$ *	$ *	$ *
January 1, 2009	$ *	$ *	$ *
April 1, 2009	$ *	$ *	$ *
July 1, 2009	$ *	$ *	$ *
October 1, 2009	$ *	$ *	$ *
January 1, 2010	$ *	$ *	$ *
April 1, 2010	$ *	$ *	$ *
July 1, 2010	$ *	$ *	$ *
October 1, 2010	$ *	$ *	$ *
January 1, 2011	$ *	$ *	$ *
April 1, 2011	$ *	$ *	$ *
July 1, 2011	$ *	$ *	$ *
October 1, 2011	$ *	$ *	$ *
January 1, 2012	$ *	$ *	$ *
April 1, 2012	$ *	$ *	$ *
July 1, 2012	$ *	$ *	$ *
October 1, 2012	$ *	$ *	$ *

12

Advances

Upon execution of this Agreement, SUB-LICENSEE agrees to pay VCJS a non-refundable Advance against the Guaranteed Minimum Trademark Royalty of US$ * payable as follows:

Advance Toward	Guaranteed Minimum Trademark Royalty	Guaranteed Minimum Marketing Fee	Combined
Upon Signing contract	$ *	$ *	$ *
Signing + 120 days	$ *	$ *	$ *
January 1, 2008	$ *	$ *	$ *

5

The Advances set forth are meant to be a restatement of, not in addition to, the first three installments of Guaranteed Minimum Trademark Royalty and Guaranteed Minimum Marketing Fee set forth in paragraph 11 above.

13.

Product Introduction/First Sale Dates

The Product Introduction Date for the Sub-Licensed Products in the United States shall be no later than January 15, 2008. The First Sale Date for the Sub-Licensed Products in the United States shall be no later than August 1, 2008. In the event that SUB-LICENSEE fails to meet the deadlines for either the Product Introduction Date or the First Sale Date by reason of events, acts or occurrences beyond the reasonable control of SUB-LICENSEE or by force majeure events (as defined in Section 15.8 of the Agreement), then the First Sale Date shall be deferred to October 15, 2008. The Product Introduction Dates and First Sale Dates for Sub-Licensed Products for countries in the Territory that are outside the United States shall be 12 months following the Product Introduction and First Sale Dates in the United States.

Personal Appearances.  Personal appearances by Ms. Simpson will be elevated in launch years and reduced in others. Unless otherwise agreed, the minimum number in each year shall be as follows:

Year 1 3 store personal appearances either in store or in QVC/HSN

Year 2 2 store personal appearances either in store or in QVC/HSN

Year 3 3 store personal appearances either in store or in QVC/HSN

Year 4 2 store personal appearances either in store or in QVC/HSN

Year 5 3 store personal appearances either in store or in QVC/HSN

(If an additional fee is to be charged to VCJS for any QVC/HSN appearance, VCJS will provide prior notice thereof to SUB-LICENSEE and if SUB-LICENSEE then decides to go forward with such QVC/HSN appearance, such fee will be passed through to and paid by SUB-LICENSEE.)

14.

Notices.

VCJS Addresses:

VCJS LLC

411 West Putnam Avenue

Greenwich, CT 06830

Attn: Joseph Kelly

Fax: 203-661-8982

With copy to:

Joseph T. Diaz, Esq.

VCJS LLC

411 West Putnam Avenue

Greenwich, CT 06830

Fax: 866-302-9326

Attn: Joseph T. Diaz

All royalty statements/ payments/should be sent to:

VCJS LLC

411 West Putnam Ave

Greenwich CT 06830

Attn: Deborah Grasso

Fax: 203-661-8982

6

SUB-LICENSEE

PARLUX FRAGRANCES, INC.

3725 S.W. 30^th Avenue

Ft. Lauderdale, FL 33312

Attn: Chief Executive Officer

Fax: 954-316-8155

With copy to:

PARLUX FRAGRANCES, INC.

3725 S.W. 30^th Avenue

Ft. Lauderdale, FL 33312

Attn: Executive Vice President/COO

Fax: 954-316-8155

16.

SUB-LICENSEE agrees to assign its Vice President – Marketing with the responsibility for developing, launching and maintaining the Jessica Simpson brand and that one full time manager level employee who reports to the Vice President – Marketing will be responsible for the development, launch and maintenance of the Jessica Simpson brand.

7

SCHEDULE B

LIMA Code of Business Practices

The International Licensing Industry Merchandisers’ Association, Inc. (“LIMA”) is committed on behalf of its member companies to the operation of factories manufacturing licensed Sub-Licensed Products in a lawful, safe, and healthful manner. It upholds the principles that no underage, forced, or prison labor* should be employed; that no one is denied a job because of gender, ethnic origin, religion, affiliation or association, and that factories comply with laws protecting the environment. Supply agreements with firms manufacturing licensed Sub-Licensed Products on behalf of LIMA members should also provide for adherence to these principles.

The role of LIMA is to inform, educate, and survey its members so that individual member companies can adhere to its Code of Business Practices. As an Association, it also acts to encourage local and national governments to enforce wage and hour laws and factory health and safety laws. Specific operating conditions that member companies are encouraged to meet and obtain contractor agreement in advance are as follows:

1) LABOR

a) That wages and overtime pay practices comply with the standards set by law, including the payment of compensation for overtime hours at such premium rates as is legally required in that country, but not less than at a rate equal to their regularly hourly compensation rate.

b) That working hours must exceed prevailing local work hours in the country where the work is to be performed, except with respect to appropriately compensated overtime; must not require in excess of a 60 hour week on a regularly scheduled basis; and must permit at least one day off in every 7 day period.

c) That no one under the legal minimum age is employed in any stage of manufacturing; that a minimum age of 14 applies in all circumstances, but notwithstanding the foregoing, that C138 Minimum Age Convention (1973) and C182 Worst Forms of Child Labor Convention (1999) of the International Labor Organization apply.

d) That no forced or prison labor is employed*, that workers are free to leave once their shift ends, and that guards are posted only for normal security reasons.

e) That all workers are entitled to sick and maternity benefits as provided by law.

f) That all workers are entitled to freely exercise their rights of employee representation as provided by local law.

2) THE WORKPLACE

a) That factories provide a safe and healthy working environment for their employees and comply with or exceed all applicable local laws concerning sanitation and risk protection.

b) That the factory is properly lighted and ventilated and that aisles and exits are accessible at all times.

c) That there is adequate medical assistance available in emergencies and that designated employees are trained in first aid procedures.

d) That there are adequate and well-identified emergency exits, and that all employees are trained in emergency evacuation.

e) That protective safety equipment is available and employees are trained in its use.

f) That safeguards on machinery meet or exceed local laws.

g) That there are adequate toilet facilities which meet local hygiene requirements and that they are properly maintained.

h) That there are facilities or appropriate provisions for meals and other breaks.

i) If a factory provides housing for its employees, it will ensure that dormitory rooms and sanitary facilities meet basic needs, are adequately ventilated and meet fire safety and other local laws.

j) That all employees are treated with dignity and respect and that no employee shall be subjected to any physical, sexual, psychological or verbal harassment or abuse.

k) That no mental or physical disciplinary practices are employed.

l) That factories shall recognize and respect the rights of employees to associate, organize and bargain collectively in a lawful and peaceful manner, without penalty or interference.

m) That factories shall not discriminate on the basis of race, religion, age, nationality, social or ethnic origin, sexual orientation, gender, political opinion or disability.

3. COMPLIANCE

a) The purpose of this Code is to establish a standard of performance, to educate, and to encourage a commitment to responsible manufacturing, not to punish.

b) To determine adherence, LIMA member companies will evaluate their own facilities as well as those of their contractors. They will examine all books and records and conduct on-site inspections of the facilities and request that their contractors follow the same practices with subcontractors.

c) An annual statement of compliance with this Code should be signed by an officer of each manufacturing company or contractor.

d) Contracts for the manufacture of licensed Sub-Licensed Products should provide that a material failure to comply with the Code or to implement a corrective action plan on a timely basis is a breach of contract for which the contract may be canceled.

e) Because of the great diversity in the kinds of licensed Sub-Licensed Products manufactured and the manufacturing methods used, as well as the wide range in factory sizes and numbers of employees, a rule of reason must be used to determine applicability of these provisions.

f) This Code should be posted or available for all employees in the local language.

___________

* Many countries recognize that prison labor is essential to the rehabilitation process. This provision prohibits the exportation of prison-made goods to countries that prohibit or restrict the importation of such goods.

1

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, Neil J. Katz, certify that:

1.

I have reviewed this quarterly report on Form 10-Q 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: August 14, 2007

/s/ Neil J. Katz

Neil J. Katz,

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, Raymond J. Balsys, certify that:

1.

I have reviewed this quarterly report on Form 10-Q 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: August 14, 2007

/s/ Raymond J. Balsys

Raymond J. Balsys

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 Quarterly Report of Parlux Fragrances, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Neil J. Katz, Interim 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/ Neil J. Katz
	Neil J. Katz
	Chairman and Chief Executive Officer

August 14, 2007

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 Quarterly Report of Parlux Fragrances, Inc. (the "Company") on Form 10-Q for the period ending June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Raymond J. Balsys, 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.

August 14, 2007

By:	/s/ Raymond J. Balsys
	Raymond J. Balsys
	Chief Financial Officer