E COM VENTURES INC - 10-K Annual Report

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SECURITIES AND EXCHANGE
COMMISSION WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED JANUARY 29, 2000 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

COMMISSION FILE NUMBER 0-19714

E COM VENTURES, INC. (formerly PERFUMANIA, INC.)

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

FLORIDA (State or other jurisdiction of incorporation or organization)

65-0977964 (I.R.S. Employer Identification Number)

11701 NW 101 ST. ROAD, MIAMI, FL (Address of principal executive offices)

33178 (Zip Code)

(305) 889-1600 (Registrant's telephone number, including area code)

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

Common Stock, $.01 par value
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K [ ].

As of May 10, 2000, the number of shares of the registrant's Common Stock
outstanding was 8,419,317. The aggregate market value of the Common Stock held
by non affiliates of the registrant as of May 10, 2000 was approximately
$12,282,100, based on the closing price of the Common Stock ($2.5625) as
reported by the Nasdaq National Market on such date. For purposes of the
foregoing computation, all executive officers, directors and 5 percent
beneficial owners of the registrant are deemed to be affiliates. Such
determination should not be deemed to be an admission that such executive
officers, directors or 5 percent beneficial owners are, in fact, affiliates of
the registrant.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information called for by Part III is incorporated to the Proxy
Statement for the Annual Meeting of Shareholders of the company, which will be
filed no later than 120 days after the close of the fiscal year end.

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TABLE OF CONTENTS

ITEM PAGE
---- ----

PART I

1. Business........................................................................... 3
2. Properties......................................................................... 9
3. Legal Proceedings.................................................................. 9
4. Submission of Matters to a Vote of Security Holders................................ 10

PART II

5. Market for Registrant's Common Equity and Related Stockholder Matters.............. 11
6. Selected Financial Data............................................................ 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................................... 13
7A. Quantitative and Qualitative Disclosures About Market Risks........................ 21
8. Financial Statements and Supplementary Data........................................ 22
9. Changes in and Disagreements with Accountants in Accounting
and Financial Disclosures........................................................ 59

PART III

10. Directors and Executive Officers of the Registrant................................. 60
11. Executive Compensation............................................................. 61
12. Security Ownership of Certain Beneficial Owners and Management..................... 61
13. Certain Relationships and Related Transactions..................................... 61

PART IV

14. Exhibits, Financial Statements Schedules and Reports on Form 8-K................... 62

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FORWARD-LOOKING STATEMENTS

Certain statements within this Form 10-K constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company or its industry to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, the
Company's seasonality, lack of long-term agreements with suppliers, dependence
on line of credit, dependence on key personnel, the ability to manage the
Company's growth and potential litigation. See "Risk Factors That May Affect
Future Results" in Item 7.

PART I.

ITEM 1. BUSINESS

GENERAL

E Com Ventures, Inc. (the "Company") previously operated under the name
Perfumania, Inc. ("Perfumania"). In order to provide greater flexibility for
expansion, broaden the alternatives available for future financing and generally
provide for greater administrative and operational flexibility, on February 1,
2000, we reorganized into a holding company structure with the Company as the
holding company and Perfumania as a wholly owned subsidiary.

The reorganization was effected through the formation of the Company as a
wholly owned subsidiary of Perfumania and the formation by the Company of E Com
Sub, Inc., which was merged with and into Perfumania, with Perfumania as the
surviving corporation.

As a result of the merger, Perfumania became a wholly owned subsidiary of
the Company. The reorganization was effected in accordance with the provisions
of Florida law and approval of the shareholders of Perfumania was not required.

As a result of the merger, each outstanding share of common stock, $.01 par
value, of Perfumania issued and outstanding immediately prior to the merger, was
automatically converted into one share of common stock, $.01 par value, of the
Company. As a result, Perfumania shareholders now hold common stock in the
Company (instead of Perfumania).

Because the corporate name of the Company after the effective time of the
merger is different than the corporate name of Perfumania prior to the effective
time of the merger, Florida law requires a physical exchange of certificates.
Accordingly, certificates formerly representing shares of common stock of
Perfumania may be submitted to the Company's stock transfer agent for
replacement. The reorganization was tax free for federal income tax purposes for
the shareholders of Perfumania.

BUSINESS STRATEGY

Our Internet strategy includes the internal development and operation of
majority-owned subsidiaries as well as taking strategic positions in other
Internet related companies that have demonstrated synergies with our core
business, Perfumania. Our strategy also envisions and promotes opportunities for
synergistic business relationships among the Internet companies within our
portfolio. We believe that our strategy provides the ability to increase
shareholder value as well as provide capital to support the growth in its
subsidiaries and investments. We expect to continue to develop and refine the
products and services of our businesses, with the goal of increasing revenue as
new products are commercially introduced, and to continue to pursue the
acquisition of or the investment in, additional Internet and service capable
companies.

Perfumania is a leading specialty retailer and wholesale distributor of a
wide range of brand name and designer fragrances. As of January 29, 2000,
Perfumania operated a chain of 276 retail stores specializing in the sale of
fragrances at discounted prices up to 60% below the manufacturer's suggested
retail prices. Perfumania's wholesale division distributes approximately 1,100
stock keeping units (SKUs) of fragrances and related products to approximately
28 customers, including national and regional chains and other wholesale
distributors throughout North America and overseas.

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Currently, Perfumania is the sole operating subsidiary of the Company.
Perfumania operates its wholesale business as an unincorporated division and its
retail business is managed and owned by Magnifique Parfumes and Cosmetics, Inc.
("Magnifique"), a wholly owned subsidiary of Perfumania. For ease of reference
in this Form 10-K, Perfumania and Magnifique are referred to as segments. See
Item 6 for selected Financial Data by segment.

RETAIL SEGMENT

MARKETING AND MERCHANDISING. Each of Perfumania's retail stores offers
approximately 175 different brands of fragrances for women and men at prices up
to 60% below the manufacturer's suggested retail prices. Stores stock brand name
and designer brands such as Estee Lauder(R), Fendi(R), Yves Saint Laurent(R),
Fred Hayman(R), Calvin Klein(R), Georgio Armani(R), Gucci(R), Ralph
Lauren/Polo(R), Perry Ellis(R), Liz Claiborne(R), Giorgio(R), Hugo Boss(R),
Halston(R), Christian Dior(R), Chanel(R) and Cartier(R). Perfumania also carries
a private label line of bath & body and treatment products under the name
Jerome Privee, and a private label Nature's Elements line of cosmetics,
treatment and aromatherapy. Perfumania believes that the continued expansion of
its sales in the bath & body, cosmetic and treatment categories is very
important to its future business. These private label lines could generate more
frequent visits to Perfumania's stores and thereby increase sales. Perfumania
also intends to continue to expand its gift accessories category by offering a
wider assortment of vanity trays, perfume bottles and oil burners.

The cornerstone of Perfumania's marketing philosophy is customer awareness
that its stores offer an extensive assortment of brand name and designer
fragrances at discount prices. Perfumania posts highly visible price tags for
each item in a store, listing both the manufacturers' suggested retail price and
Perfumania's discounted prices in order to enable customers to make price
comparisons. In addition, we utilize sales promotions such as "gift with
purchase" and "purchase with purchase" offers. From time to time, we test market
in our stores additional specialty gift items.

Perfumania's stores are "full-service" stores. Accordingly, store personnel
are trained to establish a personal rapport with each customer, to identify
customer preferences with respect to both product and price range, and to
successfully conclude a sale. Management believes that attentive personal
service and knowledgeable sales personnel are key factors to the success of
Perfumania's retail stores. Perfumania's store personnel are compensated on a
salary plus bonus basis. Perfumania has several bonus programs that provide
incentives for store personnel to sell merchandise on which Perfumania has
higher profit margins. In addition, to provide an incentive to reduce expenses,
district and area managers are eligible to receive a bonus if store profit goals
are met. Management believes that a key component of Perfumania's ability to
increase profitability will be its ability to locate, train and retain store
personnel and regional and district managers. Perfumania conducts comprehensive
training programs designed to increase customer satisfaction.

Perfumania primarily relies on its distinctive store design and window
displays to attract the attention of prospective customers. Perfumania also
distributes flyers and brochures in its stores and in the malls in which its
stores are located. Perfumania has refocused a substantial portion of its
advertising from national and local newspapers, television and radio to less
expensive billboards and in-store promotions. The amount of advertising varies
with the seasonality of the business.

RETAIL STORES. Perfumania's standard store design includes signs and
merchandise displays which are designed to enhance customer recognition of
Perfumania's stores. Perfumania's stores average approximately 1,400 square
feet, although stores located in manufacturer's outlet malls tend to be larger
than Perfumania's other stores. Each store is managed by one manager and one
assistant manager. The average number of employees in a Perfumania store is
five, including part-time help. District or area managers visit stores on a
regular basis in an effort to ensure knowledgeable and attentive customer
service.

INFORMATION SYSTEMS. Perfumania has a point-of-sale and management
information system which integrates data from every significant phase of our
operations and provides us with information for planning, purchasing, pricing,
distribution, financial and human resources decisions. Inventory is received in
each location using an automated inventory tracking system. Sales and inventory
data is updated in our system each night by downloading information from our
point-of-sale system, resulting in a perpetual daily inventory. Daily
compilation of sales, gross margin and inventory data enables management to
analyze profitability and sell through by item and product line as well as to
monitor the success of sales promotions. In addition, the system prepares price
labels and pick orders and provides for automatic reordering, minimum and
maximum stocking levels and optimum order quantities based on actual sales. The
information system also has automated time and attendance modules to capture
payroll information through the stores' point-of-sale systems, E-Mail systems
allowing daily communication among the stores, district managers and the
corporate office and automated scheduling for store personnel. During fiscal
year 1999, Perfumania upgraded the merchandising, inventory management and
distribution and finance components of its management information system. During
fiscal year 2000, Perfumania intends to upgrade its register software and
hardware so that it will be able to perform promotional discounts automatically,
calculate bonuses for employees at store level, perform inventories at store
level and expand its E-Mail and printing capabilities. See "Year 2000"
discussion under Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations.

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STORE LOCATION AND EXPANSION. Perfumania's 276 stores are located in 36
states, the District of Columbia and Puerto Rico, including 50 in Florida, 33 in
New York, 22 in California and 18 in Texas. Perfumania's current business
strategy is to focus on maximizing sales and profitability at existing stores,
to continue to selectively close underperforming stores and on a limited basis,
to open new stores in proven geographic markets. When opening new stores,
Perfumania seeks locations throughout the United States principally in regional
malls and manufacturers' outlet malls and, selectively, on a stand-alone basis
in suburban shopping centers in metropolitan areas. To achieve economies of
scale with respect to advertising and management costs, Perfumania emphasizes
opening additional stores in markets where it already has a presence or to
expand into additional markets that it believes have a population density to
support a cluster of stores. Prior to selecting new store locations, Perfumania
analyzes, among other things, the potential adverse effect of competition from
new stores on the sales of existing stores.

Currently, Perfumania's average cost for opening a store is approximately
$175,000, including equipment, furniture and fixtures, build-out costs and other
items. In addition, initial inventory in a new store ranges from approximately
$100,000 during the first fiscal quarter to approximately $140,000 during the
Christmas holiday season. To supplement the inventory in its stores, Perfumania
carries at least four months supply of inventory at its warehouse.

Through May 10, 2000, Perfumania had opened 1 store and closed 9 stores in
fiscal year 2000. Perfumania opened 8 stores in fiscal year 1999, 36 stores in
fiscal year 1998 and 40 stores in fiscal year 1997, (excluding 18 seasonal
locations). Perfumania continuously monitors store performance and from time to
time have closed underperforming stores, which typically have been older stores
in undesirable locations. Perfumania attempts to schedule store closings after
the Christmas holiday season. During fiscal years 1999, 1998 and 1997,
Perfumania closed 21, 32 and 17 stores, respectively. For fiscal 2000,
Perfumania will continue to focus on improving the profitability of its existing
stores. Perfumania expects to open a maximum of 5 stores and close up to 15
during fiscal 2000.

WHOLESALE SEGMENT

Perfumania is one of the largest wholesale distributors of fragrances in the
United States. It distributes fragrances on a wholesale basis to national and
regional retail chains and other wholesale distributors throughout North America
and overseas. During fiscal years 1999 and 1998, the wholesale division sold to
approximately 28 and 41 customers, respectively. One of Perfumania's customers
accounted for 30.4% and 24.8% of net wholesale sales during fiscal year 1999 and
1998, respectively. Foreign wholesale sales during fiscal year 1999 were $2.0
million, compared to $2.9 million during fiscal year 1998. See Note 13 to the
Company's Consolidated Financial Statements included in Item 8 hereof.

Perfumania believes that its ability to extend credit has been an important
factor of wholesale sales. Most sales are made on open account terms, generally
net 30 to 60 days following the receipt of goods. Other sales, with the
exception of sales to our largest customer, are made on a basis of cash on or in
advance of delivery or upon receipt of a letter of credit. The receivable from
our largest customer was $0.1 million as of January 30, 1999. As of January 29,
2000, there was no receivable due from this customer. See Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.

The wholesale division offers its customers approximately 1,100 SKUs. The
wholesale division's strategy for purchasing merchandise is to capitalize on
market opportunities, to purchase those products that are in demand and to
purchase merchandise available due to overstock situations or close-out sales.
In addition, it takes Perfumania approximately 70 days after purchase to
receive inventory for its wholesale division and an additional 20 days for the
inventory to arrive at Perfumania's stores. As a result, the wholesale division
generally carries at least four months' supply of inventory. Perfumania's
warehouse inventory is generally higher than other retailers and wholesalers
since Perfumania purchases a large amount of its inventories from the
manufacturers and the secondary market and must assure itself of having
consistent supplies of desirable inventories at favorable prices. Some of
Perfumania's suppliers require monetary advances to purchase the inventory.

Jerome Falic, Company's President, is primarily responsible for activities
of the wholesale division. Perfumania believes that Mr. Falic has developed
strong, reliable relationships with suppliers and customers in the United
States, Europe, Asia and South America. Perfumania continuously seeks to develop
new supplier and customer relationships. The wholesale division works closely
with the retail division when determining which merchandise to purchase on
behalf of Perfumania and the retail division will frequently direct the
wholesale division to locate and purchase particular products. Perfumania
purchases merchandise on behalf of both the wholesale division and the retail
division which, we believe, allows both divisions to benefit from Perfumania's
supplier relationships and volume discounts thereby obtaining a more reliable
source of inventory at lower prices than many other wholesalers or retailers of
perfume.

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SOURCES OF SUPPLY

During fiscal years 1999 and 1998, Perfumania purchased fragrances from 155
and 126 different suppliers, respectively, including national and international
manufacturers, distributors, wholesalers, importers and retailers. Perfumania
generally makes its purchases based on the most favorable available combination
of prices, quantities and merchandise selection and, accordingly, the extent and
nature of Perfumania's purchases from its various suppliers changes constantly.
As is customary in the perfume industry, Perfumania has no long-term or
exclusive contract with any supplier.

Merchandise is purchased both directly from manufacturers and secondary
sources such as distributors, wholesalers, importers and retailers. Merchandise
purchased by Perfumania from secondary sources includes trademarked and
copyrighted products manufactured in foreign countries and trademarked and
copyrighted products manufactured in the United States that may have been sold
to foreign distributors. Substantially all of Perfumania's merchandise is
covered by trademarks or copyrights owned by others. From time to time, United
States trademark and copyright owners and their licensees and trade associations
have initiated litigation or administrative agency proceedings seeking to halt
the importation into the United States of such foreign manufactured or
previously exported trademarked products or restrict the sale of such goods in
the United States, and Federal legislation for such purposes has been proposed
but not yet adopted.

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In May 1988, the United States Supreme Court in K-MART v. CARTIER
("K-Mart"), upheld United States Customs Service regulations permitting the
importation, without the consent of the United States trademark owner, of
products manufactured overseas having legitimate foreign trademarks identical to
United States trademarks, when the foreign and United States trademarks are
owned by the same entity or entities under "common ownership or control." K-MART
also held that where the foreign trademarked goods are produced by an
unaffiliated entity authorized, but not controlled, by the United States
trademark holder, the United States Customs Service cannot permit the
importation of the goods without the consent of the United States trademark
owner. Certain federal courts have narrowly interpreted the K-MART case as
applying to a particular tariff statute, and the courts remain divided on the
extent to which trademark, copyright or other laws or regulations may restrict
the importation or sale of trademarked or copyrighted merchandise without the
consent of the trademark or copyright owner, even where the entities owning and
applying the trademark or copyright involved are under common ownership or
control. For example, in LEVER BROS. v. UNITED STATES ("LEVER BROS."), a 1993
decision, the District of Columbia Circuit Court of Appeals held that the
"common ownership or control" exception does not apply to foreign goods with an
identical trademark but with physical material differences from the product
produced by the United States trademark holder. Under LEVER BROS., such goods
are barred from importation without the permission of the United States
trademark holder. In addition, on November 23, 1992, the U.S. District Court for
the Central District of California, in an unreported decision in PARFUMS
GIVENCHY, INC. v. DRUG EMPORIUM, INC. ("PARFUMS"), which purports to follow a
decision of the Ninth Circuit Court of Appeals, held that the sale of products
manufactured abroad and imported into the United States, which would be covered
by a U.S. copyright, without the consent of the U.S. copyright holder, is a
copyright violation. This decision was upheld by the 9th Circuit Court of
Appeals and on March 6, 1995, the U.S. Supreme Court denied Certiorari, without
giving any reason. In March 1998, however, the United States Supreme Court in
QUALITY KING DISTRIBUTORS v. L'ANZA RESEARCH INTERNATIONAL ("L'ANZA"), was faced
with a situation in which a United States manufacturer had manufactured and sold
certain goods with copyrighted labels affixed to a foreign purchaser. These
goods somehow found their way from the foreign purchaser back into the United
States without L'anza's permission, and were sold by Quality King to
unauthorized retailers at discounted prices. The L'ANZA Court unanimously held
that there was no copyright violation by Quality King because the "first sale"
doctrine applied to imported copies. Although L'ANZA appears favorable to those
involved in purchasing through secondary sources, we do not know how the L'ANZA
decision will be applied to future situations.

As is often the case in the fragrance and cosmetics business, some of the
merchandise purchased by suppliers such as Perfumania may have been manufactured
by entities, particularly foreign licensees and others, who are not the owners
of the trademarks or copyrights for the merchandise. If Perfumania were called
upon or challenged by the owner of a particular trademark or copyright to
demonstrate that specific merchandise was produced and sold with the proper
authority and it was unable to do so, Perfumania could, among other things, be
restricted from reselling the particular merchandise or be subjected to other
liabilities, which could have an adverse effect on Perfumania's business and
results of operations. Perfumania may not always be able to know or to
demonstrate that the manufacturer of specific merchandise had proper authority
from the trademark or copyright owner to produce the merchandise or permit it to
be resold in the United States.

During fiscal 1999, less than 30 percent of Perfumania's merchandise was
purchased from gray market sources. Perfumania's gray market sources generally
will not disclose the identity of their suppliers, which they consider to be
proprietary trade information. As a result, Perfumania cannot determine
specifically what portion of its merchandise purchased from gray market sources
could be affected by the potential actions discussed above or actions on other
grounds. See "Item 3. Legal Proceedings" for a description of certain
litigation predicated on grounds of patent infringement. There can be no
assurance that future judicial, legislative or administrative agency action,
including possible import, export, tariff or other trade restrictions, will not
limit or eliminate some of the secondary sources of supply used by the Company
or any of Perfumania's business activities. In addition, there can be no
assurance that Perfumania's business activities will not become the subject of
legal or administrative actions brought by manufacturers, distributors or
others.

DISTRIBUTION

Perfumania's retail and wholesale operations are served by its warehouse in
Miami, Florida. The lease for the facility expires in July 2003. The warehouse
is approximately 139,000 square feet, of which 20,000 square feet is utilized as
office space. Perfumania's wholesale division also utilizes space in a third
party bonded warehouse.

Perfumania delivers merchandise utilizing its own trucks to its South
Florida stores and utilizes independent national trucking companies to deliver
merchandise to stores outside of the South Florida area. Deliveries generally
are made weekly, with more frequent deliveries during the Christmas holiday
season. Such deliveries permit the stores to minimize inventory storage space,
and increase the space available for display and sale of merchandise. Perfumania
ships merchandise to wholesale customers by truck, ship or plane. In addition,
in order to expedite delivery of merchandise to its customers, Perfumania
sometimes instructs its suppliers to ship merchandise directly to wholesale
division customers.

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COMPETITION

The retail and wholesale perfume businesses are highly competitive.
Perfumania's retail competitors include department stores, regional and national
retail chains, independent drug stores, duty free shops and other specialty
retail stores. Perfumania is the largest specialty retailer of discounted
fragrances in the United States in terms of number of stores. Some of
Perfumania's competitors sell fragrances at discount prices, and some are part
of large national or regional chains that have substantially greater resources
and name recognition than Perfumania. Perfumania's stores compete on the basis
of selling price, customer service, merchandise variety, store location and
ambiance. Perfumania believes that its European-style perfumeries concept,
full-service sales staff, discount prices, large and varied selection of brand
name and designer fragrances and attractive shopping environment are important
to its competitive position.

Perfumania is one of the largest wholesale distributors of fragrances in
the United States. The wholesale division competes directly with other perfume
wholesalers and perfume manufacturers, some of which have substantially greater
resources or merchandise variety than Perfumania. The wholesale division
competes principally on the basis of merchandise selection and availability,
selling price and rapid delivery.

EMPLOYEES

At January 29, 2000, Perfumania had 1,592 employees, of whom 1,434 were
employed in Perfumania's retail stores, 68 were employed in Perfumania's
warehouse and distribution operations and the balance were employed in
executive, administrative and other positions. Temporary and part-time employees
are usually added during peak sales periods (principally between Thanksgiving
and Christmas). None of Perfumania's employees are covered by a collective
bargaining agreement and Perfumania considers its relationship with its
employees to be good.

TRADE NAME AND SERVICE MARK

Perfumania's stores use the trade name and service mark Perfumania(R).
Perfumania also operates 2 stores under the trade name "Nature Elements", 4
stores under the trade name "Class Perfumes" in malls where the Company also
operates a Perfumania(R) store, and 10 stand-alone stores under the trade name
"Perfumania Plus". Perfumania has common law rights to its trade names and
service mark in those general areas in which its existing stores are located and
has registered the service mark Perfumania(R) with the U.S. Patent and Trademark
Office. The registration expires in 2009 and may be renewed for 10-year terms
thereafter.

PERFUMANIA.COM

In February 1999, through a then wholly owned subsidiary, perfumania.com,
inc., we began operation of an Internet commerce site, "perfumania.com".
perfumania.com, inc. capitalizes on Perfumania's name recognition and cross
marketing opportunities with its stores to become a top discount retailer of
fragrance and related products on the Internet. All orders placed with the
Internet site are shipped from the Company's existing distribution center in
Miami, Florida.

On September 29, 1999, perfumania.com, inc., which at the time was a wholly
owned subsidiary of Perfumania, made an initial public offering of its common
stock representing approximately 47% of the common stock outstanding following
the offering. perfumania.com, inc. offered 3,500,000 shares of its common stock,
which included 1,000,000 shares held by Perfumania. The offering raised
approximately $22.0 million, net of offering costs. perfumania.com, inc.
received net proceeds from the initial public offering of approximately $15.6
million which were used for working capital and other general corporate
purposes, including repayment of any outstanding indebtedness to Perfumania. In
connection with the public offering, the Company recorded a $9.7 million
increase in additional paid-in capital representing its then 53% (four million
shares) interest in perfumania.com, inc.'s net proceeds in the initial public
offering under the equity method of accounting.

On October 4, 1999, Perfumania sold certain assets to perfumania.com, inc.
consisting primarily of an e-commerce greeting card website for $500,000, of
which $450,000 has been reflected as a dividend, since the Company's cost basis
in such assets amounted to $50,000.

On December 10, 1999, we signed an Option Agreement (the "Agreement") with
an investment firm granting the investment firm two options to acquire up to
2,500,000 shares of perfumania.com, inc. from Perfumania for consideration in
the amount of $12,500. The investment firm exercised the first option for the
2,000,000 shares on January 11, 2000 and the Company realized proceeds of
$12,000,000. In connection with such exercise, and upon satisfaction of
applicable SEC regulations, nominees of the investment firm were appointed to
constitute the majority of the members of the board of directors of
perfumania.com, inc. The Agreement also limits the amount of shares of
perfumania.com, inc. that may be sold by the Company, as well as the timing of
these sales.

Perfumania's investment in and advances to partially-owned equity
affiliates consisted of a 26.67% (two million shares) interest in
perfumania.com, inc. which totaled approximately $2.6 million and advances in
the amount of approximately $255,000 as of January 29, 2000. Perfumania's
accumulated deficit as of January 29, 2000 includes the equity in the net loss
of perfumania.com, inc. totaling approximately $3.2 million.

On February 10, 2000, Envision Development Corporation ("EDC") entered into
a plan of merger with perfumania.com, inc. The plan of merger provided for among
other things, the merger of a wholly owned subsidiary of EDC with
perfumania.com, inc. As a result, perfumania.com, inc. became a direct
wholly-owned subsidiary of EDC and each share of common stock, par value $0.01
per share, of perfumania.com, inc. issued and outstanding before the plan of
merger was converted into and exchanged for one share of common stock, par value
$0.01 per share, of EDC.

On April 29, 2000 we acquired 100% of the outstanding common stock of
perfumania.com, inc. from EDC in exchange for 400,000 shares of EDC common stock
held by the Company. In addition, we sold another 100,000 shares of EDC common
stock for $2.5 million to a majority shareholder of EDC, and in a related
transaction, the investment firm referred to above exercised its second option
under the Agreement noted above to acquire 500,000 shares of EDC common stock at
$8.00 per share. Total cash proceeds to the Company resulting from these
transactions amounted to $6.5 million. The Company continues to own one million
shares of EDC common stock subject to limitation on the number of shares that
can be sold by the Company, as well as the timing of these sales.

RECENT DEVELOPMENTS

On May 12, 2000, Perfumania entered into a three-year senior secured credit
facility with GMAC Commercial Credit LLC that provides for borrowings of
up to $40 million. The new credit facility replaces the LaSalle National Bank
credit facility which was to expire May 31, 2000. Advances under the line of
credit are based on a formula of eligible inventories and will bear interest at
the lender's prime rate for the first six months of the term. After the first
six months, the interest rate will be adjusted on a quarterly basis and will
vary based on a formula set forth in the credit agreement. Advances will be
secured by a first lien on all assets of Perfumania and the assignment of life
insurance policies on two officers of Perfumania. The line will contain
limitations on additional borrowings, capital expenditures and other items, and
will contain various financial covenants including net worth and fixed charges
coverage.

In March 2000, we acquired approximately 5% of the outstanding shares of
common stock of The Sportsman's Guide, Inc., a marketer of value priced outdoor
gear and general merchandise for approximately $1.4 million. The Sportsman's
Guide, Inc. offers its products via various catalogues and the Internet. The
Company also signed a letter of intent to acquire additional shares of common
stock of The Sportsman's Guide, Inc., representing approximately an additional
11% of its outstanding shares of common stock. This transaction is subject to
due dilligence and to date has not yet been completed.

On March 6, 2000, we signed a letter of intent to acquire a 30% interest
in Cellpoint Corporation, Inc., an Internet based distributor and retailer of
wireless electronic equipment that sells its products both retail and wholesale,
domestically and internationally. This transaction is subject to due diligence
and to date has not been completed.

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On April 6, 2000, we signed a letter of intent to acquire a 30% interest
in Backus Turner International, a company involved in Internet advertising
media. This transaction is subject to due diligence and to date has not been
completed.

On March 27, 2000, we entered into a Securities Purchase Agreement and
issued an aggregate of $5 million worth of Series D Convertible Notes, which are
convertible into common stock. The notes contain a beneficial conversion feature
of approximately $1.4 million which was recorded by the Company as a non-cash
interest charge to income in the first quarter of fiscal year 2000. The notes
bear interest at 8% and are payable in full in March 2003. In April 2000, we
filed a registration statement with the Securities and Exchange Commission to
register the resale of the shares of common stock issuable upon conversion of
the notes. The conversion price is the lower of (A) $7.76 per share, subject to
adjustment or (B) the floating conversion price determined by multiplying (1)
the average closing bid price of the common stock for the three trading days
immediately preceding the date of determination, by (2) 80%, subject to
adjustment. The conversion price may be adjusted pursuant to antidilution
provisions in the convertible note.

On March 9, 2000, we entered into a Securities Purchase Agreement and
issued an aggregate of $4 million worth of Series C Convertible Notes, which are
convertible into common stock. The notes contain a beneficial conversion feature
of approximately $1.2 million which was recorded by the Company as a non-cash
interest charge to income in the first quarter of fiscal year 2000. The notes
bear interest at 8% and are payable in full in March 2003. In April 2000, we
filed a registration statement with the Securities and Exchange Commission to
register the resale of the shares of common stock issuable upon conversion of
the notes. The conversion price is the lower of (A) $9.58 per share, subject to
adjustment or (B) the floating conversion price determined by multiplying (1)
the average closing bid price of the common stock for the three trading days
immediately preceding the date of determination, by (2) 80%, subject to
adjustment. The conversion price may be adjusted pursuant to antidilution
provisions in the convertible note.

In March 2000, we loaned $1,000,000 to Take To Auction.Com, Inc., (the
"Obligor"), a Florida corporation whose Chairman of the Board of Directors is
the same individual as the Company's Chairman of the Board of Directors,
pursuant to the terms of a related convertible promissory note (the "Note"). The
principal balance of the Note is payable on March 8, 2002, and interest, which
accrues at a rate of six percent per annum, is payable semi-annually on the 9th
day of each September and March commencing September 9, 2000. During the
subscription period, as defined below, the Company has the right to convert all
of the principal amount of the Note into shares of the Obligor's common stock at
a conversion price per share equal to the price offered to the public specified
on the cover page of the final prospectus of the Obligor's Registration
Statement relating to the initial public offering of the common stock of the
Obligor. The subscription period is fourteen days immediately following the
effective date of the Registration Statement. The Obligor's initial public
offering is planned to occur in May 2000.

We have also been granted a warrant (the "Warrant") to purchase 300,000
shares of the Obligor's common stock at a price per share equal to the price
offered to the public specified on the cover page of the final prospectus of the
Obligor's Registration Statement relating to the initial public offering of the
common stock. The Warrant may be exercised in whole or in part at any time
commencing on the business day immediately following the effective date of the
Registration Statement and expiring on the first anniversary of the effective
date of the Registration Statement. The warrant agreement includes certain
anti-dilution provisions including recapitalization of the Obligor's common
stock and merger of the Obligor.

ITEM 2. PROPERTIES

Perfumania's executive offices and warehouse are leased for a ten (10)
year period through 2003 pursuant to a lease which currently provides for
monthly rent of approximately $70,000 and specified annual increases thereafter.

All of Perfumania's retail stores are located in leased premises. Most of
the store leases provide for the payment of a fixed amount of base rent plus a
percentage of sales, ranging from 3% to 10%, over certain minimum sales levels.
Store leases typically require Perfumania to pay all utility charges, insurance
premiums, increases in property taxes and certain other costs. Certain of
Perfumania's leases permit the lessor to terminate the lease if specified
minimum sales levels are not met. See Note 12 to the Company's Consolidated
Financial Statements included in item 8 hereof, for additional information with
respect to the Company's store leases.

ITEM 3. LEGAL PROCEEDINGS

LEGAL PROCEEDINGS

BOUCHERON. In December 1993, the patent holder and exclusive licensee in
the U.S. of Boucheron filed a complaint against Perfumania in the United States
District Court for the Southern District of New York alleging that we infringed
upon their exclusive right to sell the Boucheron bottle and sought $1.5 million

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10

in damages. In December 1999, both parties entered into a settlement agreement
whereby the Company paid the plaintiff $50,000 and agreed not to sell any
product bearing the name "Boucheron", unless such product is obtained directly
from Boucheron USA or another distributor authorized to sell to retail stores.

OTHER. Perfumania was characterized as an insider as defined by the United
States Bankruptcy Code, in the liquidating plan of reorganization filed on April
6, 1998 by L. Luria & Son, Inc. in the United States Bankruptcy Court, Southern
District of Florida. In October 1998, the committee of unsecured creditors in
Luria's bankruptcy proceedings filed a complaint with the United States
Bankruptcy Court, Southern District of Florida to recover substantial funds from
the Company. The complaint alleged that Luria's made preference payments, as
defined by the Bankruptcy Court, to the Company and sought to recover preference
payments, and sought to disallow any and all claims of the Company against
Luria's until the Company paid for the preference payments. In July 1999, the
Company agreed with the committee of unsecured creditors to settle all claims
held by Luria's against us for the sum of $1.2 million, payable over nine months
according to a repayment schedule. This settlement was approved by the
Bankruptcy Court in November 1999. The full amount of the settlement was accrued
in the accompanying financial statements for the year ended January 30, 1999 and
subsequently paid off in April 2000.

From time to time, we have been involved in various legal proceedings in
the ordinary course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

On December 22, 1999, we held our annual meeting of shareholders. At the
annual meeting, the shareholders elected Ilia Lekach, Jerome Falic, Marc Finer,
Donovan Chin, Robert Pliskin, Carole Ann Taylor, Horacio Groisman, M.D. and
Zalman Lekach to the Board of Directors.

SHARES SHARES VOTED SHARES VOTED ABSTAIN/
TOTAL VOTED FOR AGAINST WITHHELD NON-VOTES
- ----------------- --------- ----------------- ------- ---------- ------------

Ilia Lekach 8,875,419 8,664,069 -- 211,350 295,448
Jerome Falic 9,170,867 8,669,469 -- 205,950 295,448
Marc Finer 9,170,867 8,664,969 -- 210,450 295,448
Donovan Chin 9,170,867 8,668,569 -- 206,850 295,448
Robert Pliskin 9,170,867 8,665,069 -- 210,350 295,448
Carole Ann Taylor 9,170,867 8,665,069 -- 210,350 295,448
Zalman Lekach 9,170,867 8,665,069 -- 210,350 295,448
Horacio Groisman, M.D 9,170,867 8,664,069 -- 211,350 295,448

In addition, the shareholders voted in favor of increasing to 4,000,000 the
number of shares reserved for issuance pursuant to our 1991 Stock Option Plan.

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PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

MARKET INFORMATION

Our Common Stock is traded on the Nasdaq Stock Market under the symbol ECMV,
formally under PRFM until February 1, 2000. The following table sets forth the
high and low closing sales prices for our Common Stock for the periods
indicated, as reported by the Nasdaq Stock Market.

FISCAL 1998 HIGH LOW
- ----------- ---- ---

First Quarter $3 1/4 $2 1/4
Second Quarter $2 13/16 $1 9/16
Third Quarter $1 11/16 $ 13/32
Fourth Quarter $12 $ 17/32

FISCAL 1999 HIGH LOW
- ----------- ---- ---

First Quarter $8 11/16 $2 3/4
Second Quarter $4 7/32 $3
Third Quarter $4 1/4 $2 5/16
Fourth Quarter $5 13/32 $3 1/8

As of May 10, 2000, there were 69 holders of record, which excluded common
stock held in street name, of the 8,419,317 outstanding shares of Common Stock.
The closing sales price for the Common Stock on May 10, 2000 was $2.5625 per
share.

DIVIDEND POLICY

We have not declared or paid any dividends on our Common Stock and do not
currently intend to declare or pay cash dividends in the foreseeable future.
Payment of dividends, if any, will be at the discretion of the Board of
Directors after taking into account various factors, including our financial
condition, results of operations, current and anticipated cash needs and plans
for expansion. We are prohibited from paying cash dividends under Perfumania's
line of credit with GMAC Commercial Credit LLC.

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ITEM 6. SELECTED FINANCIAL DATA

The selected financial data presented below for the last five fiscal years
and as of the end of each such fiscal years are derived from our consolidated
financial statements and should be read in conjunction with such financial
statements and related notes.

Our fiscal year end is the Saturday closest to January 31. All references
herein to fiscal years are to the calendar year in which the fiscal year begins;
for example, fiscal year 1999 refers to the fiscal year that began on January
31, 1999 and ended on January 29, 2000.

FISCAL YEAR ENDED
---------------------------------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 1, FEBRUARY 3,
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------

(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)

STATEMENT OF OPERATIONS DATA:
Net sales, wholesale division ..................... $ 36,975 $ 40,466 $ 34,032 $ 30,317 $ 36,200
Net sales, retail division ........................ 155,953 134,790 129,562 108,603 92,957
------------ ------------ ------------ ------------ ------------
Total net sales ................................ 192,928 175,256 163,594 138,920 129,157
------------ ------------ ------------ ------------ ------------
Gross profit, wholesale division .................. 7,019 7,545 7,942 7,614 8,784
Gross profit, retail division ..................... 68,613 57,072 58,032 52,346 43,384
------------ ------------ ------------ ------------ ------------
Total gross profit ............................. 75,632 64,617 65,974 59,960 52,168
------------ ------------ ------------ ------------ ------------
Selling, general and administrative expenses ...... 71,354 72,502 64,219 48,165 43,372
Provision for doubtful accounts ................... 60 -- 1,730 500 310
Provision for impairment of assets and store
closings ....................................... 3,427 1,035 2,515 169 1,232
Depreciation and amortization ..................... 4,725 4,480 4,698 3,772 3,300
------------ ------------ ------------ ------------ ------------
Total operating expenses ....................... 79,566 78,017 73,162 52,606 48,214
------------ ------------ ------------ ------------ ------------
(Loss) income from operations before other income
(expense) ...................................... (3,934) (13,400) (7,188) 7,354 3,954
Other income (expense)
Interest expense, net* ......................... (6,589) (4,882) (4,696) (4,110) (3,144)
Equity in loss of partially-owned
affiliate .................................... (3,165) -- -- -- --
Gain on sale of affiliate's common stock ....... 14,974 -- -- -- --
Other income (expense),net ..................... (118) 645 762 478 396
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes* ................ 1,168 (17,637) (11,122) 3,722 1,206
(Provision) benefit for income taxes .............. (124) (1,337) 321 (1,647) 796
------------ ------------ ------------ ------------ ------------
Income (loss) before cumulative effect of change
in accounting principle * ...................... 1,044 (18,974) (10,801) 2,075 2,002

Cumulative effect of change in accounting
principle, net of income tax benefit
of $381......................................... -- -- (632) -- --
------------ ------------ ------------ ------------ ------------
Net income (loss)* ................................ $ 1,044 $ (18,974) $ (11,433) $ 2,075 $ 2,002
============ ============ ============ ============ ============
Weighted average shares outstanding:
Basic .......................................... 8,218,638 6,659,882 7,025,236 7,183,462 6,973,670
Diluted ........................................ 10,267,619 6,659,882 7,025,236 7,633,588 7,067,291

Basic income (loss) per share before cumulative
effect of change in accounting principle*...... $ 0.13 $ (2.85) $ (1.54) $ 0.29 $ 0.29
Diluted income (loss) per share before cumulative
effect of change in accounting principle* ...... $ 0.10 $ (2.85) $ (1.54) $ 0.27 $ 0.28

Basic income (loss) per share after cumulative
effect of change in accounting principle* ...... $ 0.13 $ (2.85) $ (1.63) $ 0.29 $ 0.29

Diluted income (loss) per share after cumulative
effect of change in accounting principle* ...... $ 0.10 $ (2.85) $ (1.63) $ 0.27 $ 0.28

SELECTED OPERATING DATA:
Number of stores open at end of period ............ 276 289 285 262 194
Comparable store sales increase ................... 12.9% 0% 0% 3.6% 4.1%

BALANCE SHEET DATA:
Working capital (deficit) ......................... $ 8,687 $ (3,835) $ 18,473 $ 32,614 $ 29,688
Total assets ...................................... 105,656 95,129 113,908 129,365 93,026
Long-term debt, less current portion(1) ........... 5,032 3,404 5,643 5,708 1,815
Total shareholders' equity ........................ 30,689 17,636 35,169 48,782 44,761

- -------------
* Net income and the net income per share for fiscal year 1996 was restated
to account for the value attributable to the beneficial conversion feature
on certain debt issued in fiscal year 1996.
(1) Amount includes redeemable common equity of $471 as of January 30, 1999 but
does not include long-term severance payables of $191 and $1,038 as of
January 29, 2000 and January 30, 1999, respectively.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

GENERAL

During the last three fiscal years, Perfumania's retail division has
accounted for the majority of our net sales and gross profit. Perfumania's
overall profitability depends principally on our ability to purchase a wide
selection of merchandise at favorable prices. Other factors affecting our
profitability include general economic conditions, the availability to
Perfumania of volume discounts and, in the retail division, the number of stores
in operation, the timing of store openings and closings and the effect of
special promotions offered by Perfumania.

The following table sets forth items from our Consolidated Statements of
Operations expressed as a percentage of total net sales for the periods
indicated:

PERCENTAGE OF NET SALES

FISCAL YEAR
------------------------------
1999 1998 1997
---- ---- ----

Net sales, wholesale division .......................... 19.2% 23.1% 20.8%
Net sales, retail division ............................. 80.8 76.9 79.2
----- ----- -----
Total net sales ..................................... 100.0 100.0 100.0
Gross profit, wholesale division ....................... 19.0 18.6 23.3
Gross profit, retail division .......................... 44.0 42.3 44.8
----- ----- -----
Total gross profit .................................. 39.2 36.9 40.3
Selling, general and administrative expenses ........... 36.9 41.4 39.2
Provision for doubtful accounts ........................ -- -- 1.1
Provision for impairment of assets and store closings .. 1.8 0.6 1.5
Depreciation and amortization .......................... 2.5 2.6 2.9
----- ----- -----
Total operating expenses ............................ 41.2 44.6 44.7
----- ----- -----
Loss from operations before other income (expense) ..... (2.0) (7.7) (4.4)
----- ----- -----
Other income (expense):
Interest expense, net ............................... (3.4) (2.8) (2.9)
Equity in loss of partially-owned affiliate ......... (1.7) -- --
Gain on sale of affiliate's common stock ............ 7.8 -- --
Other income (expense), net ......................... (0.1) 0.4 0.5
----- ----- -----
Income (loss) before income taxes ...................... 0.6 (10.1) (6.8)
(Provision) benefit for income taxes ................... (0.1) (0.8) 0.2
----- ----- -----
Income (loss) before cumulative effect of change in
accounting principle and extraordinary item .......... 0.5 (10.9) (6.6)
Cumulative effect of change in accounting principle,
net of income tax benefit ............................ -- -- (0.4)
----- ----- -----
Net income (loss) ...................................... 0.5% (10.9)% (7.0)%
===== ===== =====

RESULTS OF OPERATIONS

RISK FACTORS THAT MAY AFFECT FUTURE RESULTS

THE COMPANY DOES NOT PROVIDE FORECASTS OF FUTURE FINANCIAL PERFORMANCE.
Forward-looking statements in this Annual Report are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995, and,
in connection therewith, the Company wishes to caution readers that the
following important factors, among others, in some cases have affected and in
the future could affect the Company's actual results and could cause such
results to differ materially from those expressed in forward-looking statements
made by or on behalf of the Company.

WE MAY HAVE PROBLEMS RAISING THE MONEY NEEDED IN THE FUTURE. Our growth
strategy includes investment in and acquisition of Internet related businesses.
We may need to obtain funding to achieve our growth strategy. Additional
financing may not be available on acceptable terms if at all. In order to obtain
additional financing, we may be required to issue securities with greater rights
than those currently possessed by holders of our common stock. We may also be
required to take other actions which may lessen the value of our common stock,
including borrowing money on terms that are not favorable to us.

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THE COMPANY'S SUCCESS DEPENDS SIGNIFICANTLY ON INCREASED USE OF THE
INTERNET BY BUSINESSES AND INDIVIDUALS. The Company's success depends
significantly on increased use of the Internet for advertising, marketing,
providing services, and conducting business. Commercial use of the Internet is
currently at an early stage of development and the future of the Internet is not
clear. Our business strategy will suffer if commercial use of the Internet fails
to grow in the future.

THE COMPANY'S STRATEGY OF EXPANDING OUR BUSINESS THROUGH ACQUISITIONS AND
INVESTMENTS IN OTHER BUSINESSES AND TECHNOLOGIES PRESENTS SPECIAL RISKS. The
Company intends to expand through the acquisition of and investment in other
businesses. Acquisitions involve a number of special problems, including:

- difficulty integrating acquired technologies, operations, and
personnel with our existing business;
- diversion of management's attention in connection with both
negotiating the acquisitions and integrating the assets;
- the need to incur additional debt;
- strain on managerial and operational resources as management tries
to oversee larger operations; and
- exposure to unforeseen liabilities of acquired companies.

We may not be able to successfully address these problems. Moreover, our
future operating results will depend to a significant degree on our ability to
successfully manage growth and integrate acquisitions. In addition, many of our
investments will be in early-stage companies with limited operating histories
and limited or no revenues. We may not be able to successfully develop these
young companies.

IF THE UNITED STATES OR OTHER GOVERNMENTS REGULATE THE INTERNET MORE
CLOSELY, THE COMPANY'S BUSINESS MAY BE HARMED. Because of the Internet's
popularity and increasing use, new laws and regulations may be adopted. These
laws and regulations may cover issues such as privacy, pricing, taxation and
content. The enactment of any additional laws or regulations may impede the
growth of the Internet and our Internet-related business and could place
additional financial burdens on our business.

TO SUCCEED, THE COMPANY MUST RESPOND TO THE RAPID CHANGES IN TECHNOLOGY
AND DISTRIBUTION CHANNELS RELATED TO THE INTERNET. The markets for our Internet
products and services are characterized by:

- rapidly changing technology;
- evolving industry standards;
- frequent new product and service introductions;
- shifting distribution channels; and
- changing customer demands.

The Company's success will depend on our ability to adapt to this rapidly
evolving marketplace. We may not be able to adequately adapt our products and
services or to acquire new products and services that can compete successfully.

WE ARE SUBJECT TO INTENSE COMPETITION. The market for Internet products and
services is highly competitive. Moreover, the market for Internet products and
services lacks significant barriers to entry, enabling new businesses to enter
this market relatively easily. Competition in the market for Internet products
and services may intensify in the future. Numerous well-established companies
and smaller entrepreneurial companies are focusing significant resources on
developing and marketing products and services that will compete with our
products and services. In addition, many of our current and potential
competitors have greater financial, technical, operational, and marketing
resources. We may not be able to compete successfully against these competitors
in developing our services. Competitive pressures may also force prices for
Internet goods and services down and such price reductions may affect our
potential future revenue.

FUTURE GROWTH MAY PLACE STRAINS ON OUR MANAGERIAL, OPERATIONAL AND
FINANCIAL RESOURCES. If we grow as expected, a significant strain on our
managerial, operational and financial resources may occur. Further, as the
number of our users, advertisers and other business partners grows, we will be
required to manage multiple relationships with various customers, strategic
partners and other third parties. Future growth or increase in the number of our
strategic relationships will strain our managerial, operational and financial
resources, inhibiting our ability to achieve the rapid execution necessary to
successfully implement our business plan. In addition, our future success will
also depend on our ability to expand our sales and marketing organization and
our support organization commensurate with the growth of our business and the
Internet.

SEASONALITY. Perfumania has historically experienced higher sales in the
third and fourth fiscal quarters than in the first and second fiscal quarters.
Significantly higher fourth fiscal quarter retail sales result from increased
purchases of fragrances as gift items during the Christmas holiday season. The
Company's quarterly results may also vary due to the timing of new store
openings, net sales contributed by new stores and fluctuations in comparable
sales of existing stores. A variety of factors affect the sales levels of new

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and existing stores, including the retail sales environment and the level of
competition, the effect of marketing and promotional programs, acceptance of new
product introductions, adverse weather conditions and general economic
conditions.

LACK OF LONG-TERM AGREEMENTS WITH SUPPLIERS. The Company's success depends
to a large degree on its ability to provide an extensive assortment of brand
name and designer fragrances. The Company has no long-term purchase contracts or
other contractual assurance of continued supply, pricing or access to new
products. While the Company believes it has good relationships with its vendors,
the inability to obtain merchandise from one or more key vendors on a timely
basis, or a material change in the Company's ability to obtain necessary
merchandise could have a material adverse effect on its results of operations.

DEPENDENCE ON LINE OF CREDIT. As discussed above, Perfumania experiences
significant seasonal fluctuations in its sales and operating results, as is
common with many specialty retailers. Perfumania utilizes its line of credit to
fund inventory purchases and to support new retail store openings. Any future
limitation on our borrowing ability and access to financing could limit the
Company's ability to open new stores and to obtain merchandise on satisfactory
terms.

On May 12, 2000, Perfumania entered into a three-year senior secured
credit facility with GMAC Commercial Credit LLC that provides for borrowings of
up to $40 million. Advances under the line of credit are based on a formula of
eligible inventories and will bear interest at the lender's prime rate for the
first six months of the term. After the first six months, the interest rate will
be adjusted on a quarterly basis and will vary based on a formula set forth in
the credit agreement. Advances will be secured by a first lien on all assets of
Perfumania and assignment of life insurance policies on two officers of the
Company. The line contains limitations on additional borrowings, capital
expenditures and other items, and contains various financial covenants including
net worth and fixed charges coverage. The new credit facility replaces the
LaSalle National Bank credit facility, which was to expire May 31, 2000, and
accordingly no waiver of covenant violations was obtained from LaSalle National
Bank.

DEPENDENCE ON KEY PERSONNEL. Jerome Falic, the Company's President, is
primarily responsible for Perfumania's merchandise purchases, and has developed
strong, reliable relationships with suppliers, as well as customers of the
wholesale division in the United States, Europe, Asia and South America. The
loss of his service, or any of Perfumania's other current executive officers,
could have a material adverse effect on us.

ABILITY TO MANAGE GROWTH. While our retail operations have grown
significantly in the past several years, there is no assurance that this will
continue. Our growth is largely dependent upon our ability to open and operate
new retail stores on a profitable basis, which in turn is subject to, among
other things, our ability to secure suitable store sites on satisfactory terms,
its ability to hire, train and retain qualified management and other personnel,
the availability of adequate capital resources and the successful integration of
new stores into existing operations. There can be no assurance that our new
stores will achieve sales and profitability comparable to existing stores, or
that the opening of new locations will not cannibalize sales at existing
locations.

LITIGATION. As is often the case in the fragrance and cosmetics business,
some of the merchandise purchased by suppliers such as Perfumania may have been
manufactured by entities who are not the owners of the trademarks or copyrights
for the merchandise. If Perfumania were called upon or challenged by the owner
of a particular trademark or copyright to demonstrate that the specific
merchandise was produced and sold with the proper authority and the Company were
unable to do so, the Company could, among other things, be restricted from
reselling the particular merchandise or be subjected to other liabilities, which
could have an adverse effect on the Company's business and results of
operations.

YEAR 2000 ISSUES. While we have worked diligently to bring our own systems
into Year 2000 compliance and believes that the transition was successful, there
can be no assurance that we will not have Year 2000 related problems in the
future. We have also endeavored to ensure that our suppliers, vendors and major
customers are Year 2000 compliant. While we have not encountered any significant
difficulties thus far during 2000, there can be no assurance that all such
suppliers, vendors or major customers did, in fact, become Year 2000 compliant
on a timely basis. In addition to the business risks inherent in the Year 2000
issues, there is also the possibility of litigation from customers and other
parties claiming to have been damaged by failures of our products and/or
services. While we fully expect to rely on certain protections afforded under
federal legislation passed in 1999 as well as on indemnifications from suppliers
of various products, there is a possibility that certain claims might not be
barred by this legislation or might not be susceptible to indemnification and
that the results of such litigation could have a material adverse effect on our
business.

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OTHER. In December 1993, the patent holder and exclusive licensee in the
U.S. of Boucheron filed a complaint against us in the United States District
Court for the Southern District of New York alleging that the Company infringed
upon their exclusive right to sell the Boucheron bottle and was seeking $1.5
million in damages. In December 1999, both parties entered into a settlement
agreement whereby the Company paid the plaintiff $50,000 and agreed not to sell
any product bearing the name "Boucheron", unless such product is obtained
directly from Boucheron USA or another distributor authorized to sell to retail
stores.

COMPARISON OF FISCAL YEARS 1999 AND 1998

NET SALES

Net sales increased 10.1% from $175.3 million in fiscal year 1998 to $193.0
million in fiscal year 1999. The increase in net sales during fiscal year 1999
was due to a 15.7% increase in retail sales (from $134.8 million to $156.0
million), offset by an 8.6% decrease in wholesale sales (from $40.5 million to
$37.0 million). The increase in retail sales was principally due to a 12.9%
increase in Perfumania's comparable stores sales compared to the prior year, as
the average number of stores operated during fiscal year 1999 compared to fiscal
year 1998 decreased from 287 in fiscal 1998 to 283 in fiscal 1999. We believe
the increase in Perfumania's comparable sales was due to an improved merchandise
assortment at our retail stores. Perfumania operated 276 and 289 stores at the
end of fiscal years 1999 and 1998, respectively. The decrease in wholesale sales
was due to our efforts in fiscal 1998 to reduce inventory levels of certain
non-designer fragrances.

GROSS PROFIT

Gross profit increased 17.0% from $64.6 million in fiscal year 1998 (36.9%
of total net sales) to $75.6 million in fiscal year 1999 (39.2% of total net
sales) as a result of higher sales and gross profit in the retail division and
by higher gross profit in the wholesale division and higher inventory loss
provisions (see below) in fiscal 1998.

Gross profit for the wholesale division decreased from $7.5 million in
fiscal year 1998 to $7.0 million in fiscal year 1999. The wholesale division's
gross margin in fiscal 1999 was 19.0% compared to 18.6% in fiscal year 1998. The
decrease in gross margin was due to the decrease in sales of non-designer
fragrances in the wholesale division. Wholesale sales historically yield a lower
gross margin when compared to retail sales.

Gross profit for the retail division increased 20.2% from $57.1 million in
fiscal year 1998 to $68.6 million in fiscal year 1999, principally as a result
of higher retail sales volume. As a percentage of net retail sales, gross profit
for the retail division increased from 42.3% in fiscal year 1998 to 44.0% in
fiscal year 1999. The increase was due to decreases in the inventory provisions
and freight expense offset by increases in inventory shrinkage compared to the
prior year.

OPERATING EXPENSES

Operating expenses increased $1.5 million in fiscal year 1999 compared to
fiscal year 1998, due principally to a $2.4 million increase in provision for
impairment of assets and store closing. Depreciation and amortization increased
$0.2 million in fiscal year 1999 compared to fiscal year 1998. As a percentage
of net sales, operating expenses decreased from 44.5% in fiscal year 1998 to
41.2% in fiscal year 1999, due to 1) the impact of Perfumania's higher
comparable retail store sales and the closure of underperforming store locations
in fiscal 1999 and 1998, and 2) a $1.9 million charge in fiscal 1998 related to
severance agreements with two executive officers, offset by a $1.0 million
charge in fiscal 1999 to write off a convertible note receivable and a $1.0
million write off of advances to a suppliers. (see Liquidity and Capital
Resources).

INTEREST EXPENSE

Interest expense (net) increased 34.9% from $4.9 million in fiscal year 1998
to $6.6 million in fiscal 1999. The increase was principally due to the issuance
of $4 million in convertible notes in April and July 1999, and the resulting
non-cash interest charges of approximately $1.4 million. See "Liquidity and
Capital Resources."

GAIN ON SALE OF AFFILIATE COMMON STOCK

Gain on the sale of an affiliate's common stock totaled $15.0 million in
1999. The gain is attributable to the sale of 1,000,000 shares of
perfumania.com, inc. common stock, offered as part of perfumania.com, inc.'s
initial public offering on September 29, 1999 by the Company, and the exercise
of an option agreement by an investment firm to purchase 2,000,000 shares of
perfumania.com,inc. common stock from the Company in January 2000.

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INCOME TAXES

The provision for income taxes in fiscal 1999 was $124,000.

As a result of the foregoing, we had a net income of $1.0 million in
fiscal 1999 compared to a net loss of $19.0 million in fiscal 1998.

COMPARISON OF FISCAL YEARS 1998 AND 1997

NET SALES

Net sales increased 7.1% from $163.6 million in fiscal year 1997 to $175.3
million in fiscal year 1998. The increase in net sales during fiscal year 1998
was due to a 4.0% increase in retail sales (from $129.6 million to $134.8
million), and a 18.9% increase in wholesale sales (from $34.0 million to $40.5
million). The increase in retail sales was principally due to an increase in the
number of stores operated during fiscal year 1998 compared to fiscal year 1997,
as comparable store sales were flat compared to the prior year. We believe that
various sales promotions held during the year to stimulate sales and reduce
inventory levels resulted in lower average sales per customer, which contributed
to the flat comparable store sales. We operated 289 and 285 stores at the end of
fiscal years 1998 and 1997, respectively. The increase in wholesale sales was
due to our efforts to reduce inventory levels of certain non-designer
fragrances.

GROSS PROFIT

Gross profit decreased 2.1% from $66.0 million in fiscal year 1997 (40.3%
of total net sales) to $64.6 million in fiscal year 1998 (36.9% of total net
sales) as a result of higher inventory loss provisions (see below), higher sales
and gross profit in the retail division offset by lower gross profit in the
wholesale division.

Gross profit for the wholesale division decreased from $7.9 million in
fiscal year 1997 to $7.5 million in fiscal year 1998 due mainly to a $330,000
increase in inventory provisions. The wholesale division's gross margin in
fiscal 1998 was 18.6% compared to 23.3% in fiscal year 1997. The decrease in
gross margin was due to the increase in sales of non-designer fragrances in the
wholesale division and the overall ratio of wholesale sales to retail sales in
fiscal year 1998. Wholesale sales historically yield a lower gross margin when
compared to retail sales.

Gross profit for the retail division decreased 1.7% from $58.0 million in
fiscal year 1997 to $57.1 million in fiscal year 1998, principally as a result
of $1.6 million increase in the inventory provision, offset by higher retail
sales volume. As a percentage of net retail sales, gross profit for the retail
division decreased from 44.8% in fiscal year 1997 to 42.3% in fiscal year 1998.
The decrease was due to store promotions discussed above as well as increases in
the inventory provisions, freight expense and inventory shrinkage. Inventory
provisions were increased to bring the carrying cost of certain non-designer
fragrance merchandise to their estimated carrying values. The Company will
reduce inventory levels of this non-designer fragrance merchandise in fiscal
year 1999. Freight expenses increased primarily due to the necessity of shipping
merchandise from the Company's distribution center to its retail stores using
express freight service during the 1998 holiday season. This resulted from a
temporary failure in our inventory management system to properly replenish the
merchandise at our retail stores. Inventory shrinkage increased due to the
replenishment situation discussed above and increased movement of inventory due
to the closing of 32 retail stores. We expect these expenses to decrease in
fiscal year 1999 because non-designer fragrance merchandise will be reduced to a
minimum, the management information system will be upgraded in fiscal year 1999
and the Company will not be closing a significant number of retail stores.
Furthermore, we have hired additional loss prevention and distribution center
management personnel to ensure that shrinkage expense is reduced to an
acceptable level.

OPERATING EXPENSES

Operating expenses increased $4.9 million in fiscal year 1998 compared to
fiscal year 1997, due principally to (a) a $8.3 million increase in selling,
general and administrative expenses, which includes a charge of $1.9 million
related to severance agreements with two executive officers and (b) a $1.0
million provision for disposition of fixed assets relating to retail stores
which were either closed during fiscal year 1998, or are scheduled to close
during fiscal year 1999. We do not expect to incur a significant provision for
disposition of fixed assets in fiscal year 1999 as the fixed assets for all
stores expected to be closed in fiscal year 1999 were expensed in fiscal year
1998. The increase in selling, general and administrative expense was primarily
the result of increases in rent, payroll and other costs associated with the

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operation of an average of 10 additional stores during fiscal year 1998.
Depreciation and amortization decreased $0.2 million in fiscal year 1998
compared to fiscal year 1997. As a percentage of net sales, operating expenses
decreased from 44.7% in fiscal year 1997 to 44.6% in fiscal year 1998.

INTEREST EXPENSE

Interest expense (net) increased 4.0% from $4.7 million in fiscal year
1997 to $4.9 million in fiscal 1998. The increase was principally due to
increased use of lease financing for new store furniture and fixtures. See
"Liquidity and Capital Resources."

INCOME TAXES

The provision for income taxes in fiscal 1998 was $1.3 million, which
included an increase in the valuation allowance of $1.2 million to provide fully
for the net deferred tax assets since management believed that it is more likely
than not that these amounts will not be realized due to our recurring losses.

As a result of the foregoing, we had a net loss of $19.0 million in fiscal
1998 compared to a net loss of $11.4 million in fiscal 1997.

LIQUIDITY AND CAPITAL RESOURCES

Our principal capital requirements are to fund inventory purchases,
provide for new store openings and renovation of existing stores. We financed
these capital requirements primarily through borrowings under our working
capital line of credit, cash flows from operations, issuance of convertible
notes and other short-term borrowings.

Our $35 million revolving line of credit facility with LaSalle National
Bank was scheduled to expire May 31, 2000. As of January 29, 2000, Perfumania
was in violation of certain of the above covenants.

On May 12, 2000, Perfumania entered into a three-year senior secured
credit facility with GMAC Commercial Credit LLC that provides for borrowings of
up to $40 million. The new credit facility replaces the LaSalle National Bank
credit facility, accordingly, no waiver of covenant violations was obtained from
LaSalle National Bank. Advances under the line of credit are based on a formula
of eligible inventories and will bear interest at the lender's prime rate for
the first six months of the term. After the first six months, the interest rate
will be adjusted on a quarterly basis and will vary based on a formula set forth
in the credit agreement. Advances will be secured by a first lien on all assets
of Perfumania and the assignment of life insurance policies on two officers of
the Company. The line contains limitations on additional borrowings, capital
expenditures and other items, and will contain various financial covenants
including net worth and fixed charges coverage, as defined by the lender.

Management believes that Perfumania's borrowing capacity under the new
bank line of credit, projected cash flows from operations and other short term
borrowings will be sufficient to support the Company's working capital needs and
capital expenditures, including remodeling of existing stores and debt service
for at least the next twelve months.

In December 1999, the Company loaned $1,000,000 to Take To Auction.Com,
Inc., (the "Obligor") a Florida corporation whose Chairman of the Board of
Directors is the same individual as the Company's Chairman of the Board of
Directors, pursuant to the terms of a related convertible promissory note (the
"Note"). The principal balance of the Note is payable on December 20, 2001, and
interest, which accrues at a rate of six percent per annum is payable
semi-annually on the 21st day of each June and December commencing June 21,
2000. During the subscription period, as defined below, the Company has the
right to convert all of the principal amount of the Note into shares of the
Obligor's common stock at the conversion price per share equal to the price to
the public specified on the cover page of the final prospectus of the Obligor's
Registration Statement relating to the initial public offering of the common
stock of the Obligor. The subscription period is fourteen days immediately
following the effective date of the Registration Statement. The Obligor's
initial public offering is planned for May 2000. Due to the uncertainty of the
Obligor's initial public offering and collectability of the Note, the Company
has written off the principal balance of the Note and the related interest
receivable which together totaled approximately $1.0 million as of January 29,
2000. The related expense is included in provision for impairment of assets and
store closings in the accompanying consolidated statements of operations.

The Company has also been granted a warrant (the "Warrant") to purchase
three hundred thousand shares of the Obligor's common stock at a price per share
equal to the price to the public specified on the cover page of the final
prospectus of the Obligor's Registration Statement relating to the initial
public offering of the common stock. The Warrant may be exercised in whole or in
part at any time commencing on the business day immediately following the
effective date of the Registration Statement and expiring on the first
anniversary of the effective date of the Registration Statement. The Warrant
agreement includes certain anti-dilution provisions including recapitalization
of the Obligor's common stock and merger of the Obligor.

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On December 10, 1999, the Company signed an Option Agreement (the
"Agreement") with an investment firm granting the investment firm two options to
acquire up to 2,500,000 shares of perfumania.com, inc. from the Company for
consideration in the amount of $12,500. The first option provides that the
investment firm may purchase 2,000,000 shares for $6.00 per share on or prior to
January 15, 2000 and provided that this option has been exercised, a second
option to purchase 500,000 shares for $8.00 on or prior to the earlier to occur
of December 31, 2000 or various other events, as defined in the Agreement. The
investment firm exercised the first option for the 2,000,000 shares on January
11, 2000 and the Company realized proceeds of $12,000,000. The Agreement
provides that if the first option is exercised, nominees of the investment firm
will be appointed to constitute the majority of the members of the board of
directors of perfumania.com, inc. subject to satisfaction of applicable SEC
regulations. Subject to the exercise of the first option, the Agreement also
limits the amount of shares of perfumania.com, inc. that may be sold by the
Company, as well as the timing of these sales. On April 29, 2000, the investment
firm exercised the second option under the Agreement.

On August 31, 1999, we entered into a stock purchase agreement with Parlux
Fragrances, Inc. ("Parlux") whose Chairman of the Board of Directors and Chief
Executive Officer is the same individual as the Company's Chairman of the Board
of Directors and Chief Executive Officer. We sold 1,512,406 shares of our
treasury stock to Parlux in consideration for a partial reduction of our
outstanding trade indebtedness balance of approximately $4.5 million. The
transfer price was based on a per share price of $2.98, which approximated 90%
of the closing price on our common stock for the previous 20 business days.
Pursuant to this agreement, the parties entered into a registration rights
agreement dated August 31, 1999, which grants Parlux demand registration rights.
We filed a registration statement in April 2000. As a result of the transaction,
we recorded a loss of approximately $314,000 which was charged to cost of goods
sold in the third quarter of fiscal year 1999.

In July 1999, we entered into a Securities Purchase Agreement and issued an
aggregate of $2 million worth of its Series B Convertible Notes, which are
convertible into common stock. The notes contain a beneficial conversion feature
of approximately $981,000 which was recorded as a non-cash interest charge to
income in the second quarter of fiscal year 1999. We filed a registration
statement with the Securities and Exchange Commission to register the shares of
common stock issuable upon conversion of the notes. The Notes bear interest at
8% and are payable in full in July 2002. The Conversion Price is the lower of
(A) $3.40625 per share, subject to adjustment or (B) the floating conversion
price determined by multiplying (1) the average closing bid price of the common
stock for the three trading days immediately preceding the date of
determination, by (2) 80%, subject to adjustment. The conversion price may be
adjusted pursuant to antidilution provisions in the convertible note.

In July 1999, we obtained a $2.5 million unsecured loan from a wholesale
customer bearing an interest rate of 24%. The loan was repaid in full in
December 1999.

In April 1999, we entered into a Securities Purchase Agreement and issued an
aggregate of $2 million worth of our Series A Convertible Notes, which are
convertible into common stock. The notes contain a beneficial conversion feature
of approximately $385,000 which was recorded as a non-cash interest charge to
income in the first quarter of fiscal year 1999. We filed a registration
statement with the Securities and Exchange Commission to register the shares of
common stock issuable upon conversion of the notes. The Notes bear interest at
8% and is payable in full in April 2002. The conversion price is the lower of
(A) $4.35 per share, subject to adjustment or (B) the floating conversion price
determined by multiplying (1) the average closing bid price of the common stock
for the three trading days immediately preceding the date of determination, by
(2) 80%, subject to adjustment. The conversion price may be adjusted pursuant to
antidilution provisions in the convertible note. If the conversion price
decreases, we are obligated to issue additional shares of common stock.

In March 1999, we entered into Subscription Agreements for the sale of
235,293 shares of our common stock to a group of private investors at a price of
$8.50 per share. The proceeds of $2 million were received in January 1999. We
were required to file a registration statement with the Securities and Exchange
Commission within six months from the date of the agreement to permit the
registered resale of the shares by the investors in open market transactions.
If, on the effective date of the registration statement, the market price was
less than $8.50 per share, we were obligated to reimburse the investor group the
lesser of (a) the product of the difference between $8.50 and the closing bid
price of the common stock on the effective date of this registration statement
multiplied by the number of shares issued under the Subscription Agreements or
(b) the product of $2.00 multiplied by the number of shares issued under the
Subscription Agreements. As of January 30, 1999, the potential redeemable amount
of $470,588 was recorded as redeemable common equity and the remaining
$1,529,412 was recorded as capital in excess of par value in the accompanying
balance sheets. The Company filed a registration statement in September 1999.
Since the market price was less than $8.50 per share on the effective date of
the registration statement, the Company reimbursed the investor group $470,588
in October 1999.

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In fiscal year 1999, net cash used in operating activities was approximately
$6.5 million, which was primarily due to an increase in inventories, offset by
an increase in accounts payable.

Trade receivables primarily relate to Perfumania's wholesale business. Trade
receivables, net due from customers at January 29, 2000 were $1.2 million. At
fiscal year end 1999, approximately $0.5 million of the trade receivables, net,
were more than 90 days past due. Allowance for doubtful accounts was
approximately $60,000 at January 29, 2000 and was considered adequate by
management based on its write-off experience during the last three years and an
analysis of the aging of its trade receivables at January 29, 2000.

During fiscal year 1999, inventories, net increased by approximately $14.8
million due to efforts to improve the overall merchandise assortment and
inventory levels at Perfumania's retail stores and warehouse. Inventory levels
as of the end of the prior fiscal year were unusually low due to (a) an
inventory reserve during the fourth quarter of fiscal 1998 and (b) the
constrained liquidity position of Perfumania which resulted in Perfumania
being unable to replenish and maintain merchandise inventory at optimum levels.

Net cash used in investing activities in fiscal year 1999 was approximately
$3.3 million, principally due to $4.0 million of capital expenditures related to
enhancing information systems and opening new stores, offset by $0.6 million of
proceeds on investments. We intend to focus on continuing to improve the
profitability of our existing stores and anticipates that we will open no more
than 5 stores in fiscal 2000. Currently, our average capital expenditure for
opening a store is approximately $175,000, including furniture and fixtures,
equipment, build-out costs and other items. In addition, initial inventory (not
including inventory replenishment) in a new store ranges from approximately
$100,000 during the first fiscal quarter to approximately $140,000 during the
Christmas holiday season.

In December 1999, our Board of Directors approved a 1,500,000 stock
repurchase program reflecting its belief that our common stock represented a
significant value at its then current trading price. Pursuant to this program,
we repurchased approximately 816,000 shares of common stock for $3.4 million in
the fourth quarter of fiscal 1999.

SEASONALITY AND QUARTERLY RESULTS

Our operations have historically been seasonal, with generally higher sales
in the third and fourth fiscal quarters than in the first and second fiscal
quarters. Significantly higher fourth fiscal quarter retail sales result from
increased purchases of fragrances as gift items during the Christmas holiday
season. Our quarterly results may also vary due to the timing of new store
openings, net sales contributed by new stores and fluctuations in comparable
sales of existing stores. Wholesale sales vary by fiscal quarter as a result of
the selection of merchandise available for sale and the need for us to stock our
retail stores for the Christmas holiday season. Therefore, the results of any
interim period are not necessarily indicative of the results that may be
expected during a full fiscal year.

YEAR 2000 ISSUE

The Year 2000 issue is primarily the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. The Company
has not encountered any material impact to its operations as a result of the
transition to the Year 2000, however issues relating to the Year 2000 could
still arise. While the Company does not believe that the Year 2000 issue will
have a material adverse effect on its financial condition or results of
operations, there can be no assurance that all of the Company's suppliers,
vendors and major customers are Year 2000 compliant. The Company believes that a
disruption in the product supply chain represents the most reasonably likely
worst case Year 2000 scenario, and a substantial, extended disruption in the
product supply chain could have a material adverse effect on the Company's
financial condition and results of operations.

RECENT ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after June 15, 2000.
Management has not determined the effect, if any, of adopting SFAS No. 133.

CHANGES IN FOREIGN EXCHANGE RATES CREATE RISK

Although large fluctuations in foreign exchange rates could have a material
effect on the prices we pay for products we purchase from outside the United
States, the prices obtainable for sales denominated in foreign currencies and
wholesale sales to foreign customers, such fluctuations have not been material
to our results of operations to date. Transactions with foreign suppliers

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generally are in United States dollars. We believe that inflation has not had a
material impact on our results of operations and that we are generally able to
pass through any cost increases in the form of increased sales prices.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Our exposure to market risk for changes in interest rates relates primarily
to our bank line of credit. The bank line of credit bears interest at a variable
rate, as discussed above under "Liquidity and Capital Resources". We mitigate
interest rate risk by continuously monitoring the interest rates.

The table below presents the outstanding principal amount and the related
fair value, together with maturity date as of January 29, 2000 and the weighted
average interest rate for our bank line of credit. (See "Liquidity and Capital
Resources" and Note 2 of the Notes to Consolidated Financial Statements.)

OUTSTANDING WEIGHTED
PRINCIPAL AVERAGE
AMOUNT FAIR VALUE INTEREST RATE MATURITY DATE
------ ---------- ------------- -------------

Bank Line of Credit................. $30,906,247 $ 30,906,247 10.50% May 31, 2000

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial information and the supplementary data required in response to
this Item are as follows:

PAGE
----

E Com Ventures, Inc. (formerly Perfumania, Inc.)

Report of Independent Certified Public Accountants............................................. 23

Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999........................ 24

Consolidated Statements of Operations for the Fiscal Years Ended January 29, 2000, January 30,
1999 and January 31, 1998...................................................................... 25

Consolidated Statements of Changes in Shareholders' Equity for the Fiscal Years Ended January 29,
2000, January 30, 1999 and January 31, 1998..................................................... 26

Consolidated Statements of Cash Flows for the Fiscal Years Ended January 29, 2000, January 30,
1999 and January 31, 1998...................................................................... 27

Notes to Consolidated Financial Statements..................................................... 28

Schedule II - Valuation and Qualifying Accounts and Reserves................................... 43

Envision Development Corporation (formerly perfumania.com, inc.)

Report of Independent Certified Public Accountants............................................. 45

Balance Sheets as of January 29, 2000 and January 30, 1999.... ................................ 46

Statements of Operations for the Year Ended January 29, 2000 and for the Period from
January 7, 1999 (date of inception) through January 30, 1999................................... 47

Statements of Changes in Shareholders' Equity (Deficit) for the Year Ended January 29, 2000
and for the Period from January 7, 1999 (date of inception) through January 30, 1999........... 48

Statements of Cash Flows for the Year Ended January 29, 2000 and for the Period from
January 7, 1999 (date of
inception) through January 30, 1999............................................................ 49

Notes to Financial Statements.................................................................. 50

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and
Shareholders of E Com Ventures, Inc.
(formerly Perfumania, Inc.)

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of E Com
Ventures, Inc. and its subsidiary, (formerly Perfumania, Inc.), (collectively,
the "Company"), at January 29, 2000 and January 30, 1999, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 29, 2000 in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audits of these financial statements in accordance with auditing standards
generally accepted in the United States which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
Miami, Florida

May 12, 2000

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E COM VENTURES, INC.
(FORMERLY PERFUMANIA, INC.)
CONSOLIDATED BALANCE SHEETS

JANUARY 29, JANUARY 30,
2000 1999
----------- -----------

ASSETS:
Current assets:
Cash and cash equivalents ................................... $ 1,995,610 $ 1,745,603
Trade receivables, less allowance for doubtful accounts of
$60,000 and $704,954 in 2000 and 1999, respectively ...... 1,150,035 4,108,847
Advances to suppliers ....................................... 4,826,179 8,065,301
Inventories, net of reserve of $2,369,953 and $4,163,251 in
2000 and 1999, respectively .............................. 68,727,528 53,880,132
Note and interest receivable, related party ................. 779,594 --
Prepaid expenses and other current assets ................... 951,544 1,417,187
------------- -------------
Total current assets ...................................... 78,430,490 69,217,070

Property and equipment, net .................................... 22,671,385 24,554,340
Investment in and advances to partially-owned equity
affiliate .................................................... 2,845,972 --
Other assets, net .............................................. 1,708,551 1,357,966
------------- -------------
Total assets .............................................. $ 105,656,398 $ 95,129,376
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Bank line of credit and current portion of long-term debt ... $ 32,741,575 $ 32,800,627
Accounts payable, non-affiliates ............................ 15,666,781 14,329,013
Accounts payable, affiliate ................................. 9,350,315 15,812,240
Accrued expenses and other liabilities ...................... 7,870,634 9,205,316
Income taxes payable ........................................ 223,098 485,098
Subordinated note payable, affiliates........................ 3,500,000 --
Current portion of obligations under capital leases ......... 391,220 419,487
------------- -------------
Total current liabilities ................................. 69,743,623 73,051,781

Long-term debt, less current portion ........................... 697,784 2,370,684
Long-term portion of obligations under capital leases .......... 634,571 562,552
Convertible notes payable ...................................... 3,700,000 --
Long-term severance payables ................................... 190,981 1,037,859
------------- -------------
Total liabilities ......................................... 74,966,959 77,022,876
------------- -------------

Commitments and contingencies

Redeemable common equity ....................................... -- 470,588
------------- -------------
Shareholders' equity:
Preferred stock, $0.1 par value, 1,000,000 shares authorized,
none issued .............................................. -- --
Common stock, $.01 par value, 25,000,000 shares authorized;
9,282,386 and 8,614,491 shares issued in 2000
and 1999, respectively .................................... 92,825 86,145
Additional paid-in capital .................................. 65,440,135 54,440,009
Treasury stock, at cost, 815,646 and 1,512,406 shares in
2000 and 1999, respectively ............................... (3,419,957) (5,413,002)
Accumulated deficit ......................................... (29,890,915) (30,935,097)
Notes and interest receivable from shareholder and officers . (1,532,649) (542,143)
------------- -------------
Total shareholders' equity ................................ 30,689,439 17,635,912
------------- -------------
Total liabilities and shareholders' equity ................ $ 105,656,398 $ 95,129,376
============= =============

See accompanying notes to consolidated financial statements.

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E COM VENTURES, INC.
(FORMERLY PERUMANIA, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE FISCAL YEAR ENDED
--------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
------------- ------------- -------------

Net sales .......................................... $ 192,928,109 $ 175,255,633 $ 163,593,559

Cost of goods sold ................................. 117,295,771 110,638,432 97,619,818
------------- ------------- -------------

Gross profit ....................................... 75,632,338 64,617,201 65,973,741
------------- ------------- -------------
Operating expenses:
Selling, general and administrative expenses ..... 71,354,106 72,501,987 64,219,379
Provision for doubtful accounts .................. 60,000 -- 1,730,000
Provision for impairment of assets and store
closings ....................................... 3,427,151 1,034,717 2,514,818
Depreciation and amortization .................... 4,725,691 4,480,681 4,697,816
------------- ------------- -------------
Total operating expenses .................... 79,566,948 78,017,385 73,162,013
------------- ------------- -------------
Loss from operations before other income
(expense) ....................................... (3,934,610) (13,400,184) (7,188,272)
------------- ------------- -------------
Other income (expense):
Interest expense:
Affiliates ..................................... (142,808) (22,486) (124,250)
Other .......................................... (6,698,693) (4,938,365) (4,617,070)
------------- ------------- -------------
(6,841,501) (4,960,851) (4,741,320)
------------- ------------- -------------
Interest income:
Affiliates ..................................... 94,100 43,440 42,450
Other .......................................... 158,732 35,057 2,660
------------- ------------- -------------
252,832 78,497 45,110
------------- ------------- -------------
Equity in loss of partially-owned affiliate ...... (3,164,439) -- --
Gain on sale of affiliate's common stock ....... 14,973,868 -- --
Other income (expense), net ...................... (117,968) 645,446 762,138
------------- ------------- -------------
Total other income (expense) ...................... 5,102,792 (4,236,908) (3,934,072)
------------- ------------- -------------
Income (loss) before income taxes .................. 1,168,182 (17,637,092) (11,122,344)
(Provision) benefit for income taxes ............... (124,000) (1,337,406) 321,192
------------- ------------- -------------
Income (loss) before cumulative effect of change in
accounting principle ............................ 1,044,182 (18,974,498) (10,801,152)
Cumulative effect of change in accounting principle,
net of income tax benefit of $380,958 ............ -- -- (631,418)
------------- ------------- -------------
Net income (loss) .................................. $ 1,044,182 $ (18,974,498) $ (11,432,570)
============= ============= =============
Basic income (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle ............................ $ 0.13 $ (2.85) $ (1.54)
Cumulative effect of change in accounting principle -- -- (0.09)
------------- ------------- -------------
Net income (loss) ................................ $ 0.13 $ (2.85) $ (1.63)
============= ============= =============
Diluted income (loss) per common share:
Income (loss) before cumulative effect of change in
accounting principle ............................ $ 0.10 $ (2.85) $ (1.54)
Cumulative effect of change in accounting principle -- -- (0.09)
------------- ------------- -------------
Net income (loss) ................................ $ 0.10 $ (2.85) $ (1.63)
============= ============= =============
Weighted average number of shares outstanding:
Basic ............................................ 8,218,638 6,659,882 7,025,236
============= ============= =============
Diluted .......................................... 10,267,619 6,659,882 7,025,236
============= ============= =============

See accompanying notes to consolidated financial statements.

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26

E COM VENTURES, INC.
(FORMERLY PERFUMANIA, INC.)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

COMMON STOCK ADDITIONAL TREASURY STOCK
----------------------- PAID-IN --------------------------
SHARES AMOUNT CAPITAL SHARES AMOUNT
-------- -------- ----------- ----------- -------------

Balance at February 1, 1997 7,807,791 $ 78,078 $ 52,429,641 667,900 $ (2,655,110)
Exercise of stock options .. 37,500 375 116,812 -- --
Purchases of treasury stock -- -- -- 550,460 (1,865,958)
Other ...................... -- -- (160,092) -- --
Net change in notes and
interest receivable
from shareholder and
officers ................ -- -- -- -- --
Net loss for the fiscal
year ended January
31, 1998 ................ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at January 31, 1998 7,845,291 78,453 52,386,361 1,218,360 (4,521,068)

Exercise of stock options .. 684,200 6,842 310,865 -- --
Purchases of treasury stock -- -- -- 294,046 (891,934)
Issuance of common stock ... 85,000 850 213,371 -- --
Proceeds on common stock
to be issued ............ -- -- 1,529,412 -- --
Net change in notes and
interest receivable
from shareholder and
officers ................ -- -- -- -- --
Net loss for the fiscal
year ended January 30,
1999 .................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------

Balance at January 30, 1999 8,614,491 86,145 54,440,009 1,512,406 (5,413,002)

Exercise of stock options .. 345,383 3,454 166,298 -- --
Purchases of treasury stock -- -- -- 815,646 (3,419,957)
Issuance of common stock ... 235,293 2,353 (2,353) -- --

Conversion of debt to
common stock ........... 87,219 873 316,749 -- --

Net change in notes and
interest receivable from
shareholder and
officers ................ -- -- -- -- --

Beneficial conversion
feature of notes payable . -- -- 1,365,384 -- --

Equity in partially-owned
affiliate ................ -- -- 9,746,256 -- --
Issuance of treasury
stock ................... -- -- (592,208) (1,512,406) 5,413,002

Net income for the fiscal
year ended January 29,
2000 .................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Balance at January 29, 2000 9,282,386 $ 92,825 $ 65,440,135 815,646 $ (3,419,957)
============ ============ ============ ============ ============

NOTES AND
INTEREST
RECEIVABLE
FROM
ACCUMULATED SHAREHOLDER
DEFICIT AND OFFICERS TOTAL
------------ ------------- --------------

Balance at February 1, 1997 $ (528,029) $ (542,856) $ 48,781,724
Exercise of stock options .. -- -- 117,187
Purchases of treasury stock -- -- (1,865,958)
Other ...................... -- -- (160,092)
Net change in notes and
interest receivable
from shareholder and
officers ................ -- (271,459) (271,459)
Net loss for the fiscal
year ended January
31, 1998 ................ (11,432,570) -- (11,432,570)
------------ ------------ ------------
Balance at January 31, 1998 (11,960,599) (814,315) 35,168,832

Exercise of stock options .. -- -- 317,707
Purchases of treasury stock -- -- (891,934)
Issuance of common stock ... -- -- 214,221
Proceeds on common stock
to be issued ............ -- -- 1,529,412
Net change in notes and
interest receivable
from shareholder and
officers ................ -- 272,172 272,172
Net loss for the fiscal
year ended January 30,
1999 .................... (18,974,498) -- (18,974,498)
------------ ------------ ------------

Balance at January 30, 1999 (30,935,097) (542,143) 17,635,912

Exercise of stock options .. -- -- 169,752
Purchases of treasury stock -- -- (3,419,957)
Issuance of common stock ... -- -- --

Conversion of debt to
common stock ........... -- -- 317,622

Net change in notes and
interest receivable from
shareholder and
officers ................ -- (990,506) (990,506)

Beneficial conversion
feature of notes payable . -- -- 1,365,384

Equity in partially-owned
affiliate ................ -- -- 9,746,256
Issuance of treasury
stock ................... -- -- 4,820,794

Net income for the fiscal
year ended January 29,
2000 .................... 1,044,182 -- 1,044,182
------------ ------------ ------------
Balance at January 29, 2000 $(29,890,915) $ (1,532,649) $ 30,689,439
============ ============ ============

See accompanying notes to consolidated financial statements.

26
27

E COM VENTURES, INC.
(FORMERLY PERFUMANIA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE FISCAL YEAR ENDED
------------------------------------------------------
JANUARY 29, 2000 JANUARY 30, 1999 JANUARY 31, 1998
---------------- ---------------- ----------------

Cash flows from operating activities:
Net income (loss) ........................................ $ 1,044,182 $(18,974,498) $(11,432,570)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for deferred taxes ............................. -- 1,219,856 --
Provision for doubtful accounts .......................... 60,000 -- 1,730,000
Provision for inventory losses ........................... 859,368 3,764,665 1,810,000
Depreciation and amortization ............................ 4,725,691 4,480,681 4,697,816
Provisions for impairment of assets and store
closings .............................................. 3,427,151 1,034,717 2,514,818
Beneficial conversion feature of debentures .............. 1,365,384 -- --
Equity in loss of partially-owned affiliate .............. 3,164,439 -- --
Loss on extinguishment of debt ........................... 313,824 -- --
Gain on sale of affiliate's common stock ................. (14,973,868) -- --
Cumulative effect of change in accounting principle,
net of tax benefit ................................... -- -- 631,418
Stock compensation ....................................... -- 214,221 --
Change in operating assets and liabilities (excluding
effects of partially-owned equity affiliate):
Trade receivables:
Customers ............................................ 2,898,812 1,077,626 5,358,686
Affiliates ........................................... -- -- 653,657
Advances to suppliers .................................. 3,239,122 (454,265) (2,587,318)
Inventories ............................................ (15,916,419) 15,493,045 10,162,581
Prepaid expenses and other current assets .............. (394,357) 627,471 (184,818)
Tax refund receivable .................................. -- 814,766 (814,766)
Other assets ........................................... (1,357,208) 406,940 (539,266)
Accounts payable, non-affiliate ........................ 1,337,768 1,020,099 (3,555,672)
Accounts payable, affiliate ............................ 6,045,045 (1,145,923) (2,305,766)
Accrued expenses and other liabilities ................. (1,251,023) 2,356,398 2,908,483
Income taxes payable ................................... (262,000) (20,006) (816,105)
Long-term severance payable ............................ (846,878) 1,037,859 --
Negative goodwill ...................................... -- -- (470,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities .... (6,520,967) 12,953,652 7,761,178
------------ ------------ ------------
Cash flows from investing activities:
Additions to property and equipment ...................... (3,971,356) (9,495,824) (7,207,114)
Dividend from partially-owned equity affiliate ........... 450,000 -- --
Investment in and advances to partially owned
equity affiliate ....................................... 176,125 -- --
------------ ------------ ------------
Net cash used in investing activities .................... (3,345,231) (9,495,824) (7,207,114)
------------ ------------ ------------
Cash flows from financing activities:
Net borrowings under bank line of credit and loans payable (1,731,952) (3,677,888) 2,957,170
Net decrease due to related parties ...................... -- (304,483) (465,517)
Principal payments under capital lease obligations ....... (402,369) (981,916) (952,805)
Net advances to shareholder and officers ................. (1,770,100) 272,172 (271,459)
Proceeds from issuance of common stock ................... -- 2,000,000 --
Repayments under subordinated debt, net .................. (4,500,000) -- --
Issuance of convertible notes payable .................... 4,000,000 -- --
Payment of redeemable common equity ...................... (470,588) -- --
Proceeds from sale of affiliate common stock ............. 18,241,419 -- --
Proceeds from exercise of stock options .................. 169,752 317,707 117,187
Stock issuance costs ..................................... -- -- (160,092)
Purchases of treasury stock .............................. (3,419,957) (891,934) (1,865,958)
------------ ------------ ------------
Net cash provided by (used in) financing activities ... 10,116,205 (3,266,342) (641,474)
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents ............ 250,007 191,486 (87,410)
Cash and cash equivalents at beginning of period ............ 1,745,603 1,554,117 1,641,527
------------ ------------ ------------
Cash and cash equivalents at end of period .................. $ 1,995,610 $ 1,745,603 $ 1,554,117
============ ============ ============

See accompanying notes to consolidated financial statements.

27
28

E COM VENTURES, INC.
(FORMERLY PERFUMANIA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF BUSINESS

Perfumania, Inc. and its subsidiaries (collectively, "Perfumania"), is a
specialty retailer and wholesaler of fragrances and related products. Perfumania
is incorporated in Florida and operates under the name Perfumania. Perfumania's
retail stores are located in regional malls, manufacturer's outlet malls,
airports and on a stand-alone basis in suburban strip shopping centers. The
number of retail stores in operation at January 29, 2000, January 30, 1999 and
January 31, 1998 were 276, 289 and 285, respectively.

Effective February 1, 2000, Perfumania reorganized into a holding company
structure (the "Reorganization") whereby E Com Ventures, Inc., a Florida
corporation (the "Company") became the holding company. The Reorganization is
intended to provide greater flexibility for expansion, broaden the alternatives
available for future financing and generally provide for greater administrative
and operational flexibility. The Company's future strategy is to develop,
promote and guide companies that management believes have an e-commerce
potential.

The Reorganization was effected through the formation of the Company as a
wholly owned subsidiary of Perfumania and the formation by the Company of E Com
Sub, Inc., a Florida corporation ("MergerSub"), as a wholly owned subsidiary of
the Company. An Agreement and Plan of Merger (the "Merger Agreement") was
entered into by and among Perfumania, the Company and MergerSub (the "Merger
Agreement"), and, pursuant to the Merger Agreement, MergerSub merged with and
into Perfumania (the "Merger"), with Perfumania as the surviving corporation.

As a result of the Merger, Perfumania became a wholly owned subsidiary of
the Company. The Merger Agreement was duly approved by the Board of Directors of
Perfumania by unanimous written consent, and by written consent of the sole
director and sole shareholder of each of the Company and MergerSub. The
Reorganization was effected in accordance with the provisions of Florida
Statutes, accordingly, approval of the shareholders of Perfumania was not
required.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

Significant accounting principles and practices used by the Company in the
preparation of the accompanying consolidated financial statements are as
follows:

FISCAL YEAR END

The Company's fiscal year ends the Saturday closest to January 31 to enable
the Company's operations to be reported in a manner which more closely coincides
with general retail reporting practices and the financial reporting needs of the
Company. In the accompanying notes, fiscal year 1999, 1998 and 1997 refers to
the year ended January 29, 2000, January 30, 1999 and January 31, 1998,
respectively.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant estimates made by management in the
accompanying financial statements relate to the allowance for doubtful accounts,
inventory reserves, self insured health care reserves, long-lived asset
impairments and estimated useful lives of property and equipment. Actual results
could differ from those estimates.

28
29

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiary, Perfumania. All significant intercompany
balances and transactions have been eliminated in consolidation. The equity
method of accounting is used for investments in which the Company has
significant influence which generally represents common stock ownership or
partnership equity of at least 20% and not more than 50%.

During the fourth quarter of fiscal 1999, the Company's sole investment,
perfumania.com, inc., was reduced from 53% to 27% ownership. Therefore, these
consolidated financial statements reflect this investment under the equity
method of accounting where previously it had been accounted for under the
consolidation method. The impact of this change to operating loss for the fiscal
year ended January 29, 2000 is as follows:

Operating loss - as reflected in these
financial statements $(3,934,610)
===========

Operating loss - as would have been reflected
under the consolidation method $(7,589,921)
===========

See Note 10 for condensed financial information regarding
perfumania.com, inc.

REVENUE RECOGNITION

Revenue from wholesale transactions is recorded upon shipment of inventory.
Revenue from retail sales is recorded, net of discounts and estimated returns,
upon customer purchase. Estimates of returns are based on the Company's
operating history and are reviewed on a quarterly basis for adequacy.

ADVANCES TO SUPPLIERS

Advances to suppliers represent prepayments to wholesale vendors on pending
inventory purchase orders.

INVENTORIES

Inventories, consisting of finished goods, are stated at the lower of cost
or market, cost being determined on a moving average cost basis. The cost of
inventory includes product cost and freight charges. Provision for potentially
slow moving or damaged inventory is recorded based on management's analysis of
inventory levels, turnover ratios, future sales forecasts and through specific
identification of obsolete or damaged merchandise.

PROPERTY AND EQUIPMENT

Property and equipment is carried at cost, less accumulated depreciation and
amortization. Depreciation is calculated using the straight-line method over the
estimated useful lives of the related assets. Leasehold improvements are
amortized over the term of the lease including probable renewal periods, or the
estimated useful lives of the improvements, whichever is shorter. Costs of major
additions and improvements are capitalized and expenditures for maintenance and
repairs which do not extend the useful life of the asset are expensed when
incurred. Gains or losses arising from sales or retirements are included in
income currently.

INCOME TAXES

Income tax expense is based principally on pre-tax financial income.
Deferred tax assets and liabilities are recognized for the difference between
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse.

BASIC AND DILUTED INCOME (LOSS) PER SHARE

Basic income (loss) per common share is computed by dividing income (loss)
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted income (loss) per common share includes
the dilutive effect of those stock options where the average market price of the
common shares exceeds the option exercise prices for the respective years, and
the dilutive effect of those convertible notes which are convertible into common
stock.

29
30

Basic and diluted earnings per share for income (loss) before cumulative
effect of change in accounting principle and extraordinary items are computed as
follows:

FISCAL YEAR
------------------------------
1999 1998 1997
------------- --------------- ----------

Numerator:
Income (loss) before cumulative effect
of change in accounting principle: $ 1,044,182 $ (18,974,498) $ (10,801,152)
------------- ------------- -------------
Denominator:
Denominator for basic income (loss) per
share(1) 8,218,638 6,659,882 7,025,236

Effect of dilutive securities:
Options to purchase common stock and convertible notes 2,048,981 -- --
------------- ------------- -------------
Denominator for dilutive income (loss)
per share(1) 10,267,619 6,659,882 7,025,236
============= ============= =============

Antidilutive securities not included in the
diluted earnings (loss) per share
computation:
Options to purchase common stock 68,250 1,758,600 1,724,150
Exercise price $3.75 - $5.38 $0.41 - $2.75 $2.75 - $5.63

- -----------
(1) The fiscal year 1998 amounts include the weighted average effect of 235,293
shares, which were contingently issuable as of January 30, 1999.

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107 "Disclosures about Fair
Value of Financial Instruments" ("SFAS 107"), requires disclosure on the fair
value of financial instruments held by the Company. SFAS 107 defines the fair
value of a financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties. The following
methods and assumptions were used to estimate fair value:

- The carrying amounts of cash and cash equivalents, accounts receivable
and accounts payable approximate fair value due to their short-term
nature;

- The fair value of the Company's bank line of credit, obligations under
capital leases and loans payable are based on current interest rates and
repayment terms of the individual notes, and;

- Long-term severance payable approximates fair value because discounted
cash flows using current interest rates for debt with similar
characteristics and maturity were used to estimate its carrying value.

ASSET IMPAIRMENT

The Company reviews long-lived assets and makes a provision for impairment
whenever events or changes in circumstances indicate that the projected cash
flows of related activities may not provide for cost recovery. An impairment
loss is recorded when the net book value of assets exceeds projected
undiscounted future cash flows on a store by store basis. The impairment loss is
determined based on the difference between the carrying amount and the fair
value of the assets, at a particular store location. The estimated fair value is
based on anticipated future cash flows discounted at a rate commensurate with
the risk involved.

STOCK BASED COMPENSATION

The Company accounts for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees ("APB 25"), and provides pro forma disclosure of net

30
31

income and earnings per share as if the fair value based method prescribed by
Statement of Financial Accounting Standards No. 123 ("SFAS 123") had been
applied in measuring compensation expense for options granted in 1999 and 1998.
In accordance with APB 25 compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock (See Note 10
for proforma disclosure).

RECLASSIFICATION

Certain fiscal 1998 and 1997 amounts have been reclassified to conform with
the fiscal 1999 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for financial statements for fiscal years beginning after June 15, 2000.
Management has not determined the effect, if any, of adopting SFAS No. 133.

NOTE 3 - STATEMENTS OF CASH FLOWS

Supplemental disclosures of non-cash investing and financing activities:

FISCAL YEAR ENDED
-------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
NON-CASH TRANSACTIONS 2000 1999 1998
- --------------------- ----------- ---------- --------------

Equipment under capital leases .................. $ 446,121 $ -- $ --
Change in equity investment in affiliate
as part of an initial public offering ......... 9,746,256 -- --
Subordinated debt issued to affiliate ........... 8,000,000 -- --
Reduction in accounts payable associated with the
exchange of treasury stock with an affiliate .. 4,506,970 -- --
Treasury stock issued in exchange for the
cancellation of debt owed to an affiliate ..... 4,820,794 -- --
Conversion of debt and accrued interest payable
in exchange for common stock ................. 317,622 -- --

Cash paid during the period for:
Interest ..................................... $4,801,069 $4,830,230 $4,671,039
Income taxes ................................. $ -- $ 20,000 $1,012,000

NOTE 4 - INVENTORIES

During 1999, 1998 and 1997, the Company recorded provisions of approximately
$860,000, $3.8 million and $1.8 million, respectively, to reduce the carrying
value of certain fragrances the Company intends to liquidate. These amounts,
which are included in cost of goods sold in the accompanying consolidated
statements of operations, represent management's best estimate of the
inventories' net realizable value.

31
32

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment includes the following:

ESTIMATED
JANUARY 29, JANUARY 30, USEFUL LIVES
2000 1999 (IN YEARS)
-------------- -------------- -------------

Furniture, fixtures and equipment $ 17,828,590 $ 15,959,500 5-7
Leasehold improvements 20,593,452 21,235,443 10
Equipment under capital leases 4,459,103 4,010,450 5-7
---------- ----------
42,881,145 41,205,393

Less: Accumulated depreciation and amortization (20,209,760) (16,651,053)
---------- ----------
$ 22,671,385 $ 24,554,340
============ -============

Accumulated depreciation for equipment under capital leases was $3,275,191
and $2,636,572 as of January 29, 2000 and January 30, 1999, respectively.

NOTE 6 - RELATED PARTY TRANSACTIONS

Notes receivable from a shareholder and officers were $1,532,649 and
$542,143 as of January 29, 2000 and January 30, 1999, respectively. The notes
are unsecured, mature December 31, 2001 and bear interest at the rate charged by
the Company's major lender. Principal and interest are payable in full at
maturity. Total interest income recognized during fiscal years 1999, 1998 and
1997 was approximately $70,000, $43,000 and $43,000, respectively. Accrued
interest receivable at January 30, 1999 and January 31, 1998 amounted to
approximately $155,000 and $85,000, respectively.

Note and interest receivable, related party totaled $779,594 as of January
29, 2000. This note was issued in October 1999 and bears interest at the rate
charged by the Company's major lender and totaled approximately $23,000 as of
January 29, 2000. The note, including accrued interest, was repaid in April
2000.

Purchases of products from Parlux Fragrances, Inc. ("Parlux") whose Chairman
of the Board of Directors and Chief Executive Officer is the same individual as
the Company's Chairman of the Board of Directors and Chief Executive Officer,
amounted to approximately $30,100,000, $24,333,000, and $21,437,000, in fiscal
year 1999, 1998 and 1997, respectively. The amount due to Parlux at January 29,
2000 and January 30, 1999, was approximately $9,350,000 and $15,812,000,
respectively. Amounts due to Parlux are non-interest bearing.

On August 31, 1999, the Company entered into a stock purchase agreement
with Parlux. The agreement called for the transfer of 1,512,406 shares of the
Company's treasury stock to Parlux in consideration for a partial reduction of
the Company's outstanding trade indebtedness balance of approximately $4.5
million. The transfer price was based on a per share price of $2.98, which
approximated 90% of the closing price on the Company's common stock for the
previous 20 business days. Pursuant to this agreement, the parties entered into
a registration rights agreement dated August 31, 1999, which grants Parlux
demand registration rights. The Company filed a registration statement in April
2000. As a result of the transaction, the Company recorded a loss of
approximately $314,000 which was charged to cost of goods sold in the third
quarter of fiscal year 1999. On October 4, 1999, the Company signed an
$8,000,000 subordinated note agreement with Parlux, in exchange for an equal
reduction in the amount of trade payables due it. The note is due on May 31,
2000 with various periodic principal payments and bears interest at prime plus
1%. The note is subordinate to all bank related indebtedness. As of January 29,
2000, the Company has paid $4,500,000 pursuant to the terms of the note. The
outstanding amount of the indebtedness as of January 29, 2000 is included in the
consolidated balance sheet as subordinated note payable, affiliate.

In December 1999, the Company loaned $1,000,000 to Take To Auction.Com,
Inc., (the "Obligor") a Florida corporation, whose Chairman of the Board of
Directors is the same individual as the Company's Chairman of the Board of
Directors, pursuant to the terms of a related convertible promissory note (the
"Note"). The principal balance of the Note is payable on December 20, 2001, and
interest, which accrues at a rate of six percent per annum is payable
semi-annually on the 21st day of each June and December commencing June 21,
2000. During the subscription period, as defined below, the Company has the
right to convert all of the principal amount of the Note into shares of the
Obligor's common stock at a conversion price per share equal to the price
offered to the public specified on the cover page of the final prospectus of the
Obligor's Registration Statement relating to the initial public offering of the
common stock of the Obligor. The subscription period is fourteen days
immediately following the effective date of the Registration Statement. The
Obligor's initial public offering is planned for May 2000. Due to the
uncertainty of the Obligor's initial public offering and collectability of the
Note, the Company has written off the Note and the related interest receivable
which together totaled approximately $1.0 million as of January 29, 2000. The
related expense is included in the provision for impairment of assets and store
closings in the accompanying consolidated statements of operations. In March
2000, the Company loaned an additional $1,000,000 to the Obligor pursuant to the
terms of a convertible promissory note. The terms of the note are the same as
for the December 1999 loan noted above, except that the principal balance is
payable on March 8, 2002 and interest is payable semi-annually on the 9th day of
each September and March commencing September 9, 2000. In connection with both
the December 1999 and March 2000 loans to the Obligor, the Company has been
granted warrants (the "Warrants") to purchase a total of six hundred thousand
shares of the Obligor's common stock at a price per share equal to the price to
the public specified on the cover page of the final prospectus of the Obligor's
Registration Statement relating to the initial public offering of the common
stock. The Warrants may be exercised in whole or in part at any time commencing
on the business day immediately following the effective date of the Registration
Statement and expiring on the first anniversary of the effective date of the
Registration Statement. The warrant agreements include certain anti-dilutive
provisions.

32
33

Prior to signing an employment agreement effective February 1, 1999, the
Company's former Chief Executive Officer provided consulting services to the
Company. Total consulting expense to this officer was $500,000 during fiscal
1998, of which $325,000 remained in accrued expenses and other liabilities as of
January 30, 1999.

In the fourth quarter of 1998, the Company entered into severance agreements
with two executive officers. The Company, using the borrowing interest rate on
its line of credit (prime plus 2%) discounted the future commitment payments
resulting in a non-recurring charge of approximately $1,900,000. Under the terms
of the agreements, both officers will receive severance payments over a
three-year term beginning December 1998. The resulting expense is reflected in
selling, general and administrative expenses in the accompanying consolidated
statements of operations for fiscal year 1998. In addition, as part of the
severance agreement with one of the executive officers, the officer received
429,000 shares of common stock at no cost and, accordingly, the Company recorded
additional compensation expense of approximately $176,000. In October 1999, the
Company and one of the former officers agreed to a lump sum payment in the
amount of $500,000 in full settlement for the total remaining liability due by
the Company. Accordingly, the Company reversed approximately $200,000 of the
then outstanding accrued liability, representing the difference between the
agreed upon payment amount and the then outstanding liability.

NOTE 7 - BANK LINE OF CREDIT AND NOTES PAYABLE

The bank line of credit and notes payable consist of the following:

JANUARY 29, JANUARY 30,
2000 1999
----------- -----------

Bank line of credit, bearing interest at the bank's prime rate plus 2%
(10.5% at January 29, 2000), interest payable monthly, expiring May 31,
2000, secured by a pledge of substantially all of the Company's assets . $ 30,906,247 $ 30,035,019

Notes payable bearing interest ranging from 10.0% - 14.7%, payable in
monthly installments ranging from $481 to $7,500 including
interest, through July 1999, secured by equipment ...................... -- 14,928

Notes payable bearing interest ranging from 8.5%-10.8%, payable in
monthly installments ranging from $465 - $10,793 including interest,
through March 2003, secured by fixtures ................................ 1,636,140 2,841,267

Note payable bearing interest at 10.25%, payable in monthly
installments of $50,000, including interest, through April
2000 ................................................................... 118,901 727,609

Note payable bearing interest at 10.25%, payable in monthly
installments of $75,000, including interest, with final payment of
$65,736 in November 2000 ............................................... 778,071 1,552,488
------------ ------------
33,439,359 35,171,311
Less: current portion .................................................. (32,741,575) (32,800,627)
------------ ------------
Long-term portion ...................................................... $ 697,784 $ 2,370,684
============ ============

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34

The aggregate maturities of the bank line of credit and notes payable at
January 29, 2000 are as follows:

FISCAL YEAR
2000...................................... $ 32,741,575
2001...................................... 522,916
2002...................................... 122,975
2003...................................... 51,893
2004......................................
--
------------
$ 33,439,359
============

Perfumania's $35 million revolving line of credit facility with LaSalle
National Bank expires May 31, 2000. Advances made under the line of credit are
based on a formula of eligible inventories and receivables, bear interest at 2%
above the bank's prime rate (10.5% at January 29, 2000) and are payable on
demand. Advances are secured by a first lien on all of Perfumania's assets and
assignment of a life insurance policy on one of the Company's officers.
Perfumania's $35 million line of credit contains covenants requiring the
maintenance of minimum tangible net worth, book value and achieving specified
levels of quarterly results of operations. The line of credit also contains
limitations on additional borrowings, capital expenditures, number of new store
openings, purchases of treasury stock and prohibits distribution of dividends.
As of January 29, 2000, Perfumania was in violation of certain of the above
covenants.

At January 29, 2000, Perfumania had no availability under the line of
credit. Perfumania's line of credit is guaranteed to the extent of $3,000,000
each by two stockholders of the Company.

On May 12, 2000, Perfumania entered into a three-year senior secured credit
facility with GMAC Commercial Credit LLC that provides for borrowings of up to
$40 million. Advances under the line of credit are based on a formula of
eligible inventories and will bear interest at the lender's prime rate for the
first six months of the term. After the first six months, the interest rate will
be adjusted on a quarterly basis and will vary based on a formula as defined by
the lender. Advances will be secured by a first lien on all assets of Perfumania
and the assignment of life insurance policies on two officers of the Company.
The line will contain limitations on additional borrowings, capital expenditures
and other items, and will contain various financial covenants including net
worth and fixed charges coverage, as defined by the lender. The new credit
facility replaces the LaSalle National Bank credit facility which was to expire
on May 31, 2000, and accordingly no waiver of covenant violations was obtained
from LaSalle National Bank.

NOTE 8 - IMPAIRMENT OF ASSETS

Based on a review of the Company's retail store locations with negative cash
flows, the Company recognized non-cash impairment charges relating to its retail
segment of approximately $1.6 million, $1.0 million and $2.5 million during
fiscal years ended 1999, 1998 and 1997, respectively. These charges were
determined based on the difference between the carrying amount of the assets,
representing primarily fixtures and leasehold improvements, at a particular
store location and the fair value of the assets on a store by store basis. The
estimated fair value was based on anticipated future cash flow discounted at a
rate commensurate with the risk involved. These impairment losses are included
in provision for impairment of assets and store closings, in the accompanying
consolidated statements of operations.

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35

NOTE 9 - INCOME TAXES

The (provision) benefit for income taxes is comprised of the following
amounts:

FISCAL YEAR ENDED
-----------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------

Current:
Federal ................... $ (124,000) $ -- $ 814,766
State ..................... -- (117,550) (459,000)
----------- ----------- -----------
(124,000) (117,550) 355,766
----------- ----------- -----------
Deferred:
Federal ................... -- (1,219,856) 346,384
State ..................... -- -- --
----------- ----------- -----------
-- (1,219,856) 346,384
----------- ----------- -----------

Total tax (provision) benefit $ (124,000) $(1,337,406) $ 702,150
=========== =========== ===========

The income tax provision differs from the amount obtained by applying the
statutory Federal income tax rate to pretax income as follows:

FISCAL YEAR ENDED
------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------

(Provision) benefit at federal statutory rates.. $ (492,514) $ 7,161,669 $ 4,066,060
Valuation allowance against current year benefit -- (7,161,669) --
State taxes .................................... -- (117,550) --
Non deductible expenses ........................ (709,450) -- --
(Increase) reduction in the valuation allowance 1,072,545 (1,219,856) (3,405,000)
Other .......................................... 5,419 -- 41,090
----------- ----------- -----------
(Provision) benefit for income taxes ........... $ (124,000) $(1,337,406) $ 702,150
=========== =========== ===========

Net deferred tax assets reflect the tax effect of the following differences
between financial statement carrying amounts and tax basis of assets and
liabilities:

JANUARY 29, JANUARY 30,
2000 1999
------------ ------------

Assets:
Net operating loss and tax credit carryforwards.............. $ 3,781,476 $ 7,473,729
Inventory.................................................... 2,155,336 1,923,888
Property and equipment....................................... 2,659,469 1,904,756
Allowance for doubtful accounts and other.................... 73,368 319,011
Reserves..................................................... 2,849,638 982,601
Other........................................................ 148,310 136,157
------------ ------------
Total deferred tax assets....................................... 11,667,597 12,740,142
Valuation allowance............................................. (11,667,597) (12,740,142)
------------ ------------
Net deferred tax assets......................................... $ -- $ --
============ ============

During fiscal 1999, the Company provided a valuation allowance of
$11,667,597 for deferred tax assets as management believes that it is more
likely than not that the benefit of the deferred tax asset will not be realized.
Realization of future tax benefits related to the deferred tax assets is
dependent on many factors, including the Company's ability to generate taxable
income within the net operating loss carryforward period. Management has
considered these factors in reaching its conclusion as to the valuation
allowance for financial reporting purposes. The Company has net operating loss
carryforwards of approximately $10.5 million, which begin to expire in the year
2017.

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36

NOTE 10 - STOCKHOLDERS' EQUITY

STOCK SUBSCRIPTION

In March 1999, the Company entered into Subscription Agreements for the sale
of 235,293 shares of the Company's common stock to a group of private investors
at the agreed upon price of $8.50 per share. The proceeds of $2 million were
received in January 1999. The Subscription Agreements require that the Company
file the appropriate registration statement with the Securities and Exchange
Commission within six months from the date of the Subscription Agreements to
permit the registered resale of the shares by the investors in open market
transactions. If on the effective date of the registration statement, the market
price is less than $8.50 per share, the Company was obligated to reimburse the
investor group the lesser of 1) the product of the difference between $8.50 and
the closing bid price of the Company's common stock on the effective date of the
registration statement multiplied by the number of shares issued under the
Subscription Agreements or 2) the product of $2.00 multiplied by the number of
shares issued under the Subscription Agreements. As of January 30, 1999, the
potential redeemable amount of $470,588 was recorded as redeemable common equity
and the remaining $1,529,412 was recorded as capital in excess of par value in
the accompanying consolidated balance sheets. The Company filed a registration
statement in September 1999. Since the market price was less than $8.50 per
share on the effective date of the registration statement, the Company
reimbursed the investor group $470,588 in October 1999.

CONVERTIBLE NOTES

In April 1999, the Company entered into a Securities Purchase Agreement and
issued an aggregate of $2 million worth of its Series A Convertible Notes, which
are convertible into common stock. The notes contain a beneficial conversion
feature of approximately $385,000 which was recorded by the Company as a
non-cash interest charge to income in the first quarter of fiscal year 1999. The
Notes bear interest at 8% and are payable in full in April 2002. The agreement
requires the Company to file a registration statement with the Securities and
Exchange Commission which was filed in September 1999. The conversion price is
the lower of (A) $4.35 per share, subject to adjustment or (B) the floating
conversion price determined by multiplying (1) the average closing bid price of
the common stock for the three trading days immediately preceding the date of
determination, by (2) 80%, subject to adjustment. The conversion price may be
adjusted pursuant to antidilution provisions in the convertible note. If the
conversion price decreases, the Company is obligated to issue additional shares
of common stock.

In July 1999, the Company entered into a Securities Purchase Agreement and
issued an aggregate of $2 million worth of its Series B Convertible Notes, which
are convertible into common stock. The notes contain a beneficial conversion
feature of approximately $981,000 which was recorded by the Company as a
non-cash interest charge to income in the second quarter of fiscal year 1999.
The Notes bear interest at 8% and are payable in full in July 2002. The
agreement requires the Company to file a registration statement with the
Securities and Exchange Commission which was filed in September 1999. The
Conversion Price is the lower of (A) $3.40625 per share, subject to adjustment
or (B) the floating conversion price determined by multiplying (1) the average
closing bid price of the common stock for the three trading days immediately
preceding the date of determination, by (2) 80%, subject to adjustment. The
conversion price may be adjusted pursuant to antidilution provisions in the
convertible note.

On January 21, 2000, $300,000 of the Series A convertible notes, plus
interest, were converted to 87,219 shares of common stock. These financial
statements reflect the reduction in debt and interest payable, totaling
$317,622, and offset against common stock and additional paid in capital as of
January 29, 2000.

STOCK WARRANTS

In connection with its initial public offering, the Company issued warrants
to purchase 150,000 shares of common stock. The warrants were exercisable until
December 19, 1996 at an exercise price equal to $12.75. The holders of such
warrants attempted to exercise the warrants in fiscal 1996. The Company disputed
the method of determining the exercise price for such warrants which resulted in
litigation. During fiscal year 1997, the Company settled the litigation and
agreed to issue an aggregate of 85,000 shares of common stock. These shares were
issued during the first quarter of fiscal year 1998 and accordingly, the Company
recorded an expense of approximately $214,000 which represented the fair value
of the common stock on the date of issuance.

INVESTMENT IN AFFILIATE

The Company's investment in and advances to partially-owned equity
affiliate consists of a 26.67% (two million shares) interest in perfumania.com,
inc. which totaled approximately $2.6 million and advances in the amount of
approximately $255,000 as of January 29, 2000. The Company's accumulated deficit
as of January 29, 2000 includes the equity in the net loss of perfumania.com,
inc. totaling approximately $3.2 million.

36
37

On September 29, 1999, perfumania.com, inc., which at the time was a wholly
owned subsidiary of the Company, made an initial public offering of its common
stock representing approximately 47% of the common stock outstanding following
the offering. perfumania.com, inc. offered 3,500,000 shares of its common stock,
which included 1,000,000 shares held by the Company. The offering raised
approximately $22.0 million, net of offering costs. perfumania.com, inc.
received net proceeds from the initial public offering of approximately $15.6
million which were used for working capital and other general corporate
purposes, including repayment of any outstanding indebtedness to the Company. In
connection with the public offering, the Company recorded a $9.7 million
increase in additional paid-in capital representing its then 53% (four million
shares) interest in perfumania.com, inc.'s net proceeds in the initial public
offering under the equity method of accounting.

On October 4, 1999, the Company sold certain assets to perfumania.com, inc.
consisting primarily of an e-commerce greeting card website for $500,000, of
which $450,000 has been reflected as a dividend, since the Company's cost basis
in such assets amounted to $50,000.

On December 10, 1999, the Company signed an Option Agreement (the
"Agreement") with an investment firm granting the investment firm two options to
acquire up to 2,500,000 shares of perfumania.com, inc. from the Company for
consideration in the amount of $12,500. The first option provides that the
investment firm may purchase 2,000,000 shares for $6.00 per share on or prior to
January 15, 2000 and provided that this option has been exercised, a second
option to purchase 500,000 shares for $8.00 on or prior to the earlier to occur
of December 31, 2000 or various other events, as defined in the Agreement. The
investment firm exercised the first option for the 2,000,000 shares on January
11, 2000 and the Company realized proceeds of $12,000,000. The Agreement
provides when the first option is exercised, nominees of the investment firm
will be appointed to constitute the majority of the members of the board of
directors of perfumania.com, inc. subject to satisfaction of applicable SEC
regulations. Subject to the exercise of the first option, the Agreement also
limits the amount of shares of perfumania.com, inc. that may be sold by the
Company, as well as the timing of these sales.

On February 10,2000, Envision Development Corporation ("EDC") entered into
a plan of merger with perfumania.com, inc. The plan of merger provided for
among other things, the merger of EDC with perfumania.com. As a result,
perfumania.com, inc. became a direct wholly-owned subsidiary of EDC and each
share of common stock, par value $0.01 per share, of perfumania.com, inc.
issued and outstanding before the plan of merger was converted into and
exchanged for one share of common stock, par value $0.01 per share, of EDC.

On April 29, 2000 the Company acquired 100% of the outstanding common stock
of perfumania.com, inc. from EDC in exchange for 400,000 shares of EDC common
stock held by the Company. In addition, the Company sold another 100,000 shares
of EDC common stock for $2.5 million to a majority shareholder of EDC, and in a
related transaction, the investment firm referred to above exercised its second
option under the agreement to acquire 500,000 shares of EDC common stock at
$8.00 per share. Total cash proceeds to the Company resulting from these
transactions amounted to $6.5 million. The Company continues to own one
million shares of EDC.

The following represents condensed financial information for
perfumania.com, inc. as of, and for the fiscal year ended, January 29, 2000.

Total assets (including cash of $9,208,501) $11,237,497

Total liabilities $ 1,519,688

Shareholders' equity $ 9,717,809

Revenues $ 2,290,149

Costs and expenses $ 7,518,616

Net loss $(5,228,467)

PREFERRED STOCK

The Company's Articles of Incorporation authorize the issuance of up to
1,000,000 shares of preferred stock. The preferred stock may be issued from time
to time at the discretion of the Board of Directors without stockholders'
approval. The Board of Directors is authorized to issue these shares in
different series and, with respect to each series, to determine the dividend
rate, and provisions regarding redemption, conversion, liquidation preference
and other rights and privileges. As of January 29, 2000, no preferred stock had
been issued.

TREASURY STOCK

In December 1999, the Company's Board of Directors approved a 1,500,000
stock repurchase program. Pursuant to this program, Perfumania repurchased
approximately 816,000 shares of common stock for $3.4 million in the fourth
quarter of fiscal 1999.

STOCK OPTION PLANS

Under the Company's Stock Option Plan (the "Stock Option Plan") and
Directors Stock Option Plan (the "Directors Plan") (collectively, the "Plans"),
4,000,000 shares of common stock and 60,000 shares of common stock,
respectively, are reserved for issuance upon exercise of options. The Company's
Board of Directors, or a committee thereof, administers and interprets the Stock
Option Plan. The Stock Option Plan provides for the granting of both "incentive
stock options" (as defined in Section 422A of the Internal Revenue Code) and
non-statutory stock options. Options can be granted under the Stock Option Plan
on such terms and at such prices as determined by the Board, except that the per
share exercise price of options will not be less than the fair market value of
the common stock on the date of grant. Only non-employee directors are eligible
to receive options under the Directors Plan. The Directors Plan provides for an
automatic grant of an option to purchase 2,000 shares of common stock upon
election as a director of the Company and an automatic grant of 4,000 shares of
common stock upon such person's re-election as a director of the Company, in
both instances at an exercise price equal to the fair value of the common stock
on the date of grant.

37
38

During October 1998, the Company offered each employee, who had previously
been granted options to purchase the Company's stock, the opportunity to change
the option price effective October 27, 1998 (the "Repricing"). Under the terms
of the Repricing, all previously granted stock options would be cancelled, and
the employee would be granted the same number of options at the fair market
value of the Company's common stock on October 27, 1998, which was $0.50 per
share. No other terms to the stock options were amended. At the time of the
offer, the Company had approximately 80 employees who had been granted options
to purchase the Company's common stock with option prices ranging from $2.75 to
$6.84. The Repricing plan was accepted by all employees with respect to
outstanding stock options.

The Company has elected to follow the measurement prescribed by APB 25. Had
compensation costs for the Company's Plans been determined based on the fair
market value at the grant dates of options granted consistent with the method of
SFAS 123, the Company's net income (loss) and diluted net income (loss) per
share would have been reduced to the pro forma amounts indicated below:

FISCAL YEARS
----------------------------------------------
1999 1998 1997
------------ ------------ ------------

Net income (loss):
As reported $ 1,044,182 $(18,974,498) $(11,432,570)
Proforma $ (341,025) $(19,735,008) $(11,939,613)
Diluted net income (loss) per share:
As reported $ 0.10 $ (2.85) $ (1.63)
Pro forma $ (0.03) $ (2.96) $ (1.70)

In calculating the pro forma net loss and net income (loss) per share for
1999, 1998 and 1997, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants in 1999, 1998 and 1997:

1999 1998 1997
----------- ----------- --------
Expected life (years)................. 3 - 7 years 3 - 7 years 3 - 7 years
Interest rate......................... 4.72% 6.02% 6.52%
Volatility............................ 126% 102% 39%
Dividend yield........................ 0% 0% 0%

Options granted under the Stock Option Plan are exercisable after the period
or periods specified in the option agreement, and options granted under the
Directors Plan are exercisable immediately. Options granted under the Plans are
not exercisable after the expiration of 10 years from the date of grant. The
Plans also authorizes the Company to make loans to optionees to enable them to
exercise their options.

A summary of the Company's option activity, and related information for each
of the three fiscal years ended January 29, 2000 is as follows:

1999 1998 1997
----------------------------- ----------------------------- ---------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISABLE EXERCISABLE EXERCISABLE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ---------------- ----------- -------------- -------- --------------

Outstanding at beginning of year. 1,758,600 $ 0.46 1,724,150 $ 3.18 1,494,600 $ 3.19
Granted.......................... 624,250 3.30 1,926,750 (1) 0.46 332,750 3.28
Exercised........................ (345,383) 0.50 (684,200) 0.45 (37,500) 3.13
Cancelled........................ (50,617) 0.50 (1,208,100)(1) 2.99 (65,700) 3.84
--------- --------- ---------
Outstanding at end of year....... 1,986,850 $ 1.34 1,758,600 $ 0.46 1,724,150 $ 3.18
========= ========= =========
Options exercisable at end of
year.......................... 1,880,350 $ 1.18 1,600,275 $ 0.46 1,541,400 $ 3.14
Weighted-average fair value of
Options granted during the year 624,250 $ 2.87 1,926,750 $ 0.46 332,750 $ 1.48

- ---------------
(1) Includes 1,130,600 options cancelled and then subsequently re-granted as
part of the repricing.

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39

The following table summarizes information about stock options outstanding
at January 29, 2000:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED- WEIGHTED- WEIGHTED-
RANGE OF AVERAGE AVERAGE AVERAGE
EXERCISE NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
PRICES OUTSTANDING PRICE LIFE OUTSTANDING PRICES
- ------------- ---------------- ------------- ----------------- ---------------- ----------

$0.41 - $0.50 1,372,350 $ 0.46 7 1,372,350 $ 0.46
$2.38 - $5.38 614,500 3.25 7 508,000 3.15
--------- ------ -- -------- ------
1,986,850 $ 1.34 7 1,880,350 $ 1.18
========== ====== == ========= ======

NOTE 11- EMPLOYEE BENEFIT PLANS

The Company has a 401(k) Savings and Investment Plan ("the Plan"). Pursuant
to such plan, participants may make contributions to the Plan up to a maximum of
15% of total compensation or $9,500 (or such higher amount as is prescribed by
the Secretary of the Treasury for cost of living adjustments), whichever is
less, and the Company, in its discretion, may match such contributions to the
extent of 25% of the first 4% of a participant's contribution. The Company's
matching contributions vest over a 5-year period. In addition to matching
contributions, the Company may make additional contributions on a discretionary
basis in order to comply with certain Internal Revenue Code regulations
prohibiting discrimination in favor of highly compensated employees. The
Company's matching contributions during fiscal years 1999, 1998 and 1997 were
not significant.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

The Company is self-insured for employee medical benefits under the
Company's group health plan. The Company maintains stop loss coverage for
individual medical claims in excess of $50,000 and for annual Company medical
claims which exceed approximately $2,000,000 in the aggregate. While the
ultimate amount of claims incurred are dependent on future developments, in
management's opinion, recorded reserves are adequate to cover the future payment
of claims. However, it is possible that recorded reserves may not be adequate to
cover the future payment of claims. Adjustments, if any, to estimates recorded
resulting from ultimate claim payments will be reflected in operations in the
periods in which such adjustments are known. The self-insurance reserve at
January 29, 2000 and January 30, 1999 was approximately $364,000 and $520,000,
respectively, which is included in accrued expenses and other liabilities in the
accompanying consolidated balance sheets.

The Company leases space for its office, warehouse and retail stores. The
lease terms vary from one to ten years, in some cases with options to renew for
longer periods. Various leases contain clauses which adjust the base rental rate
by the prevailing Consumer Price Index, as well as additional rent based on a
percentage of gross sales in excess of a specified amount.

Rent expense for fiscal year 1999, 1998, and 1997 was approximately
$16,473,000, $15,972,000, and $14,398,000, respectively. Future minimum lease
commitments under these operating leases at January 29, 2000 are as follows:

FISCAL YEAR
- -----------
2000................................................. $14,875,000
2001................................................. 12,188,000
2002................................................. 8,954,000
2003................................................. 6,194,000
2004................................................. 4,566,000
Thereafter........................................... 10,566,000
-----------
Total future minimum lease payments.................. $57,343,000
===========

The Company's capitalized leases consist primarily of computer hardware and
software equipment. The lease terms vary from one to five years. The following
is a schedule of future minimum lease payments under capital leases together
with the present value of the net minimum lease payments, at January 29, 2000:

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40

FISCAL YEAR
- -----------

2000 $ 482,903
2001 361,567
2002 335,360
2003 6,634
2004 --
-----------
Total future minimum lease payments 1,186,464
Less: amount representing interest (160,673)
-----------
Present value of minimum lease payments 1,025,791
Less: current portion (391,220)
-----------
$ 634,571
===========

The depreciation expense relating to capital leases is included in
depreciation and amortization expense.

The Company is also involved in various legal proceedings in the ordinary
course of business. Management cannot presently predict the outcome of these
matters, although management believes, upon the advice of legal counsel, that
the Company would have meritorious defenses and that the ultimate resolution of
these matters should not have a materially adverse effect on the Company's
financial position or result of operations.

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41

NOTE 13 - SEGMENT INFORMATION

Perfumania operates in two industry segments, specialty retail sale and
wholesale distribution of fragrances and related products. Financial information
for these segments is summarized in the following table:

FISCAL YEAR ENDED
-------------------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------------- -------------- -------------

Net sales to external customers:
Wholesale ............................. $ 36,975,463 $ 40,465,689 $ 34,031,744
Retail ................................ 155,952,646 134,789,944 129,561,815
------------ ------------ ------------
Total net sales to external customers $192,928,109 $175,255,633 $163,593,559
============ ============ ============
Intersegment sales (excluded from above):
Wholesale ............................. $ 18,556,182 $ 18,477,729 $ 80,022,607
Retail ................................ -- -- --
------------ ------------ ------------
Total intersegment sales ............ $ 18,556,182 $ 18,477,729 $ 80,022,607
============ ============ ============
Cost of goods sold:
Wholesale ............................. $ 29,956,394 $ 32,920,317 $ 26,090,395
Retail ................................ 87,339,377 77,718,115 71,529,423
------------ ------------ ------------
Total cost of goods sold ............ $117,295,771 $110,638,432 $ 97,619,818
============ ============ ============
Gross profit:
Wholesale ............................. $ 7,019,069 $ 7,545,372 $ 7,941,349
Retail ................................ 68,613,269 57,071,829 58,032,392
------------ ------------ ------------
Total gross profit .................. $ 75,632,338 $ 64,617,201 $ 65,973,741
============ ============ ============
Total assets:
Wholesale ............................. $ 11,821,552 $ 21,665,800 $ 25,023,404
Retail ................................ 86,474,006 65,159,924 73,633,039
------------ ------------ ------------
Total assets......................... $ 98,295,558 $ 86,825,724 $ 98,656,443
============ ============ ============

Inventories:
Wholesale ............................. $ 5,746,383 $ 8,227,522 $ 20,368,792
Retail ................................ 62,981,145 45,652,610 52,769,050
------------ ------------ ------------
Total inventories ................... $ 68,727,528 $ 53,880,132 $ 73,137,842
============ ============ ============
Depreciation and amortization:
Retail ................................ $ 4,725,691 $ 4,480,681 $ 4,697,816
------------ ------------ ------------
Total depreciation and amortization.. $ 4,725,691 $ 4,480,681 $ 4,697,816
============ ============ ============
Capital expenditures:
Retail ................................ $ 2,820,321 $ 8,849,837 $ 6,831,944
------------ ------------ ------------
Total capital expenditures .......... $ 2,820,321 $ 8,849,837 $ 6,831,944
============ ============ ============

In fiscal year 1999, 1998 and 1997, the wholesale segment included foreign
sales of approximately $2.0 million, $2.9 million and $1.7 million,
respectively.

41
42

NOTE 14- SUBSEQUENT EVENTS

On March 9, 2000, the Company entered into a Securities Purchase Agreement
and issued an aggregate of $4 million worth of Series C Convertible Notes, which
are convertible into common stock. The notes contain a beneficial conversion
feature of approximately $1.2 million which was recorded by the Company as a
non-cash interest charge to income in the first quarter of fiscal year 2000. The
notes bear interest at 8% and are payable in full in March 2003. The agreement
requires the Company to file a registration statement with the Securities and
Exchange Commission within forty-five days after the date of issuance of the
convertible notes. The Company filed a registration statement in April 2000. The
Conversion Price is the lower of (A) $9.58 per share, subject to adjustment or
(B) the floating conversion price determined by multiplying (1) the average
closing bid price of the common stock for the three trading days immediately
preceding the date of determination, by (2) 80%, subject to adjustment. The
conversion price may be adjusted pursuant to antidilution provisions in the
convertible note.

On March 27, 2000, the Company entered into a Securities Purchase Agreement
and issued an aggregate of $5 million worth of Series D Convertible Notes, which
are convertible into common stock. The notes contain a beneficial conversion
feature of approximately $1.4 million which will be taken by the Company as a
non-cash interest charge to income in the first quarter of fiscal year 2000. The
notes bear interest at 8% and are payable in full in March 2003. The agreement
requires the Company to file a registration statement with the Securities and
Exchange Commission within forty-five days after the date of issuance of the
convertible notes. The Company filed a registration statement in April 2000. The
Conversion Price is the lower of (A) $7.76 per share, subject to adjustment or
(B) the floating conversion price determined by multiplying (1) the average
closing bid price of the common stock for the three trading days immediately
preceding the date of determination, by (2) 80%, subject to adjustment. The
conversion price may be adjusted pursuant to antidilution provisions in the
convertible note.

In March 2000, the Company acquired approximately 5% of the outstanding
shares of common stock of The Sportsman's Guide, Inc., a marketer of value
priced outdoor gear and general merchandise for cash totaling approximately $1.4
million. The Sportsman's Guide, Inc. offers its products via various catalogues
and the Internet. The Company also signed a letter of intent to acquire
additional shares of common stock of The Sportsman's Guide, Inc. representing
approximately an additional 11% of its outstanding shares of common stock. The
transaction is subject to due diligence and to date has not been completed.

On March 6, 2000, the Company signed a letter of intent to acquire a 30%
interest in Cellpoint Coporation, an Internet based distributor and retailer of
wireless electronic equipment that sells its products both retail and wholesale,
domestically and internationally. This transaction is subject to due diligence
and to date has not been completed.

On April 6, 2000, the Company signed a letter of intent to acquire a 30%
interest in Backus Turner International, a company involved in Internet
advertising media. This transaction is subject to due diligence and to date has
not been completed.

42
43

E COM VENTURES, INC.
(FORMERLY PERFUMANIA, INC.)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
OF PERIOD EXPENSE ACCOUNTS DEDUCTIONS OF PERIOD
--------- ------- -------- ---------- ---------

FOR THE YEAR ENDED
JANUARY 31, 1998:

Accounts receivable 248,386 1,730,000 -- (1,273,432)(1) 704,954
Inventory 940,000 1,810,000 -- -- 2,750,000
Self insurance -- 297,710 187,449(2) (146,937)(3) 338,222
Deferred tax asset valuation allowance -- 3,405,000 -- -- 3,405,000

FOR THE YEAR ENDED
JANUARY 30, 1999:

Accounts receivable 704,954 -- -- -- 704,954
Inventory 2,750,000 3,764,665 -- (2,351,414)(4) 4,163,251
Self insurance 338,222 1,295,410 541,484(2) (1,654,491)(3) 520,625
Deferred tax asset valuation allowance 3,405,000 9,335,142 -- -- 12,740,142

FOR THE YEAR ENDED
JANUARY 29, 2000

Accounts receivable 704,954 60,000 -- (704,954)(1) 60,000
Inventory 4,163,251 859,368 -- (2,652,666)(4) 2,369,953
Self insurance 520,625 986,501 370,875(2) (1,514,449)(3) 363,552
Deferred tax asset valuation allowance 12,740,142 -- -- (1,072,545) 11,667,597

- ------------------

(1) Represents amounts written off against accounts receivable.

(2) Represents employee contributions.

(3) Represents benefit/premium payments.

(4) Represents amounts written off against inventory.

43
44

FINANCIAL STATEMENTS

PAGE
----

Report of Independent Certified Public Accountants.......... 45
Balance Sheets as of January 29, 2000 and January 30,
1999...................................................... 46
Statements of Operations for the Year Ended January 29, 2000
and for the Period from January 7, 1999 (date of
inception) through January 30, 1999....................... 47
Statements of Changes in Shareholders' Equity (Deficit) for
the Year Ended January 29, 2000 and for the Period from
January 7, 1999 (date of inception) through January 30,
1999...................................................... 48
Statements of Cash Flows for the Year Ended January 29, 2000
and for the Period from January 7, 1999 (date of
inception) through January 30, 1999....................... 49
Notes to Financial Statements............................... 50

44
45

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and
Shareholders of Envision Development Corporation:

In our opinion, the accompanying balance sheets and the related statements
of operations, shareholders' equity (deficit) and cash flows present fairly, in
all material respects, the financial position of Envision Development
Corporation (successor to perfumania.com, inc.) (the "Company") at January 29,
2000 and January 30, 1999 and the results of its operations and its cash flows
for the year ended January 29, 2000 and for the period from January 7, 1999
(date of inception) through January 30, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of the financial statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.

PricewaterhouseCoopers LLP
Miami, Florida

April 28, 2000

45
46

ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

BALANCE SHEETS

JANUARY 29, JANUARY 30,
2000 1999
----------- -----------

ASSETS
Current assets:
Cash and cash equivalents................................. $ 9,208,501 $ 100,000
Accounts receivable....................................... 38,937 --
Inventories............................................... 1,651,327 209,655
Prepaid expenses and other current assets................. 102,357 --
----------- ---------
Total current assets.............................. 11,001,122 309,655
Property and equipment, net................................. 236,375 14,213
----------- ---------
Total assets...................................... $11,237,497 $ 323,868
=========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Amounts due to affiliate.................................. $ 255,201 $ 531,326
Accounts payable and accrued expenses..................... 1,264,487 66,037
----------- ---------
Total current liabilities......................... 1,519,688 597,363
----------- ---------
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock, $0.01 par value, 5,000,000 shares
authorized,
0 shares issued and outstanding........................ -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized,
7,500,000 and 5,000,000 shares issued and outstanding,
respectively........................................... 75,000 50,000
Additional paid in capital................................ 15,194,771 --
Accumulated deficit....................................... (5,551,962) (323,495)
----------- ---------
Total shareholders' equity (deficit).............. 9,717,809 (273,495)
----------- ---------
Total liabilities and shareholders' equity
(deficit)....................................... $11,237,497 $ 323,868
=========== =========

The accompanying notes are an integral part of these financial statements.

46
47

ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

STATEMENTS OF OPERATIONS

FOR THE PERIOD
FROM JANUARY 7,
FOR THE 1999 (DATE OF
YEAR ENDED INCEPTION)
JANUARY 29, THROUGH
2000 JANUARY 30, 1999
----------- ----------------

Net sales................................................... $ 2,290,149 $ --
Cost of goods sold.......................................... 1,832,094 --
----------- ----------
Gross profit................................................ 458,055 --
----------- ----------
Operating expenses:
General and administrative expenses....................... 3,234,910 60,245
Sales and marketing expenses.............................. 1,548,742 32,852
Web site development expenses............................. 196,673 18,146
Consulting fees........................................... 277,190 15,019
Management fees to affiliate.............................. 433,655 29,644
Consulting fees to related party.......................... -- 115,000
----------- ----------
Total operating expenses.......................... 5,691,170 270,906
----------- ----------
Loss from operations........................................ (5,233,115) (270,906)
Interest income............................................. 180,886 --
Interest expense to affiliate............................... (176,238) (2,599)
----------- ----------
Net loss.................................................... $(5,228,467) $ (273,505)
=========== ==========
Basic and diluted loss per common share..................... $ (0.89) $ (0.05)
Basic and diluted weighted average common shares
outstanding............................................... 5,844,780 5,000,000

The accompanying notes are an integral part of these financial statements.

47
48

ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

COMMON STOCK ADDITIONAL
--------------------- PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- -------- ----------- ----------- -----------

Balance at January 7, 1999 (date of inception)............ 1,000 $ 10 $ -- $ -- $ 10
Net loss from the period from January 7, 1999 (date of
inception) through January 30, 1999..................... -- -- -- (273,505) (273,505)
5,000-for-1 stock split................................... 4,999,000 49,990 -- (49,990) --
---------- -------- ----------- ----------- -----------
Balance at January 30, 1999............................... 5,000,000 50,000 -- (323,495) (273,495)
Net loss.................................................. -- -- -- (5,228,467) (5,228,467)
Issuance of common stock warrants in exchange for
services................................................ -- -- 66,150 -- 66,150
Issuance of common stock through an initial public
offering, net of expenses of $1,896,379................. 2,500,000 25,000 15,578,621 -- 15,603,621
Dividend to affiliate..................................... -- -- (450,000) -- (450,000)
---------- -------- ----------- ----------- -----------
Balance at January 29, 2000............................... 7,500,000 $ 75,000 $15,194,771 $(5,551,962) $ 9,717,809
========== ======== =========== =========== ===========

The accompanying notes are an integral part of these financial statements.

48
49

ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

STATEMENTS OF CASH FLOWS

FOR THE PERIOD
FROM JANUARY 7,
1999 (DATE OF
FOR THE INCEPTION)
YEAR ENDED THROUGH
JANUARY 29, 2000 JANUARY 30, 1999
---------------- -----------------

Cash flows from operating activities:
Net loss.................................................. $(5,228,467) $(273,505)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 17,673 95
Impairment of long-term assets......................... 120,452 --
Other.................................................. 24,414 11,035
Charge for warrants issued in exchange for services.... 66,150 --
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable.................................. (38,937) --
Inventories.......................................... (1,466,086) --
Prepaid expenses and other current assets............ (102,357) --
Accounts payable and accrued expenses................ 1,198,450 66,037
----------- ---------
Net cash used in operating activities....................... (5,408,708) (196,338)
----------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (310,287) (14,308)
Acquisition from affiliate................................ (50,000) --
----------- ---------
Net cash used in investing activities....................... (360,287) (14,308)
----------- ---------
Cash flows from financing activities:
Issuance of common stock, net of transaction costs of
$1,896,379............................................. 15,603,621 --
Dividend to affiliate..................................... (450,000) --
(Payments to) borrowings from affiliate, net.............. (276,125) 310,646
----------- ---------
Net cash provided by financing activities................... 14,877,496 310,646
----------- ---------
Net increase in cash and cash equivalents................... 9,108,501 100,000
Cash and cash equivalents, beginning of period.............. 100,000 --
----------- ---------
Cash and cash equivalents, end of period.................... $ 9,208,501 $ 100,000
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest to affiliate..................................... $ 176,238 $ --
=========== =========

The accompanying notes are an integral part of these financial statements.

49
50

ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

On January 7, 1999, perfumania.com, inc. ("perfumania.com") was created as
a wholly-owned subsidiary of Perfumania, Inc. (the "Affiliate"). The Affiliate
is a wholly-owned subsidiary of E Com Ventures, Inc. perfumania.com operates an
online store that specializes in the sale of fragrances, fragrance related
products and bath and body products on a retail and wholesale basis.
perfumania.com launched its online store in February 1999. On September 29,
1999, perfumania.com completed its initial public offering (see Note 2).

On January 11, 2000, a change in control of perfumania.com occurred when
Alta Limited ("Alta") exercised an option to purchase from the Affiliate
2,000,000 shares of common stock of perfumania.com at a price of $6.00 per share
pursuant to an Option Agreement, dated December 10, 1999, among the Affiliate,
Alta and the optionees who are signatories thereto. In connection with such
exercise, Alta nominated two directors to the Board of Directors of
perfumania.com and an additional four directors were added by the Board of
Directors effective upon the expiration of the waiting requirements of Rule
14f-1 under the Securities Exchange Act of 1934, as amended. Under the Option
Agreement, Alta has a second option to purchase 500,000 shares of common stock
of Envision at a price of $8.00 per share on or prior to the earlier to occur of
December 31, 2000 or various other events, as defined in the Option Agreement.

On February 10, 2000, Envision Development Corporation (the "Company") was
formed in the State of Florida. The Company entered into a plan of merger with
perfumania.com and EDC Sub, Inc., a Florida corporation and wholly-owned
subsidiary of the Company on February 10, 2000. The plan of merger provided for,
among other things, the merger of EDC Sub, Inc. with perfumania.com, with
perfumania.com as the surviving corporation. As a result, perfumania.com became
a direct wholly-owned subsidiary of the Company. The Company does not have any
present significant operations itself or through any other subsidiary, except
for the operations of perfumania.com.

In addition, each share of common stock, par value $0.01 per share, of
perfumania.com issued and outstanding before the reorganization was converted
into and exchanged for one share of common stock, par value $0.01 per share, of
the Company. Consequently, shareholders of perfumania.com became shareholders of
the Company and ceased to be shareholders of perfumania.com. Pursuant to Florida
Statutes, shareholder approval of this reorganization was not required, and the
reorganization was tax-free for Federal income tax purposes to perfumania.com's
shareholders.

A summary of the significant accounting policies followed in the
preparation of the accompanying financial statements is presented below:

Fiscal year-end. The Company's fiscal year ends the Saturday closest to
January 31 to enable the Company's operations to be reported in a manner which
more closely coincides with general retail reporting practices and the financial
reporting needs of the Company.

Management's estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Management fees. Management fees reflected in the statements of operations
represent shared expenses which have been allocated to the Company by the
Affiliate for costs associated with resources it shares with the Affiliate using
the proportional cost allocation method. Such allocations include the prorata
share of the rent, utilities, facilities, maintenance, and administrative
services provided by the Affiliate. Prorata amounts of rent, utilities and
facilities expense were determined based on the square footage utilized by the
Company

50
51
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

while administrative services charges by the Affiliate were determined based on
the prorata share of time spent by the Affiliate's administrative personnel.
Although no formal agreement existed through May 1, 1999, management believes
these allocations are reasonable. The financial statements of the Company do not
necessarily reflect the results of operations or financial position that would
have existed had the Company been independent of the Affiliate, however,
management believes that these fees are representative of the fair value of the
services provided.

Effective May 1, 1999, the Company entered into an intercompany services
agreement (the "Agreement") with its Affiliate. Under the terms of the
Agreement, the Company will pay various management fees to the Affiliate as
follows: for corporate services, the monthly fee is fixed at $10,000 unless
monthly gross sales exceed $50,000, at which time, the monthly fee will amount
to $10,000 plus two percent of the Company's monthly gross sales; for
fulfillment services, the fee is equal to three percent of the costs of goods
sold by the Company and serviced by the Affiliate; for advertising services, the
fee ranges between 20% to 50% of the cost of the advertisement incurred by the
Affiliate; for shared facilities, the fee is equal to a proportionate share of
the facility costs incurred by the Affiliate, initially 15%; and for inventory
purchases, the purchase price is equal to 105% of the Affiliate's cost of such
inventory. Management fees for the year ended January 29, 2000, amounted to
$433,655.

Sales and marketing expense. Sales and marketing expenses, which consist
primarily of advertising and promotional costs, are charged to operations as
incurred.

Web site development expenses. Web development expenses consist
principally of expenses incurred for the development of the Company's web site
and are expensed as incurred. These costs are primarily covered under a service
agreement with a software and network developer providing web hosting services.

Revenue recognition. The Company's revenues are derived principally from
the sale of products over the internet. Revenue and related costs are recognized
upon delivery of goods, net of discounts and returns. Sales from electronic
commerce transactions accounts for 84% of net sales for the year ended January
29, 2000. No one customer accounted for 10% or more of net revenues during the
year ended January 29, 2000.

Loss per share. Basic loss per common share is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding. Diluted earnings per common share include the dilutive effect of
stock options using the treasury stock method. The difference between the
weighted average common shares outstanding used to calculate basic and diluted
earnings per share relates to stock options assumed exercised under the treasury
method of accounting. Potentially dilutive shares as of January 29, 2000 not
included in the diluted per share calculation include 224,244 shares because
their effects would be anti-dilutive due to the loss incurred by us.
Accordingly, for the year ended January 29, 2000 and the period from January 7,
1999 through January 30, 1999, diluted net loss per common share is the same as
basic net loss per common share.

Cash and cash equivalents. Short-term investments with maturities of three
months or less are considered to be cash equivalents.

Inventories. Inventories, consisting of finished goods, are carried at the
lower cost or market, cost being determined on a moving average cost basis.
Inventories include product costs, freight and insurance charges.

Property and equipment. Property and equipment are recorded at cost.
Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the respective assets. Expenditures for repairs
and maintenance are charged to expense as incurred.

Intangibles and other long lived assets. Assets and liabilities acquired
in connection with business combinations accounted for under the purchase method
are recorded at their respective estimated fair values. Goodwill represents the
excess of the purchase price over the estimated fair value of net assets
acquired,
51
52
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

including the recognition of applicable deferred taxes. At January 29, 2000, the
Company had no recorded goodwill.

The Company reviews long-lived assets, identifiable intangibles and
goodwill and record an impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable.

Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of the assets to future discounted net cash flows expected
to be generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets or expected future
cash flows on an undiscounted basis. The Company determined that the carrying
amount of the Company's goodwill and other long-term assets was not recoverable;
therefore, an impairment of approximately $120,000 was recorded as general and
administrative expenses in the accompanying statement of operations for the year
ending January 29, 2000.

Income taxes. The Company records income taxes using the liability method
of accounting for deferred income taxes. Under this method, deferred tax assets
and liabilities are recognized for the expected future tax consequence of
temporary differences between the financial statement and income tax bases of
assets and liabilities. A valuation allowance is established when it is more
likely than not that any or all of the deferred tax assets will not be realized.
Prior to the change in control that occurred in January 2000, the Company filed
a consolidated U.S. Federal income tax return with its Affiliate.

Fair value of financial instruments. The Company's short-term financial
instruments, including cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses, consist primarily of instruments without extended
maturities, the fair value of which, based on management's estimates, equaled
their carrying values.

Due to Affiliate. Amounts due to Affiliate include accounts payable
primarily for inventory and management fees. Such amounts have similar terms as
with other suppliers which are due in 30 days. Interest is charged at 12.5% per
annum. Total interest expense approximated $176,200 for the year ended January
29, 2000 and $2,600 during the period from January 7, 1999 through January 30,
1999.

Concentration of risk. The Company operates an online store that
specializes in the sale of fragrances, fragrance-related products and bath and
body products. The Company has relied upon its Affiliate to provide corporate,
fulfillment, inventory supply, advertising space-sharing and other
administrative services through an intercompany agreement. Accordingly, a
significant portion of the inventory sold since inception is purchased from the
Affiliate at an amount equal to the Affiliate's cost plus five percent. The
inability of the Affiliate to adequately provide these services or the failure
of the Company to develop management and financial systems and alternative
sources of inventory supply could adversely impact the Company's financial
position or results of operations.

The Company's principal competitors include department stores, discount
perfume retailers, on-line retailers, catalog retailers and other retailers.
Many of the Company's competitors are larger in scope and have greater financial
and marketing resources.

Recent accounting pronouncements. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
Among other provisions, SFAS No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities. It also
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS No. 133 is effective for financial statements for fiscal
years beginning after June 15, 2000. Management has not determined the effect,
if any, of adopting SFAS No. 133.

52

53
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2 -- INITIAL PUBLIC OFFERING

In September 1999, perfumania.com completed its initial public offering of
its common stock (the "Offering"), in which perfumania.com and its Affiliate
sold 3,500,000 shares of common stock at an offering price of $7.00 per share.
Of the 3,500,000 shares of common stock, 2,500,000 shares of common stock were
sold by perfumania.com. perfumania.com received proceeds of approximately
$16,100,000, net of $1,400,000 underwriting discounts and commissions.
perfumania.com used approximately $3,344,000 of the proceeds to repay advances
from the Affiliate. Additionally, perfumania.com incurred approximately $496,000
in other costs in connection with the Offering. In connection with the Offering,
perfumania.com granted common stocks warrant to the underwriters to purchase
350,000 shares of common stock at an exercise price of $9.80 per share. The
common stock warrants can be exercised at any time for a period of five years.

NOTE 3 -- ACQUISITION

On October 31, 1999, perfumania.com acquired certain assets of
PostAcard.com, primarily an e-commerce greeting card website, from the Affiliate
for $500,000 in cash. The acquisition has been recorded at the Affiliate's
historical cost of $50,000 and the excess was treated as a dividend to the
Affiliate. The acquisition was accounted for using the purchase method of
accounting and since PostAcard.com had no tangible assets the Affiliate's
historical cost was recorded as goodwill. Subsequent to its acquisition,
perfumania.com determined that the carrying amount recorded was not recoverable;
therefore, an impairment charge was recorded in the accompanying statement of
operations. PostAcard.com had no significant operations for the year ended
January 29, 2000.

NOTE 4 -- PROPERTY AND EQUIPMENT, NET

Property and equipment, net is comprised of the following as of January 29,
2000 and January 30, 1999:

ESTIMATED
USEFUL
JANUARY 29, JANUARY 30, LIVES (IN
2000 1999 YEARS)
----------- ----------- -------------

Furniture, fixtures and equipment.................... 54,119 -- 5
Computer equipment and software...................... 200,024 14,308 3
-------- --------
254,143 14,308
Accumulated depreciation............................. (17,768) (95)
-------- --------
$236,375 $ 14,213
======== ========

Depreciation expense for the year ended January 29, 2000 and the period
from January 7, 1999 (date of inception) through January 30, 1999 approximated
$18,000 and $95, respectively.

NOTE 5 -- COMMITMENTS

Effective April 15, 1999, perfumania.com entered into a 36 month service
agreement with a software and network developer providing web hosting services.
Pursuant to the agreement, perfumania.com must remit 36 equal monthly
installments of $14,200. Under the term of the service agreement, in return for
displaying the network developer's corporate logo on perfumania.com's web page,
perfumania.com shall receive a marketing credit of $1,700 per month, resulting
in a net monthly web hosting service fee of $12,500 per month. perfumania.com is
subject to an early termination fee of $201,165 if cancelled within the first 12
months and $100,583 if cancelled after 24 months of service. The net monthly web
hosting service fee is expensed as incurred and is reflected in web site
development expenses in the accompanying financial statements.

53

54
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In May 1999, perfumania.com entered into an employment agreement with its
then chief executive officer and president for a five year initial term. Total
annual base salary is $200,000. A total of 225,000 common stock options were
granted at an exercise price equal to the initial public offering price of $7.00
per share. These options vested immediately at the date of grant. Upon change of
control of perfumania.com, the president is entitled to a lump sum payment equal
to three times the annual base salary. Due to the change in control that took
effect on January 11, 2000, the then president received a lump sum payment of
$600,000. Such amount has been recorded as general and administrative expenses
in the accompanying statement of operations for the year ended January 29, 2000.

Four of the Company's officers have employment agreements which provide for
aggregate base salaries of $715,000. The agreements expire at various dates from
January 2003 through February 2004. The officers are eligible for an annual
bonus, payable in the Company's stock or cash, based upon such criteria as may
be established in advance by the Board of Directors.

NOTE 6 -- RELATED PARTY TRANSACTIONS

perfumania.com has purchased a majority of the inventory sold since
inception from the Affiliate at an amount equal to the Affiliate's cost plus
five percent. For the year ended January 29, 2000 and the period from January 7,
1999 (date of inception) through January 30, 1999, such purchases totaled
approximately $1,748,000 and $220,000, respectively.

perfumania.com is charged for various services provided by the Affiliate
including administrative, distribution and other services. Such charges were
approximately $434,000 and $30,000 for the year ended January 29, 2000 and for
the period from January 7, 1999 (date of inception) to January 30, 1999,
respectively, and are classified as management fees in the accompanying
statements of operations. Purchases of inventory and expenses charged by the
Affiliate are not necessarily indicative of costs and expenses which might have
been incurred had perfumania.com been operating as a separate, or stand-alone
company. Management believes that all operating costs incurred by the Affiliate
on behalf of perfumania.com are reflected in the accompanying financial
statements.

perfumania.com's former Chief Executive Officer (the "former CEO") provided
consulting services to perfumania.com amounting to $50,000 during the period
from January 7, 1999 (date of inception) through January 30, 1999. In addition,
a party related to the former CEO provided consulting services to perfumania.com
amounting to $65,000 during the period from January 7, 1999 (date of inception)
through January 30, 1999. These consulting services were not subject to a
written consulting agreement. Management believes that these amounts are
representative of the time both parties spent in providing these consulting
services to perfumania.com during the respective period. Both of these amounts
are included in consulting fees in the accompanying statement of operation
during the period from January 7, 1999 (data of inception) through January 30,
1999.

NOTE 7 -- STOCK OPTION PLAN

Effective May 1, 1999, the Company adopted the 1999 Incentive Stock Option
Plan (the "Plan"). Officers, key employees and nonemployee consultants may be
granted stock options, stock appreciation rights, stock awards, performance
shares and performance units under the Plan. The Company has reserved 1,000,000
shares of common stock for issuance under the Plan.

Prior to establishment of a Compensation Committee (the "Committee") of the
Board of Directors, the Plan was administered by the Board of Directors of the
Company. The Board of Directors or the Committee was authorized to determine,
among other things, the key employees to whom, and the time at which, options
and other benefits were granted, the number of shares subject to each option,
the applicable vesting schedule

54
55
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and the exercise price. The Board of Directors or the Committee will determine
the treatment to be afforded to a participant in the Plan in the event of
termination of employment for any reason, including death, disability or
retirement. Under the Plan the maximum term of an incentive stock option is 10
years and the maximum term of a nonqualified stock option is 10 years.

The Board of Directors has the power to amend the Plan from time to time.
Shareholder approval of an amendment is only required to the extent that it is
necessary to maintain the Plan's status as a protected plan under applicable
securities laws or the Plan's status as a qualified plan under applicable tax
laws.

Options to purchase an aggregate of 740,000 have been granted under the
Plan to employees and non-employee director nominees of the Company before
January 11, 2000, the change in control date. These options have a total term of
ten years. Of the total options to purchase shares granted under the Plan before
the change in control date, 460,000 options vested immediately on the date of
grant, and options to purchase 280,000 shares had vesting as follows: 16.67%,
33.33% and 50.0% of the total number of shares granted on the first, second and
third anniversary of the date of grant, respectively. Given the change in
control that occurred in January 2000, the 280,000 options became 100% vested in
accordance with the Plan provisions of change in control. After the change in
control date, the Company has granted 1,496,547 options to purchase shares of
the Company common stock, exceeding the current Plan limits by 1,236,547
options. These options in excess of the current Plan limits are subject to
shareholders' approval of an increase of the reserve shares of common stock
under the Plan. The vesting period of these 1,496,547 options to purchase shares
of the Company's common stock extends from three to four years.

SFAS No. 123 encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company measures compensation expense for the stock Plan using the intrinsic
value method prescribed by Accounting Principal Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25"). Accordingly,
compensation expense for qualified and non-qualified employee stock options
granted under the Plan is equal to the difference between the fair market value
of the stock at the date of grant and the amount an employee must pay to acquire
the stock. For options granted to employees which were outstanding prior to the
Offering, the compensation expense is equal to the difference between the fair
market value of the stock at the offering price and the amount an employee must
pay to acquire the stock. For options granted to non-employee directors or other
employees in exchange for goods and services, compensation cost is measured in
accordance with SFAS No. 123.

The following is a summary of all stock option transactions:

WEIGHTED
WEIGHTED AVERAGE FAIR
STOCK AVERAGE EXERCISE VALUE OF OPTIONS
OPTIONS PRICE GRANTED
--------- ---------------- ----------------

Granted............................................... 2,236,547 $18.25 $16.72
Exercised............................................. -- --
Canceled.............................................. -- --
--------- ------
Outstanding at January 29, 2000....................... 2,236,547 $18.25
========= ======

55

56
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at January 29, 2000:

STOCK OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER OF REMAINING EXERCISE NUMBER OF EXERCISE
PRICES STOCK OPTIONS CONTRACTUAL LIFE PRICE STOCK OPTIONS PRICE
- ----------------- ------------- ---------------- -------- ------------- --------

$ 6.75 - $ 7.50 720,000 9.40 $ 7.03 720,000 $ 7.03
$ 7.51 - $10.50 20,000 9.80 10.50 20,000 10.50
$10.51 - $22.00 775,556 10.00 22.00 55,556 22.00
$22.01 - $26.13 720,991 10.00 25.63 110,991 26.13
--------- ----- ------ --------- ------
$ 6.75 - $26.13 2,236,547 9.80 $18.25 906,547 $10.36
========= ===== ====== ========= ======

Reflected below are losses as of January 29, 2000 and January 30, 1999, as
if compensation expense relative to the fair value of the options granted had
been recorded under the provisions of SFAS No. 123. The fair value of each
option grant was estimated using the Black-Scholes option-pricing model with the
following assumptions used for grants: 10 years expected life with expected
turnover of 10%; volatility factor of 100%; risk-free interest rates of 5.9%;
and no dividend payments.

JANUARY 29, JANUARY 30,
2000 1999
----------- -----------

NET LOSS:
As reported............................................... $(5,228,467) $(273,505)
=========== =========
Pro forma................................................. $(9,569,865) $(273,505)
=========== =========
BASIC LOSS PER SHARE:
As reported............................................... $ (0.89) $ (0.05)
Pro forma................................................. $ (1.64) $ (0.05)

DILUTED LOSS PER SHARE:
As reported............................................... $ (0.89) $ (0.05)
Pro forma................................................. $ (1.64) $ (0.05)

56

57
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INCOME TAXES

Prior to the change in control that occurred in January 2000, the Company
filed a consolidated U.S. Federal income tax return with its Affiliate. The
provision for income taxes is computed as if the Company filed a separate tax
return, on a stand-alone basis.

The provision (benefit) for income taxes consists of the following:

JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------

Current:
Federal............................................... $ -- $ --
State and local....................................... -- --
----------- ---------
-- --
----------- ---------
Deferred:
Federal............................................... (1,865,636) (95,723)
State and local....................................... (251,373) (7,193)
----------- ---------
(2,117,009) (102,916)
Valuation allowance..................................... 2,117,009 102,916
----------- ---------
Provision for income taxes.............................. $ -- $ --
=========== =========

The significant components of the net deferred tax asset (liability) as of
January 29, 2000 and January 30, 1999 are as follows:

JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------

Deferred tax assets:
Net operating loss carryforward....................... $ 2,138,802 $ 98,763
Reserves and allowances............................... 69,874 4,153
----------- ---------
2,208,676 102,916
Valuation allowance................................... (2,117,009) (102,916)
----------- ---------
Total deferred tax asset...................... 91,667 --
----------- ---------
Deferred tax liability:
Property and equipment................................ (6,200) --
State taxes........................................... (85,467) --
----------- ---------
Total deferred tax liabilities................ (91,667) --
----------- ---------
Net deferred tax asset (liability)...................... $ -- $ --
=========== =========

The Company provides a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some
or all of the deferred tax assets will not be realized. The Company has
established a valuation allowance against deferred tax assets of $2,117,009 and
$102,916 at January 29, 2000 and January 30, 1999, respectively.

The Company has Federal and State net operating loss carryforwards of
approximately $5,400,000 as of January 29, 2000, both of which will begin to
expire in the year 2018.

During 1999, the Company was involved in certain transactions that included
changes in the ownership of the Company's stock. In connection with the
ownership charge, the Internal Revenue Code may restrict the amount of losses
and credit that may be used to offset future income.

57

58
ENVISION DEVELOPMENT CORPORATION
(SUCCESSOR TO PERFUMANIA.COM, INC.)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of U.S. statutory federal income tax expense on the
earnings from continuing operations is as follows:

JANUARY 29, 2000 JANUARY 30, 1999
---------------- ----------------

U.S. statutory federal rate applied to pretax
income.............................................. 34.0% 34.0%
State income taxes.................................. 3.6% 3.6%
Valuation allowance................................. (37.6)% (37.6)%
----- -----
Provision for income taxes............................ -- --
===== =====

NOTE 9 -- SUBSEQUENT EVENTS

On March 10, 2000, the Company signed an Amended and Restated Agreement and
Plan of Merger to acquire all of the outstanding stock of Envision Development
Corporation, a Massachusetts corporation. The closing of this transaction is
subject to Shareholder approval.

On April 7, 2000, Envision acquired approximately 80% of the voting stock
of Qui Vive, Inc. ("Qui Vive"), a Delaware corporation pursuant to an Amended
and Restated Stock Acquisition Agreement (the "Stock Acquisition Agreement"),
dated March 31, 2000, among Envision, QV Acquisition Corporation, a Delaware
corporation that is a wholly-owned subsidiary of Envision and created solely for
the purpose of the acquisition, Sundog Technologies, Inc., a Delaware
corporation, and RockMountain Ventures Fund, LP, a Delaware limited partnership.
Pursuant to this Stock Acquisition Agreement, Envision issued shares of its
common stock in order to acquire shares of Series A Preferred Stock and Series B
Preferred Stock of Qui Vive on April 7, 2000. Envision issued 1,492,500 shares
of its common stock to acquire the 80% interest. Envision will issue additional
shares of its common stock to complete the acquisition of 80% of the voting
stock of Qui Vive subject to Envision's shareholder approval. Qui Vive, which
does business as "QV Tech", has no significant operations except for the
development of its proprietary "Interosa" technology.

On April 10, 2000, the Company entered into an Amended and Restated Stock
Purchase Agreement with VP IP, a Delaware corporation. Pursuant to the terms of
this agreement, the Company acquired the software and URL of VP IP. In exchange,
the Company issued 200,000 shares of its common stock to the owners of VP IP
which were William Patch, Chairman and Chief Executive Officer of the Company,
and his immediate family and Alex Adamopoulos, an officer of the Company.

On April 20, the Board of Directors approved a lease for the new corporate
headquarters in Bridgewater, Massachusetts. The lease commences on August 1,
2000 for a term of seven years. The minimum lease payments are approximately
$529,000 annually for years one to five and approximately $568,000 annually for
years six and seven.

The Company has a history of significant operating losses and its future
capital needs may exceed its current financial resources. The Company also
anticipates continuing operating losses in the future and presently is unable to
predict when it may become profitable, if at all. As a result of the foregoing,
a significant shareholder of the Company has committed to fund the Company's
operations and cash requirements through May 31, 2001.

58

59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES

As disclosed in a form 8-K filed with the Securities and Exchange
Commission on April 11, 2000, on April 4, 2000, PricewaterhouseCoopers LLP
("PwC"), notified us that upon completion of their audit of our consolidated
financial statements for the fiscal year ended January 29, 2000, they will
resign as our independent certified public accountants.

PwC has previously audited our consolidated financial statements for the
fiscal years ended January 30, 1999 and January 31, 1998 ("Prior Fiscal Years").
Their reports on such consolidated financial statements did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles, except for a modified
opinion for the fiscal year ended January 30, 1999 relating to our ability to
continue as a "going concern". Further, in connection with its audits of our
financial statements for the Prior Fiscal Years and through May 15, 2000, we had
no disagreements with PwC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused
them to make a reference to the subject matter of the disagreements in
connection with its reports on our consolidated financial statements for each of
the Prior Fiscal Years.

Our Board of Directors will select a successor independent certified public
accounting firm once they meet and review the qualifications of potential
applicants.

59
60

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

Our directors and executive officers are as follows:

NAME AGE POSITION
- ---- --- --------

Ilia Lekach 51 Chairman of the Board and Chief Executive Officer

Jerome Falic 36 President and Vice Chairman of the Board

Marc Finer 38 President of the Retail Division and Director

A. Mark Young 37 Chief Financial Officer

Donovan Chin 33 Chief Financial Officer of Perfumania, Inc., Secretary and
Director

Claire Fair 40 Vice President of Human Resources

Robert Pliskin(1)(2)(3) 76 Director

Carole Ann Taylor(1)(2)(3) 54 Director

Horacio Groisman, M.D.(2)(3) 47 Director

Zalman Lekach 33 Director

- -------------

(1) Member of Audit Committee.

(2) Member of Compensation Committee.

(3) Member of Stock Option Committee.

ILIA LEKACH is one of our co-founders and was our Chief Executive Officer
and Chairman of the Board from incorporation in 1988 until his resignation in
April 1994. Mr. Lekach was re-appointed Chief Executive Officer and Chairman of
the Board on October 28, 1998. He is also Chairman of the Board and Chief
Executive Officer of Parlux Fragrances, Inc., a publicly traded manufacturer of
fragrance and related products, and Chairman of the Board of Directors of Take
To Auction.Com, Inc. In August 1996, Mr. Lekach became an officer and director
with L. Luria & Son, Inc., a publicly traded specialty discount retailer. On
August 13, 1997, L. Luria & Son, Inc., filed for relief under Chapter 11 of the
Bankruptcy Code and has since been liquidated.

JEROME FALIC was appointed President on October 28, 1998. Mr. Falic has
been a Vice President since our inception and a director since August 1994. Mr.
Falic was appointed Vice Chairman of the Board in September 1994.

MARC FINER has been the President of PERFUMANIA'S Retail Division since
March 1994 and a director since August 1994. Mr. Finer was the President of
Parfums Expresso, Inc. and Parfums D'Arte, wholesale distributors of fragrances
in Puerto Rico, from their inception in August 1986 until March 1994.

A. MARK YOUNG joined us as Chief Financial Officer in February 2000. Prior
to his appointment, Mr. Young was employed for seven years in the Business
Assurance practice of the Middle Market Group of PricewaterhouseCoopers LLP,
South Florida.

DONOVAN CHIN was appointed Chief Financial Officer of Perfumania in
February 2000. Mr. Chin was our Chief Financial Officer and Secretary from
February 1999 until February 2000. Prior to that time, Mr. Chin served as our
Corporate Controller from May 1995 to February 1999 and Assistant Corporate
Controller from May 1993 to May 1995. Previously, Mr. Chin was employed by Price
Waterhouse LLP in its Miami audit practice.

CLAIRE FAIR was appointed Vice President of Human Resources in August 1996.
From November 1993 to August 1996, she served as Director of Human Resources.
Previously, she was the Director of Employee Relations with Sterling, Inc.

ROBERT PLISKIN was appointed a director in October 1991. Mr. Pliskin served
as President of Longines Wittnauer Watch Company from 1971 to 1980 when he
became President of the Seiko Time Corporation, a position he held until 1987.
In 1987 he became the President of Hattori Corporation of America, a distributor
of watches and clocks, until his retirement in 1993. Mr. Pliskin is a member of
our Audit, Compensation and Stock Option Committees.

60

61

CAROLE ANN TAYLOR was appointed a director in June 1993. From 1987 to 1998,
Ms. Taylor was the owner and president of the Bayside Company Store, a retail
souvenir and logo store at Bayside Marketplace in Miami, Florida. During this
time she has also been a partner of the Jardin Bresilien Restaurant also located
at the Bayside Marketplace. Currently, Ms. Taylor is the owner of Miami To Go,
Inc., a retail and wholesale logo and souvenir merchandising and silkscreening
company. She is also a partner at Miami Airport Duty Free Joint Venture with
Greyhound Leisure Services which owns and operates the 19 duty free stores at
Miami International Airport. She serves as director of the Miami-Dade Chamber of
Commerce, the Greater Miami Convention & Visitors Bureau and the Miami Film
Festival. Ms. Taylor is a member of our Audit, Compensation and Stock Option
Committees.

DR. HORACIO GROISMAN was appointed a director in March 1999, and is
Vice-Chairman of the Board of Directors of Take To Auction.Com, Inc. Dr.
Groisman has been a practicing physician since 1981, specializing in head and
neck surgery, and currently has offices in Miami, Aventura and Hollywood,
Florida. Dr. Groisman is a member of our Compensation and Stock Option
Committees.

ZALMAN LEKACH was appointed a director in November 1999. Mr. Lekach became
a director and an executive in Parlux, S.A., a subsidiary of Parlux Fragrances,
Inc. in May 1990. In May 1993, he resigned his executive position and owned and
operated a company exporting foods and health/beauty aids to South America. In
January of 1995, he rejoined Parlux as its Chief Operating Officer and a
director. In June 1996, Mr. Zalman Lekach also assumed the position of President
of Parlux. In January 1999, Mr. Zalman Lekach resigned his position as President
and Chief Operating Officer of Parlux to pursue opportunities unrelated to the
fragrance field. Messrs. Ilia Lekach and Zalman Lekach are brothers.

Our officers are elected annually by the Board of Directors and serve at
the discretion of the Board. Directors hold office until the next annual meeting
of shareholders and until their successors have been duly elected and qualified.

ITEM 11. EXECUTIVE COMPENSATION

The information called for by this item is incorporated by reference from E
Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement -
2000 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction 6 to the Annual
Report on Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information called for by this item is incorporated by reference from E
Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement -
2000 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction 6 to the Annual
Report on Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information called for by this item is incorporated by reference
from E Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy
Statement - 2000 (to be filed pursuant to Regulation 14A not later than 120 days
after the close of the fiscal year) in accordance with General Instruction 6 to
the Annual Report on Form 10-K.

61
62

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) The following documents are filed as part of this report:

(1) Financial Statements

An index to financial statements for the fiscal years ended January 29,
2000, January 30, 1999 and January 31, 1998 appears on page 23.

(2) Financial Statement Schedule

The following statement schedule for the fiscal years ended January 29,
2000, January 30, 1999 and January 31, 1998 are submitted herewith:

ITEM
FORM 10-K
NUMBER
PAGE
------

Schedule II - Valuation and Qualifying Accounts and
Reserves 43

All other financial schedules are omitted because they are not applicable,
or the required information is otherwise shown in the financial statements or
notes thereto.

62

63

(3) Exhibits

PAGE NUMBER
OR INCORPORATED
BY REFERENCE
EXHIBIT DESCRIPTION FROM
------- ----------- ----

3.1 Amended and Restated Articles of Incorporation (1)

3.2 Bylaws (2)

4.1 Warrant Agreement between the Company and Josephthal, Lyon & Ross Incorporated (3)

10.1 Executive Compensation Plans and Arrangements (5)

(a) Employment Agreement, dated as of February 1, 1995,
between the Company and Simon Falic

(b) Employment Agreement, dated as of February 1, 1995,
between the Company and Jerome Falic

(c) Employment Agreement, dated as of February 1, 1995,
between the Company and Ron Friedman

(d) Consulting Agreement, dated as of January 1, 1994,
between the Company and Rachmil Lekach

(e) Consulting Agreement, dated as of May 2, 1995, between
the Company and Ilia Lekach

10.3 Amendments to the Loan and Security Agreements between the Company and LaSalle (5)
National Bank dated July 29, 1994, and September 30, 1994

10.4 Amendments to the Loan and Security Agreements between the Company and LaSalle (6)
National Bank dated March 29, 1996

10.5 1991 Stock Option Plan, as amended (6)

10.6 1992 Directors Stock Option Plan, as amended (6)

10.7 Regulation S 5% Convertible Debentures Agreement (6)

10.8 Regulation S Stock Subscription Agreement (6)

10.9 Amendments to the Loan and Security Agreements between LaSalle National Bank (7)
dated April 16, 1997

21.1 Subsidiaries of the Registrant (9)

23.1 Consent of PricewaterhouseCoopers LLP (9)

27.1 Financial Data Schedule (for SEC use only) (9)

- -------------
(1) Incorporated by reference to the exhibit of the same description filed with
the Company's 1993 Form 10-K (filed April 28, 1994).

(2) Incorporated by reference to the exhibit of the same description filed with
the Company's Registration Statement on Form S-1 (No. 33-46833).

(3) Incorporated by reference to the exhibit of the same description filed with
the Company's Registration Statement on Form S-1 (No. 33-43556).

(4) Not used.

(5) Incorporated by reference to the exhibit of the same description filed with
the Company's 1994 Form 10-K (filed April 20, 1995).

(6) Incorporated by reference to the exhibit of the same description filed with
the Company's 1995 Form 10-K (filed April 26, 1996).

(7) Incorporated by reference to the exhibit of the same description filed with
the Company's 1996 Form 10-K (filed May 2, 1997) .

(8) Not used.

(9) Filed herewith.

(b) Reports on Form 8-K

On April 11, 2000, the Company filed a Current Report on Form 8-K
reporting that on April 4, 2000 the Company's auditor, PricewaterhouseCoopers
LLP, will resign as the Company's independent certified public accountants upon
completion of the audit of the Company's consolidated financial statements for
the fiscal year ended January 29, 2000.

63

64

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized. May 15, 2000.

PERFUMANIA, INC.

By: /s/ ILIA LEKACH
----------------------------------
Ilia Lekach, Chairman of the Board
and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ ILIA LEKACH Chairman of the Board and May 15, 2000
----------------------------- Chief Executive Officer
Ilia Lekach

/s/ JEROME FALIC President and Vice Chairman May 15, 2000
----------------------------- of the Board
Jerome Falic

/s/ A. MARK YOUNG Chief Financial Officer May 15, 2000
-----------------------------
A. Mark Young

/s/ DONOVAN CHIN Chief Financial Officer May 15, 2000
----------------------------- Perfumania, Inc.,
Donovan Chin Secretary and Director

/s/ MARC FINER President of the Retail May 15, 2000
----------------------------- Division
Marc Finer and Director

/s/ ROBERT PLISKIN Director May 15, 2000
-----------------------------
Robert Pliskin

/s/ CAROLE ANN TAYLOR Director May 15, 2000
-----------------------------
Carole Ann Taylor

/s/ HORACIO GROISMAN, M.D. Director May 15, 2000
-----------------------------
Horacio Groisman, M.D.

/s/ ZALMAN LEKACH Director May 15, 2000
-----------------------------
Zalman Lekach

64