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                    U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549
                                  FORM 10-KSB

                  ANNUAL REPORT UNDER SECTION 13 or 15 (d) OF

                      THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended                           Commission file number
 March 31, 2001                                            0-16819
 --------------                                            -------

                             FRAGRANCENET.COM, INC.
                             ----------------------
             (Exact name of Registrant as specified in its charter)

              Delaware                               94-3054267
--------------------------------------   ------------------------------------
    (State of incorporation)                (IRS Employer ID Number)

   909 Motor Parkway, Hauppauge, New York            11788
   --------------------------------------         ------------
  (Address of principal executive offices)         (Zip Code)


Registrant's telephone number, including area code:  (631) 582-5204

Securities registered pursuant to Section 12 (b) of the Exchange Act:   None

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

     Title of Class                          Number of Shares Outstanding as of
                                                       March 31, 2001
----------------------------                 ----------------------------------
Common Stock, $.01 par value                            16,968,330

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 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
    ----     ------

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB   X
                -------

Issuer's revenues for its most recent fiscal year:  $7,923,347

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Registrant, based on the average of the bid and asked
prices for such common equity on June 12, 2001 is approximately $495,496.


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Forward-Looking Statements

Certain statements within this Form 10-KSB 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 FragranceNet.com, Inc. to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements are based on our
current expectations and are subject to a number of risks, uncertainties and
assumptions relating to our operations, financial condition and results of
operations, including, among others, rapid technological and other changes in
the market we serve, our numerous competitors and the few barriers to entry for
potential competitors, the short-term nature of many of our contracts, the
seasonality and quarterly variations we experience in our revenue, our uncertain
revenue growth, our ability to attract and retain qualified personnel, our
ability to expand our infrastructure and manage our growth, and our ability to
identify, finance and integrate acquisitions, among others. If any of these
risks or uncertainties materialize, or if any of the underlying assumptions
prove incorrect, actual results may differ significantly from results expressed
or implied in any forward-looking statements made by us. These and other risks
are detailed in this Annual Report on Form 10-KSB and in other documents filed
by us with the Securities and Exchange Commission. FragranceNet.com, Inc.
undertakes no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.

                                     PART I

Item 1.  Business

         FragranceNet.com, Inc. ("FragranceNet" or the "Company") operates the
world's largest internet discount fragrance store offering more than 3,000
brand-name fragrances at the lowest prices. By combining an extensive selection
with free U.S. shipping and handling and a free gift with every order,
FragranceNet.com customers are treated to a unique and easy shopping experience.

         Background

         On July 28, 1999, the Company, then known as National Capital
Management Corporation ("NCMC"), entered into an Agreement and Plan of Merger
(the "Merger Agreement") by and among NCMC, FAC, Inc., a Delaware corporation
and wholly-owned subsidiary of NCMC ("Merger Sub"), Telescents, Inc., a New York
corporation ("Telescents"), and Dennis M. Apfel, Jason S. Apfel and Growth
Capital Partners, L.L.C., a Delaware limited liability company ("GCP"), the
holders of all of the outstanding capital stock of Telescents (the "Telescents
Shareholders"). Pursuant to the terms of the Merger Agreement, Merger Sub merged
with and into Telescents (the "Merger") in accordance with the provisions of the
Delaware General Corporation Law and the New York Business Corporation Law
effective as of July 28, 1999, whereupon the separate corporate existence of
Merger Sub ceased and Telescents continued as the surviving corporation (the
"Surviving Corporation"). Pursuant to the Merger Agreement, the Company issued
to the Telescents Shareholders an aggregate of 4,900,000 shares of common stock
of NCMC ("Common Stock") and an aggregate of 1,029,514 shares of preferred stock
of NCMC ("Preferred Stock") in exchange for all the outstanding shares of
TeleScents. The preferred stock had voting privileges on an "as converted"
basis. Accordingly, upon consummation of the Merger the Telescents Shareholders,

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in the aggregate, held approximately 89.55% of the total voting power of the
Company's voting stock. The Preferred Stock was convertible into Common Stock on
a 1-for-10 basis at such time as the Certificate of Incorporation of the Company
was amended to increase the authorized shares of Common Stock to a number of
shares of Common Stock sufficient to effect the conversion. Such conversion took
place in November, 1999 immediately following the 1999 Annual Meeting of
Stockholders of the Company.

          As of July 28, 1999, John C. Shaw, David Faulkner and Herbert J. Jaffe
resigned as Directors of the Company, and Jason S. Apfel, Dennis M. Apfel and
Philip D. Gunn, who is a principal of GCP, were appointed to fill the vacancies
created by the resignations. James J. Pinto continued to serve on the Board of
Directors of the Company. In connection with the Merger, the Company changed its
name from National Capital Management Corporation to FragranceNet.com, Inc. and
changed its ticker symbol to "FRGN". As of July 28, 1999, Jason S. Apfel, the
President of Telescents, was appointed as the President and Chief Executive
Officer of the Company and Dennis M. Apfel, the Chief Financial Officer of
Telescents, was appointed as the Chief Financial Officer and Secretary of the
Company.

          In connection with and as a condition to the consummation of the
transactions contemplated by the Merger Agreement, the Company and the
Telescents Shareholders entered into an Agreement Regarding Certain Closing and
Post-Closing Matters dated as of July 28, 1999 (the "Post-Closing Agreement").
Pursuant to the Post-Closing Agreement, Jason S. Apfel, Dennis M. Apfel, Philip
D. Gunn, and James J. Pinto agreed to serve on the Board of Directors of the
Company for a one (1) year term subject to the terms and conditions of the
Company's Bylaws and Certificate of Incorporation. Pursuant to the Post-Closing
Agreement, the Company and the Telescents Shareholders agreed to support the
nominations of each of such persons and to use their best efforts to ensure that
such persons are elected by the stockholders of the Company.

          In connection with the Merger Agreement, the Telescents Shareholders
entered into a Shareholders Agreement dated as of July 28, 1999 (the
"Shareholders Agreement"). Pursuant to the Shareholders Agreement, during the
period commencing July 28, 1999 and continuing until the first to occur of (a)
July 31, 2002 or (b) the date on which GCP beneficially owns (within the meaning
of Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) shares of Common Stock and/or Preferred Stock of the Company
representing less than ten percent (10%) of the aggregate voting power of the
outstanding capital stock of the Company, the Telescents Shareholders have
agreed that each of them shall use his or its best efforts to cause the Board of
Directors of the Company to nominate such of Philip D. Gunn or Theodore V.
Buerger, who is also a principal of GCP, as shall be designated by GCP (the "GCP
Director") for election as a director of the Company, and shall vote all shares
of Common Stock and Preferred Stock beneficially owned by such Telescents
Shareholders for election of the GCP Director as a director of the Company, at
each annual meeting of the Company's stockholders.


         As of March 31, 2001, 16,968,330 shares of Common Stock were issued and
outstanding.

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                  The Online Store

         The Company operates an online store that specializes in the sale of
brand-name fragrances, bath and body products, gels, powders and soaps directly
to the consumer. The Company sells women's and men's products and does not sell
any imitations or knock-offs. FragranceNet now offers its customers over 3,000
products at discounts up to 60%. In addition, FragranceNet offers free shipping
within the United States and a free gift with every purchase. The products sold
by the Company include major brands and hard-to-find and discontinued items.
Visitors to the FragranceNet site find a user-friendly vehicle for purchase of
products. The online store has search capability by price, name, and type of
scent. There is a reminder club that users may register with to be reminded by
e-mail 2 weeks before any birthday or anniversary.

         Within seconds following every order placed with FragranceNet, the
Company sends an e-mail confirmation detailing all aspects of the customer's
order. The Company has available live customer service representatives to answer
questions a consumer may have either about their order or about a particular
fragrance.

         The Company has integrated over 10 suppliers into its business that
allows for availability of over 3,000 items on a daily basis and, due to the
many sources of merchandise, contributes to the high gross profit percentage
FragranceNet enjoys. The inventory is real time and can be adjusted many times
each day if necessary. Generally, inventory is not purchased by the Company
until a consumer buys it and has paid for it, so the Company carries no
significant inventory. Customer payment is made by check or credit card and the
goods are not shipped to the customer until the check clears or authorization
from the credit card company is obtained. Therefore, accounts receivable
balances represent payments due from credit card companies. The Company has
provided an allowance for product returns, which have been minimal.

         FragranceNet's online store provides its retail customers with superior
features, pricing and convenience. The online store offers consumers over 3,000
fragrances and related products. They are displayed in a framed format which
allows for easy and simple navigation with one button click. There are special
sections of the store offering gift sets and specials, women's fragrances, men's
fragrances and customer service. The online store features the ability to search
for any fragrance by name, price and/or type of scent such as fruity, oriental,
and/or spicy. The online store features a simple click of a button to add items
to the customers shopping cart and to check out on a secure server. The site
also permits the addition and subtraction of items with a simple click of a
button. When the customer is finished shopping, clicking on the checkout button
allows for easy checkout with the customer having three options of payment. They
can pay by credit card over a secure server; they can fill out all information
and send a check, or they can call or fax their credit card information to
customer service.

         FragranceNet.com has made the top ten list of the Best Holiday
E-tailers by Patricia Seybold Group, a well-known Internet expert for 1998 and
1999. No list was published for 2000. The other winners included Amazon, Eddie
Bauer, Lands End, Etoys, Barnes and Noble, and LL Bean. FragranceNet.com boasts
an Affiliate Program with over 25,000 sites carrying our banner and text links
to their customers. Bizrate.com named FragranceNet.com a top 20 merchant for the
2000 holiday season out of a possible 1,500 merchants. The Company's customers
are loyal and repeat customers account for approximately 30% of sales.

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                  Market Opportunity

         FragranceNet participates in a fast growing category of e-tailing. The
worldwide fragrance market is estimated to be in excess of $20 billion of which
approximately $6 billion are US sales. Approximately five percent of
FragranceNet's sales for fiscal 2001 were to international customers. With
online fragrance and cosmetic sales to increase to $503 million by 2003 as
estimated by Jupiter Communications, FragranceNet, by just holding its market
share, could garner sales of $100 million by that time. However, there is no
assurance the Company can maintain its market share. FragranceNet is recognized
as the leader in the sale of fragrances over the Internet. Forrester Research
estimates that e-tailing will increase from $20 billion in the U.S. to over $184
billion by the year 2004, reaching 7% of total retail sales.

                  Strategy

FragranceNet's strategy is based upon the belief that if you provide brand-name
fragrances at discount prices and add to that free U.S. shipping and a free gift
with every order and live customer service representatives who are knowledgeable
in the fragrance industry, the Company should be able to continue to attract new
customers and grow. FragranceNet believes there is strong demand for its
products, delivery system and discounts. The Company also believes that it has
the ability to combine its expertise in marketing, unique supplier arrangements
and overall strategy to become the most dominant player in its marketplace.

                  Partnerships

         FragranceNet.com is featured in major search engines such as Yahoo!,
Excite, Lycos, Alta Vista, Iwon, Google, Hotbot, GoTo and AOL Netfind. In
addition, the Company has established increased exposure through today's top
communities and malls including placements within Visa Shopping Offers, Excite
Shopping Guide, Prodigy Shopping, First USA Online Deals, Coolsavings, Ebates
and MyPoints.

                  Competition

         FragranceNet's online store competes against a number of retailers
within different channels of distribution. Its competition includes (1)
traditional department stores and perfume retailers such as Macy's and
Bloomingdale's, (2) nationally known discount perfume retailers that seek to
purchase high-demand or limited-supply products, (3) Websites maintained by
online retailers of fragrance and fragrance products, such as perfumania.com and
sephora.com (4) catalog retailers of fragrance and fragrance-related products
and (5) Internet portals and online service providers that feature shopping
services, such as America Online, Yahoo!, Excite and Lycos and (6) mass market
retailers such as Wal-Mart.

         Online fragrance competitors include:

         (1)      Department stores' Websites;

         (2)      Specialty stores' Websites;

         (3)      Companies with little name recognition or, in many cases,
little access to capital; and

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         (4)      Mass Merchandisers.

         Many of the department store and mass merchandisers carry tens of
thousands of different items and the Company believes that they cannot compete
favorably with FragranceNet. The department stores (Bloomingdales, Macy's,
Nordstrom, Saks Fifth Avenue, etc.) and specialty stores sell products using
full retail price models. The e-tailers that are fragrance and beauty sites such
as Ashford.com, Sephora.com, etc. are also full retail models and include
cosmetics as a major component of their product mix. The Company believes that
none of the possible competition has the breadth of inventory that the Company
carries. FragranceNet believes that it has a rapidly emerging brand-name, has
established industry relationships, convenient shopping experience, extensive
product selection and competitively priced products.

                   The Fragrance Industry. The traditional retail fragrance
industry is fragmented with different competitive strategies used throughout.
The industry includes upscale department stores which compete based not on
price, but on advertising and promotions, specialty retailers which compete
based on pricing, and mass-market retailers and drug stores which emphasize
convenience purchasing.

         Management believes that traditional fragrance retailers face a number
of challenges in providing a satisfying shopping experience for consumers:

                  o        The number of SKUs and the amount of product
                           inventory that a traditional retailer can carry in a
                           store is constrained by the store's physical space,
                           thereby limiting selection.

                  o        Limited shelf space and store layout constraints
                           limit the merchandising flexibility of traditional
                           retailers.

                  o        Due to the significant costs of carrying inventory in
                           multiple store locations, traditional retailers focus
                           their product selection on the most popular products
                           that produce the highest inventory turns, thereby
                           further limiting consumer selection.

         The unique characteristics of the Internet provide a number of
advantages for retail sellers. Online sellers are able to display a larger
number of products than traditional store-based or catalog sellers at a lower
cost. In addition, online sellers are able to frequently adjust their featured
selections, editorial content and pricing, providing significant merchandising
flexibility. Online sellers also benefit from the minimal cost to conduct
business on the Internet, the ability to reach a large group of customers from a
central location, and the potential for low-cost customer interaction. Unlike
traditional channels, online sellers do not have the burdensome costs of
managing and maintaining a retail store infrastructure or the significant
printing and mailing costs of catalogs. Online sellers can also easily obtain
demographic and behavioral data about customers, increasing opportunities for
direct marketing and personalized services. Because brand loyalty is a primary
factor influencing a fragrance purchase, a customer's presence at the
point-of-sale and ability to physically sense the fragrance product are not
critical to the purchasing decision.

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                  Usage. The number of customers who visit the FragranceNet site
has grown consistently, increasing from 2,000 per month during 1997 to over
750,000 per month during December 2000.

                  Marketing and Advertising

         FragranceNet has established a variety of relationships with several
Internet sites to build traffic and attract customers, including Yahoo!.
FragranceNet has an agreement with Yahoo to promote and advertise its online
store. FragranceNet has delivered to Yahoo! content about the online store that
Yahoo! has agreed to insert onto its banners and on its search results page.
FragranceNet gives Yahoo! discount coupons that can be used at the online store
by members of Yahoo!

         FragranceNet intends to expand its use of these kinds of alliances in
the future. FragranceNet strives to ensure that future alliances are
cost-effective in terms of the potential customers to be acquired, potential
revenue to be generated, level of exclusivity and brand exposure. FragranceNet
sends e-mails to its customers advising them of its promotions and other pricing
specials for their favorite fragrances. FragranceNet intends to continue to
advertise in whichever forms of media prove most effective.

                  Fulfillment and Inventory Management

         FragranceNet offers over 3,000 fragrances and fragrance-related
products, which it believes is a wider selection of products than offered by
most traditional fragrance sellers. FragranceNet may obtain inventory directly
from any number of suppliers depending on which offers us the most favorable
selection, pricing, quality and quantity terms.

                  Technology

         FragranceNet uses an advanced MY-SQL software platform that allows it
to grow rapidly while providing reliable, secure and cost-effective e-commerce
solutions. Using MY-SQL systems application server as the underlying engine,
FragranceNet displays extensive data on its over 3,000 brand-name fragrances. An
application server dramatically improves a Website's interactive characteristics
by monitoring transactions, creating and managing content published on the site
and storing data, among other things. This technology offers Web shoppers a host
of leading-edge features including real time inventory updates, the reminder
club system, an online shipping calculator for orders originating outside the
U.S., extensive product searching options and electronic gift certificates and
coupons. With MY-SQL, FragranceNet has been able to enhance the store and expand
its customer services enormously, which has helped it to dramatically increase
its volume in fiscal 2001. MY-SQL platform provides FragranceNet with a level of
stability, flexibility and scalability of major assistance in driving its
current growth. With MY-SQL application server as the underlying engine,
FragranceNet displays a wealth of data for its 3,000 fragrances.

         Using its system, FragranceNet has taken steps to prevent the failure
of its mission-critical business applications. While no system is fool-proof the
Company has taken reasonable steps to provide a secure site. Routers, switches,
firewalls, and servers associated with its Website are all deployed with backup
or stand-by components. The security architecture is specially designed and
built to deliver Web-enabled enterprise applications and ensures that customer

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information is protected and that transactions are conducted securely over the
Internet. The security architecture is a layered approach that addresses
security at every layer and ensures that the primary aspects of security
confidentiality, integrity, and availability -- are addressed and that customer
information is secure.

          FragranceNet uses its software package to fulfill orders and conduct
general business activities. Scanning technology is also used. The system will
print packing slips, shipping labels, and direct the fulfillment team to conduct
efficient product picking and packing. Once the order is fulfilled and shipped,
the database is updated with the new shipping status. The software package is
capable of very high scaling, allowing for growth. In summary, management
believes that FragranceNet's technology infrastructure provides the highest
customer-centric, complete and reliable shopping experience currently available.

         Using FragranceNet's software package, orders are tracked and each
customer receives a unique identifying number. All aspects of the business are
conducted through computer programs that are backed up at least three times
daily. Scanning technology is used for inventory control and order shipping
information which makes these processes more accurate and efficient. The system
prints automatically all purchase orders, packing lists and shipping labels. The
software packages used by FragranceNet are capable of running businesses much
larger with significant scalability.

         Credit cards are authorized and processed securely using Web Authorize
software. The authorizations are done in batches at least twice daily and upon
each successful authorization, the product is ordered from the suppliers and
shipped to consumers.


                  Employees

         As of March 31, 2001, FragranceNet employed 19 full-time and 3
part-time employees. None of FragranceNet's employees are represented by unions
and FragranceNet considers its relationship with its employees to be excellent.
FragranceNet believes that success is dependent on its ability to attract and
retain qualified personnel in numerous areas, including software development.

                  Risk Factors Related to FragranceNet's Business

         The management of FragranceNet is aware of the risk factors facing the
Company as it strives to grow from its current stage. In this regard, management
has carefully analyzed the risks facing FragranceNet in its efforts to achieve
the objectives as described herein and the steps it must take to lessen these
risks. An examination of these risk factors follows:

         EARLY STATE OF COMPANY AND-E-COMMERCE DEVELOPMENT

         FragranceNet was founded in 1995 and is now rapidly evolving. Because
of this, FragranceNet still has only a short operating history on which to base
an evaluation of its business and prospects. Companies in an early stage of
development frequently encounter extra risks, expenses and difficulties as they
grow and evolve. These risks, expenses and difficulties apply particularly to
FragranceNet because its market is new and rapidly evolving. Two particular

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challenges FragranceNet faces in its early stage of development are (1) an
evolving business model and (2) the management of internal growth (see next risk
factor below). To address these risks, FragranceNet must continue to develop the
strength and quality of its operations, enhance its brand, respond to
competitive developments and continue to attract, retain and motivate qualified
employees. If FragranceNet fails to do any of these things, there can be no
assurance that it will meet its financial objectives.

         MANAGEMENT OF GROWTH

         FragranceNet's success will depend on its ability to effectively manage
its future growth. As its sales continue to grow, it will incur increases in
expenses and its managerial and operational resources could become severely
strained. To manage its future growth effectively, it must do the following:

         o        implement its business model;

         o        anticipate and adapt to rapid changes in its markets;

         o        retain existing customers, attract new customers and maintain
                  customer satisfaction;

         o        introduce new and enhanced  services, products and alliances;

         o        maintain its profit margins notwithstanding price competition
                  or rising wholesale prices;

         o        minimize technical difficulties, system downtime and the
                  effect of Internet brownouts; and

         o        manage the timing of promotions and sales programs.

         If FragranceNet does not effectively manage its future growth, its
revenues and operating results could be materially adversely affected and it
could fail to achieve profitability.

         RECRUITMENT  AND  RETENTION OF PROFESSIONALS

         FragranceNet's success depends on the expertise of its key technical,
sales and senior management personnel. FragranceNet's senior management has
approximately four years' experience operating and managing an online store
engaged in the sale of fragrance-related products. FragranceNet depends heavily
on the continuing service of its management and on their ability to quickly
retain further expertise in all aspects of the business. The loss of Dennis
Apfel or Jason Apfel or other key employees would hurt the business.
FragranceNet anticipates hiring additional persons to serve on its management
team. Its success depends on its ability to continue to attract, retain and
motivate skilled employees who can effectively manage an online fragrance
business. FragranceNet may be unable to retain its present key employees or to
attract, assimilate or retain other qualified employees in the future. It may
experience difficulty in hiring and retaining skilled employees with appropriate
qualifications. The business will be harmed if FragranceNet fails to attract and
retain key employees.

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         COMPETITION

         FragranceNet believes that its ability to compete depends upon many
factors, including:

         o        the market acceptance of its Website and online services;

         o        the success of its sales and marketing efforts;

         o        the performance and reliability of its services;

         o        the price of its products; and

         o        the effectiveness of its customer service and support efforts.

         FragranceNet's competitors may be larger and may have substantially
greater financial and marketing resources. In addition, its competitors may be
able to secure products from vendors on more favorable terms, fulfill customer
orders more efficiently and adopt more aggressive pricing or inventory
availability policies than we can. Traditional store-based retailers also enable
customers to see, feel, and smell products in a manner that is not possible over
the Internet. Some online competitors may be able to use the Internet as a
marketing medium to reach significant numbers of potential customers more
effectively than FragranceNet.

         FragranceNet intends to maintain detailed awareness of all its
competitors, many of whom are public companies with information readily
available. FragranceNet will strive to develop market share through its
marketing and sales plan, the development of enhanced services, an effective
pricing schedule, the continual outstanding quality and performance of its
services, and the professionalism and competency of its personnel. Management of
FragranceNet intends to make that mark, "FragranceNet", a nationally recognized
brand which will provide FragranceNet with a distinct competitive advantage.
However, there is no assurance that the mark will become nationally recognized.

         POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE

         FragranceNet's revenues and operating results may vary significantly
from quarter to quarter due to a number of factors. Many of these factors are
outside its control and include:

         o        seasonal fluctuations in consumer purchasing patterns and
                  advertising expenses;

         o        changes in the growth rate of Internet usage and online user
                  traffic levels;

         o        actions of competitors;

         o        the timing and amount of costs relating to the expansion of
                  operations and acquisitions of technology or businesses; and

         o        general economic and market conditions.

         Because FragranceNet has a limited operating history, its future
revenues are difficult to forecast. A shortfall in revenues will damage its
business and would likely affect the market price of the Common Stock. Its
limited operating history and the new and rapidly evolving Internet market make
it difficult to ascertain the effects of seasonality on the business. If
seasonal and cyclical patterns emerge in Internet purchasing, the results of
operations from quarter to quarter may vary greatly and may cause the business

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to suffer. Fragrance sales are generally lower in the first half of each fiscal
year and increase substantially during the Christmas purchasing season and other
holidays. FragranceNet expects to experience similar seasonality in its
business. It is possible that in some future periods, results of operations may
be below the expectations of public market analysts and investors. In this
event, the price of the Common Stock may fall.

         To minimize quarterly fluctuations in operating results, FragranceNet
will attempt to (i) coordinate all service offerings between in-house personnel,
vendors, and partners, (ii) maintain close awareness of all competitors'
services activities, (iii) use advisors, input from partners and customers to
determine sales status, (iv) closely monitor the performance level of all
employees, (v) constantly review the acceptability, demand and quality and type
of the services offered and (vi) rigidly adhere to the level of expenditures
consistent with ongoing sales.

         RAPID TECHNOLOGY CHANGE

         The Internet is changing very rapidly and the skills of FragranceNet
employees could become obsolete quickly. Success will depend, in part, on its
ability to improve its existing services, develop new services and solutions
that address the increasingly sophisticated and varied needs of its current and
prospective customers. The Company must also respond to technological advances,
competitive service offerings, and emerging Internet standards and practices.

         DEPENDENCE ON OTHERS

         FragranceNet is wholly reliant upon a number of third parties to
deliver goods and services to it and its customers. Unlike many other e-commerce
retail and wholesale businesses, it has no ability or resources to obtain or
deliver merchandise on its own. The business cannot operate unless carriers such
as the United States Postal Service, United Parcel Service and Federal Express
deliver inventory and ship merchandise to customers. Strikes or other service
interruptions will affect FragranceNet more severely than an e-commerce business
with internal delivery capabilities. Those events would impair the ability to
deliver merchandise on a timely basis and may result in lost revenue.
FragranceNet and Internet users also depend on communications providers to
provide Internet users with access to FragranceNet's online store. The store and
its users would experience disruptions or interruptions in service due to
failures by these providers. These types of occurrences could cause users to
perceive the online store as not functioning properly and therefore cause them
to stop using FragranceNet's services. These risks pose a greater threat to
FragranceNet than to traditional "bricks and mortar" fragrance sellers whose
operations can continue despite a communications systems failure. Unlike those
competitors, FragranceNet is virtually certain to lose sales as a result of a
systems failure.

         FragranceNet's business depends on the ability of third-party vendors
to provide it with popular, high-demand fragrances at competitive prices and in
sufficient quantities. FragranceNet in fiscal 2001 purchased more than 90% of
its merchandise from 10 vendors. Many of the smaller suppliers used by
FragranceNet have limited resources, production capacities and operating
histories. FragranceNet's success depends on its ability to obtain products to
satisfy customer demand and the business could be harmed if the ability to
procure products were limited.

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         ADEQUACY OF WORKING CAPITAL

         FragranceNet is expected to have sufficient capital to implement its
operating plan. However, FragranceNet may have to curtail some of its immediate
plans or attempt to obtain financing from other sources if expenses increase or
revenues decline. FragranceNet is in a highly competitive business that may
require additional capital for marketing, services development, human resources
and working capital in order to generate growth. In this regard, the expansion
of FragranceNet's business may depend on its ability to locate capital resources
to finance its working capital, additions to personnel and other requirements.
No assurance can be given that additional financing will be available to
FragranceNet at any time in the future, or that if financing is available at
all, it will be available on reasonable and satisfactory terms.

         FRAGRANCENET BUSINESS MODEL IS UNPROVEN

         FragranceNet's strategy is based on an unproven business model. Its
business model depends on the acceptance of the Internet for
business-to-consumer transactions and the ability of FragranceNet's technology
to continue evolving and gain widespread acceptance.

         NO ASSURANCE OF AVAILABILITY OF PERSONNEL

         FragranceNet has not hired all of the personnel necessary to implement
our business plan. FragranceNet is dependent upon its ability to attract and
retain qualified personnel. There is intense competition for qualified personnel
in its business. Although FragranceNet believes that such personnel will be
available and attainable at reasonable compensation levels, no assurance can be
given that FragranceNet will be able to attract and retain the qualified
personnel necessary for the development of our business.

         BUSINESS TO CONSUMER E-COMMERCE

         FragranceNet relies on the Internet for the success of its business.
The development of the e-commerce market is in its early stages. If widespread
commercial use of the Internet does not develop, or if the Internet does not
develop as an effective medium for providing products and services, FragranceNet
will not succeed.

         FUTURE GOVERNMENT REGULATIONS AFFECTING THE INTERNET

         With the exception of regulations applicable to businesses generally,
FragranceNet is not currently subject to direct regulation by any government
agency. Due to increasing popularity and use of the Internet, however, it is
possible in the future that a number of laws may be adopted with respect to the
Internet, covering issues such as user privacy, pricing of goods and services,
and types of products and services offered. One example of this is the
Telecommunications Act of 1996. The Telecommunications Act prohibited the
transmission over the Internet of certain types of information. Although certain
provisions of the Telecommunications Act were held unconstitutional, similar
laws may be enacted in the future. Other nations, including Germany, have taken
similar actions to restrict the free flow of information deemed to be
objectionable on the Internet. Additionally, certain telecommunications carriers
continue to advocate that telecommunications over the Internet

<PAGE>

should be regulated by the Federal Communications Commission in the same manner
as other telecommunications services. These telecommunications carriers want to
see the government eliminate the current exemption from payment of
telecommunications access charges for Internet service providers.

         If the government adopts any additional laws or regulations covering
the use of the Internet, such actions could decrease the growth of the Internet.
Any such reduction in the growth of the Internet may negatively impact the
customers which use our services. This could cause the demand for our services
to be significantly reduced and raise the cost of providing those services.
Decrease in growth could also result if existing U.S. state and federal laws and
foreign laws governing issues such as commerce, taxation, property ownership,
defamation and personal privacy are increasingly applied to the Internet.

         INTERNET SECURITY RISKS

         The secure transmission of confidential information over public
telecommunications facilities is a significant barrier to electronic commerce
and communications on the Internet. Many factors may cause compromises or
breaches of security systems used by the Company and other Internet sites to
protect proprietary information. A compromise of security on the Internet would
materially negatively affect the use of the Internet for commerce and
communications. This in turn would negatively affect our business. Circumvention
of FragranceNet's security measures could result in misappropriation of our
proprietary information or cause interruptions of FragranceNet's operations.
Protecting against the threat of such security breaches may require us to expend
significant amounts of capital and other resources. There can be no assurance
that FragranceNet's security measures will prevent security breaches.

         INFRASTRUCTURE OF THE INTERNET

         The success of commercial use of the Internet depends in large part
upon the development and maintenance of the Internet's infrastructure, including
the development of complementary products such as various broadband
technologies. The number of users of the Internet and the amount of traffic on
the Internet have grown significantly and are expected to continue to grow. To
the extent the number of users of the Internet and the amount of traffic on the
Internet continue to increase there will be greater demands placed on the
Internet's infrastructure. This infrastructure may not be able to support the
demands placed on it by this continued growth without its performance or
reliability being decreased. Any outages or delays in services could lower the
level of Internet usage. In addition, the infrastructure and complementary
products and services necessary to make the Internet a viable commercial
marketplace may not develop. If usage of the Internet is curtailed due to
infrastructure constraints or lack of complementary products, FragranceNet
expects an adverse impact on our business and revenues. Even if such
infrastructure and complementary products and services do develop, there can be
no guarantee that the Internet will become a viable commercial marketplace for
products and services such as those offered by FragranceNet.

Item 2.  Properties

         FragranceNet's administration and warehouse facilities are located in
an 8,500 square foot facility in Hauppauge, New York for office and warehouse
space to replace its existing facility. The lease for this facility expires on
May 31,



<PAGE>

2005. The Company moved into this facility during September 2000 and believes
that it will be adequate for its current operations and contemplated growth.

Item 3.  Legal Proceedings

         FragranceNet is not a party to any legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.

         FragranceNet did not submit any matter for the vote of security holders
in the fourth quarter of the last fiscal year.

                                     PART II

Item 5.  Market for Common Equity and Related Stockholder Matters

     a.  Market Information
         The Company's Common Stock trades on the OTC Bulletin Board under the
         symbol FRGN.

         The high and low bid prices of shares of common stock of the Company
         for each quarter during the years ended March 31, 2001 and March 31,
         2000 are as follows:

<TABLE>
<CAPTION>

                                         Bid Price
                                         High                  Low
                                         ---------             ---
<S>                                      <C>                <C>
         For the Quarter Ended
         March 31, 2001                    $ .56             $ .25
         December 31, 2000                  1.13               .38
         September 30, 2000                 1.75               .96
         June 30, 2000                      1.80              1.50
         March 31, 2000                     2.97              1.56
         December 31, 1999                  3.19              1.25
         September 30, 1999                 5.75               .31
         June 30, 1999                       .50               .30

</TABLE>


         The quotations represent inter dealer quotations without retail
mark-up, mark-down or commission, and do not necessarily represent actual
transactions. The last reported sales price of the Company's common stock on
March 31, 2001 was $.25.

b.       Number of Holders of  Common Stock at March 31, 2001

Authorized Shares:                                           50 million
Shares Outstanding:                                          16,968,330
Number of holders of record                                  684
of shares of common stock

<PAGE>


                  Dividends on Common Stock

         The Company did not pay any dividends to its stockholders in fiscal
2001 and does not anticipate paying any dividends in the foreseeable future.

Item 6.  Management's Discussion and Analysis

         The following discussion may contain forward-looking statements. The
Company's actual results could differ materially from those discussed in such
forward-looking statements. Factors that could cause or contribute to such
differences include those discussed below and elsewhere in this Annual Report on
Form 10-KSB. The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements and the Notes thereto which appear
elsewhere in this Annual Report on Form 10-KSB.

         Results of Operations

                FISCAL YEAR ENDED MARCH 31, 2001 COMPARED TO THE
                        FISCAL YEAR ENDED MARCH 31, 2000

         The Company sells brand name fragrances and related products over the
Internet through a website located at www.fragrancenet.com. The Company
purchases products from over ten different suppliers and generally does not
purchase the products until they are ordered and paid for by the consumer.
Payment is made by credit card or by check and goods are not shipped to the
customer until the check clears and/or authorization from the credit card
company is obtained. The Company does not carry any significant level of
inventory and its accounts receivable are primarily from credit card companies.

         On July 28, 1999, the Company completed a merger in which the Company
was the surviving entity and received $437,703 in cash, net of expenses, as a
result of the transaction. See Item 1. Background of this Annual Report.

         Net sales. Net sales includes the sale of our fragrances and
         ----------
fragrance-related products, net of discounts, coupons and returns. Net sales for
the fiscal year ended March 31, 2001 were $7,923,347 and were $4,423,545 for the
year ended March 31, 2000. The increase resulted from an increased number of
customers which generated a higher volume of fragrance product sales.

         Cost of sales. Cost of sales consists primarily of the cost of
         -------------
merchandise sold plus freight-in and the cost of bonus gifts included in
shipments to customers. Cost of sales for the fiscal year ended March 31, 2001
was $4,961,062. Cost of sales was $3,030,812 for the year ended March 31, 2000.
The increase was due to increased sales volume.

         Gross profit. For the fiscal year ended March 31, 2001, gross profit
         -------------
was $2,962,285 or 37% of net sales compared to 31% for fiscal 2000. The increase
in gross profit percentage was primarily due to improved purchasing prices from
the Company's suppliers.

<PAGE>

         General and administrative expenses. General and administrative
         ------------------------------------
expenses consist of payroll and related expenses for executive, accounting and
administrative personnel, professional fees and other general corporate
expenses. General and administrative expenses for the fiscal year ended March
31, 2001 increased to $1,491,598 from $947,893 for fiscal 2000. The increase was
attributable to the general increase in expenses to support the growth of the
Company. The Company believes general and administrative expenses will continue
to increase in fiscal 2002, but at a reduced rate, to support the anticipated
additional growth of the Company.

         Selling and marketing expenses. Selling and marketing expenses consist
         -------------------------------
of expenditures related to advertising and promotion. Selling and marketing
expenses for the fiscal year ended March 31, 2001 increased to $1,594,692 from
$940,270 for the 2000 fiscal year to support the growth of the Company and are
commensurate with the increase in net sales.

         Other income and expense. Interest expense increased to $12,265 in
         -------------------------
fiscal 2001 compared to $602 in fiscal 2000 primarily due to interest costs
incurred on deferred bonus payments. Other income of $21,558 in fiscal 2001
consists of sublease rental income related to a portion of the Company's
administrative and warehouse facility rented to an entity in which one of the
Company's shareholders is a partner and amounts earned for fulfilling fragrance
product shipments for third parties.

         Net loss. As a result of the factors discussed above, the net loss for
         --------
the fiscal year ended March 31, 2001 decreased to $105,512 from $484,947 for the
2000 fiscal year.

         Liquidity and Capital Resources

         At March 31, 2001, FragranceNet had cash and cash equivalents of
$184,437 compared to $283,433 at March 31, 2000.

         Net cash provided by operating activities was $27,506 for the fiscal
year ended March 31, 2001, compared to cash used in operating activities of
$196,251 for the fiscal year ended March 31, 2000. The increase was primarily
due to a lower loss in fiscal 2001.

         Net cash used in investing activities for the fiscal year ended March
31, 2001 was $126,199. These expenditures are primarily related to the purchase
of computer equipment and software. The Company believes capital expenditures in
fiscal 2002 will be less than the fiscal 2001 level.

         Net cash used in financing activities was $303 for the year ended March
31, 2001, compared to $412,703 provided for the 2000 fiscal year. In July 1999,
Fragrancenet completed the Merger and received $437,703 net of the costs of the
Merger. FragranceNet has invested the remaining net proceeds from the fiscal
2000 Merger in an interest-bearing money market account at Prudential
Securities.

         FragranceNet's principal capital and operating requirements are to
acquire merchandise, maintain and improve our online store and engage in
advertising and promotional activities. FragranceNet's long-term capital
requirements will depend on numerous factors, including, but not limited to, the
following:

         o        The rate of market acceptance of the online store;

<PAGE>

         o        The ability to expand our customer base;

         o        The cost of upgrades to our online store; and

         o        The level of expenditures for sales and marketing.

         FragranceNet's principal capital requirements are to:


         o        build up our technical infrastructure so that we can rapidly
                  fulfill future customer requirements and increase our
                  development efficiency;

         o        continue to expand development of new technologies so that we
                  can increase our competitiveness and gross margins;

         o        extend and intensify our marketing efforts so that we can
                  achieve a leading position in the fragrance e-commerce
                  industry and achieve our revenue growth objectives;

         o        fund future strategic acquisitions, if any; and

         o        provide working capital in order to achieve our business
                  objectives.

         New 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 balance sheet
and measure those instruments at fair value. SFAS No. 133 is effective for
financial statements for fiscal years beginning after June 15, 2000. The Company
does not expect that the adoption of SFAS No. 133 in the first quarter of fiscal
2002 will have a material effect on the Company's financial position or results
of operations.

         Seasonality

         FragranceNet's operations are expected to fluctuate according to the
retail industry seasonalities.

         Impact of Inflation

         The primary inflationary factor affecting our operations is increased
labor costs. Competition for qualified personnel could increase labor costs for
the Company in the future.

Item 7.  Financial Statements.

         The consolidated financial statements for the Company are included in
this Annual Report on Form 10-KSB at pages F-1 to F-14.

<PAGE>

Item 8.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure.

         Not applicable.

                                    PART III

Item 9.  Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section16(a) of the Exchange Act.

The Directors and Executive Officers of FragranceNet are as follows:

<TABLE>
<CAPTION>

Name                            Age      Position
----                            ---      --------
<S>                             <C>     <C>

Dennis M. Apfel                 55       Chairman of the Board of Directors, Chief Financial
                                         Officer and Secretary

Jason S. Apfel                  28       President, Chief Executive Officer and a Director

Philip D. Gunn                  49       Vice Chairman of the Board of Directors

James J. Pinto                  50       Director

</TABLE>


         Jason S. Apfel, age 28. Mr. Apfel has been President and Chief
Executive Officer of the Company since July 28, 1999. He has been President of
TeleScents since April 1998. Mr. Apfel was Vice President of TeleScents from
April 1997 to April 1998 and from 1995 to April 1997 he was Vice President of a
predecessor company of TeleScents which sold fragrances through a toll-free
telephone number.

         Dennis M. Apfel, age 55. Mr. Apfel has been Chairman of the Company
since May 14, 2001 and Chief Financial Officer since July 28, 1999. He was
President and Chief Executive Officer of TeleScents from April 1997 to April
1998 and Chairman and Chief Executive Officer of TeleScents from April 1998 to
July 28, 1999. Mr. Apfel is a partner in the law firm of Miller & Apfel in
Hauppauge, New York and has been a practicing attorney since 1972.

         Philip D. Gunn, age 49. Mr. Gunn is a co-founder and Managing Director
of Growth Capital Partners, a private equity investor group. Since 1982, through
Growth Capital Partners and Phillip D. Gunn & Co., Mr. Gunn has assisted
numerous companies in the formation and execution of their corporate financial
strategies, particularly in the areas of acquisition, divestiture and capital
raising. Mr. Gunn also serves on the Board of Directors of eLOT, Inc., the
leading web-based service provider to government-based lotteries.

         James J. Pinto, age 50. Mr. Pinto has been President of Private Finance
Group Corp. since 1990. He has been a Director of the Company since 1988. Mr.
Pinto was Chairman of the Board of the Company from 1988 to July 28, 1999. Mr.
Pinto also serves on the Board of Directors and as Acting Executive Officer of
Empire of Carolina and on the Board of Directors of Anderson Group, Inc.

<PAGE>


         During the fiscal year ended March 31, 2001, the Board of Directors of
the Company met twice. All of the directors attended the meeting of the Board of
Directors. The Board of Directors does not have any committees.

         Dennis M. Apfel and Jason S. Apfel are father and son. No other family
relationships exist between any of the directors and officers of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

          Under Section 16(a) of the Securities Exchange Act of 1934, directors
and officers of the Company, and persons who own more than ten percent of the
Common Stock, are required to file reports concerning their beneficial ownership
of securities of the Company with the Securities and Exchange Commission.
Directors, officers and greater than ten percent stockholders are required by
regulations of the Commission to furnish the Company with copies of all Section
16(a) reports they file.

          To the Company's knowledge, based solely on a review of copies of such
reports furnished to the Company and confirmations that no other reports were
required during the fiscal year ended March 31, 2001, its directors, officers
and greater than ten percent stockholders complied with all Section 16(a) filing
requirements.


Item 10. Executive Compensation

         The following table sets forth information for the fiscal years ended
March 31, 2001 and 2000 concerning the compensation of the Chief Executive
Officer of the Company, and the three other most highly compensated executive
officers of the Company whose total annual salary and bonus exceeded $100,000.

                           SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>

                                                             Annual Compensation
                                                             -------------------
Fiscal Name and Principal                                                                               Long Term
  Position                                     Year                   Salary            Bonus         Compensation
--------------------------                     ----                   ------            -----         -------------
<S>                                          <C>                   <C>               <C>              <C>
Jason S. Apfel                                 2001                  $180,000          $70,900             -0-
  Chief Executive Officer                      2000                  $110,000          $70,000             -0-

Dennis M. Apfel                                2001                  $125,000          $35,000             -0-
 Chairman of the Board*, Chief                 2000                   $55,000**        $35,000             -0-
 Financial Officer and
 Vice President

</TABLE>
------------------------
* Mr. Apfel was named Chairman of the Board of the Company on May 14, 2001.
**Mr. Apfel was an employee for only part of fiscal 2000.

<PAGE>


          None of the persons named above were granted stock options for Common
Stock during the fiscal year ended March 31, 2001, or exercised any stock
options during fiscal year ended March 31, 2001 or held any stock options as of
March 31, 2001.

         Employment Agreements with Executive Officers

         The Company has entered into an Employment Agreement with Jason S.
Apfel. The term of the Employment Agreement commenced July 28, 1999 and
continues until terminated by Mr. Apfel or the Company upon 30 days' advance
notice. The Employment Agreement provides for an initial salary of $110,000 per
annum, an annual incentive bonus based on increases in sales over targeted sales
and an annual salary increase equal to the amount of the incentive bonus for the
prior year. No additional bonuses are due once $10 million in annual sales is
reached. The Employment Agreement provides that in the event that the employment
of Mr. Apfel is terminated by the Company without cause, the Company will
continue to pay his base salary for six months after termination and will pay
his incentive bonus for the year of termination. Under the Employment Agreement,
Mr. Apfel is prohibited from engaging in any business in competition with the
Company during the period of his employment with the Company and for one year
thereafter.

         The Company has entered into an Employment Agreement with Dennis M.
Apfel. The term of the Employment Agreement commenced July 28, 1999 and
continues until terminated by Mr. Apfel or the Company upon 30 days' advance
notice. The Employment Agreement provides for an initial salary of $55,000 per
annum, an annual incentive bonus based on increases in sales over targeted sales
and an annual salary increase equal to the amount of the incentive bonus for the
prior year. No additional bonuses are due once $10 million in annual sales is
reached. The Employment Agreement provides that in the event that the employment
of Mr. Apfel is terminated by the Company without cause, the Company will
continue to pay his base salary for six months after termination and will pay
his incentive bonus for the year of termination. Under the Employment Agreement,
Mr. Apfel is prohibited from engaging in any business in competition with the
Company during the period of his employment with the Company and for one year
thereafter.

         Bonus Deferrals

         Pursuant to the employment agreements with Dennis M. Apfel and Jason
Apfel and the consulting agreement with an affiliate of Philip D. Gunn, for the
fiscal years ended March 31, 2001 and 2000, Jason Apfel was entitled to a bonus
of $70,900 and $70,000 respectively, Dennis M. Apfel was entitled to a bonus of
$35,000 for each year and the affiliate of Philip D. Gunn was entitled to a
bonus of $17,500 for each year. All of said persons agreed to defer the receipt
of the bonus until June 30, 2002 which will provide the Company with additional
operating funds for the additional year. The bonuses were included in accrued
liabilities at March 31, 2001.

<PAGE>

         Compensation of Directors

         The Company pays its directors who are not employees or consultants of
the Company an annual fee of $4,000.

         The Company has entered into a Consulting Agreement with an affiliate
of Philip D. Gunn. The term of the Consulting Agreement commenced on July 28,
1999 and expires on July 31, 2002. The Consulting Agreement provides for an
initial consulting fee of $2,300 per month, an annual incentive bonus based on
the performance of the Company and an annual consulting fee increase equal to
the amount of the incentive bonus for the prior year. In the event that the
Consulting Agreement is terminated by the Company without cause, the Company
will continue to pay the consulting fee until July 31, 2002.

         Compensation Committee
         Interlocks and Insider Participation

         The Board of Directors of the Company does not have a Compensation
Committee. Compensation decisions are made by the Board of Directors, with
Dennis M. Apfel and Jason Apfel abstaining on decisions relating to their
compensation.

Item 11. Security Ownership of Certain Beneficial Owners and Management

         The stockholders (including any "group," as that term is used in
Section 13(d)(3) of the Exchange Act) who, to the knowledge of the Board of
Directors of the Company beneficially owned more than five percent of the Common
Stock as of March 31, 2001, and their respective shareholdings as of such date
(according to information furnished by them to the Company), are set forth in
the following table. Except as indicated in the footnotes to the table, all of
such shares are owned with sole voting and investment power.

<TABLE>
<CAPTION>


                                                    Shares of Common Stock
  Name and Address                                     Owned Beneficially                   Percent of Class (1)
-------------------                                  -----------------------                --------------------
<S>                                                 <C>                                    <C>
Jason S. Apfel                                              4,559,390                              27%
909 Motor Parkway
Hauppauge, New York 11788

Dennis M. Apfel                                             6,076,360                              36%
909 Motor Parkway
Hauppauge, New York 11788

Growth Capital Partners, L.L.C.                             4,559,390                              27%
c/o Growth Capital Partners, Inc.
520 Madison Avenue
New York, New York 10022

</TABLE>

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

(1)  Amounts and percentages include, as noted below, shares of Common Stock
     which may be acquired upon exercise of outstanding options.

<PAGE>

         The following table sets forth, as of March 31, 2001, the number of
shares of Common Stock of the Company beneficially owned by each of the
Company's directors, each of the Company's executive officers named in the
Summary Compensation Table, and all directors and executive officers as a group,
based upon information provided by such persons to the Company.

<TABLE>
<CAPTION>

                                                      Shares of Common Stock
       Name and Address                                Owned Beneficially (1)              Percent of Class (1)
       ----------------                               -----------------------              --------------------
<S>                                                  <C>                                <C>
Jason S. Apfel                                              4,559,390                              27%
President, Chief Executive Officer and Director

Dennis M. Apfel                                             6,076,360                              36%
Chairman of the Board (2), Chief Financial Officer,
and Director

Philip D. Gunn (3)                                          4,559,390                              27%
Vice Chairman and Director

James J. Pinto (4)                                          331,748                                 2%
Director

All directors and executive officers as a group             15,526,888                             92%
(Four Persons) (1), (3), (4)

</TABLE>

-------------
(1)   Includes, as noted below, shares of Common Stock which may be acquired
      upon exercise of outstanding options.
(2)   Mr. Apfel was named Chairman of the Board of the Company on May 14, 2001.
(3)   Consists of shares of Common Stock owned by Growth Capital Partners,
      L.L.C., of which Mr. Gunn and Theodore V. Buerger are the principals.
(4)   Includes 20,000 shares of common stock which may be acquired upon the
      exercise of outstanding options.

Item 12. Certain Relationships and Related Transactions

         None

<PAGE>


Item 13. Exhibits and Reports on Form 8-K.

(a)  Exhibits:

      2.1         Agreement and Plan of Merger dated as of July 28, 1999 by and
                  among National Capital Management Corporation, FAC, Inc.,
                  Telescents, Inc., and Dennis M. Apfel, Jason Apfel and Growth
                  Capital Partners, L.L.C. (Incorporated herein by reference to
                  Exhibit 2.1 of the Company's Current Report on Form 8-K filed
                  on August 10, 1999).

      3.1         Articles of Incorporation and By-Laws of the Company
                  (Incorporated herein by reference from Schedule 4 to the
                  prospectus included in the Registration Statement on Form S-4
                  of the Company (No. 33-19149) filed on December 18, 1987).

      3.2         Certificate of Amendment dated June 29, 1995 of Certificate of
                  Incorporation implementing a one-for-three reverse stock split
                  (Incorporated herein by reference to Exhibit 3.2 of the
                  Company's Annual Report on Form 10-KSB filed on April 15,
                  1999).

      3.3         Certificate of Amendment of Certificate of Incorporation
                  (Incorporated herein by reference to Exhibit 3.4 of the
                  Company's Current Report on Form 8-K filed on November 30,
                  1999).

      3.4         Certificate of Designations of Series A Preferred Stock
                  (Incorporated herein by reference to Exhibit 4.1 of the
                  Company's Current Report on Form 8-K filed on August 10,
                  1999).

      3.5         Resolution of Board of Directors dated April 12, 1995 amending
                  the By-Laws (Incorporated herein by reference to Exhibit
                  3(ii).1 of the Annual Report on Form 10-K of the Company filed
                  on April 17, 1995).

      10.1        Agreement regarding Certain Closing and Post Closing Matters
                  dated as of July 28, 1999 (Incorporated herein by reference to
                  Exhibit 10.1 to the Company's Current Report on Form 8-K filed
                  on August 10, 1999).

<PAGE>

      10.2        Stock Purchase Agreement dated as of June 29, 1999 by and
                  among National Capital Management Corporation and Resource
                  Holdings Associates (Incorporated herein by reference to
                  Exhibit 2.1 to the Company's Current Report on Form 8-K filed
                  on July 20, 1999).

      10.3        Employment Agreement dated July 23, 1999 between Telescents,
                  Inc. and Jason Apfel (Incorporated herein by reference to
                  Exhibit 10.3 to the Company's Annual Report on Form 10-K filed
                  on July 5, 2000).+

      10.4        Employment Agreement dated July 23, 1999 between Telescents,
                  Inc. and Dennis M. Apfel (Incorporated herein by reference to
                  Exhibit 10.4 to the Company's Annual Report on Form 10-K filed
                  on July 5, 2000).+

      10.5        FragranceNet.com Inc. 1999 Long Term Incentive Plan
                  (Incorporated herein by reference to Exhibit A of the
                  Company's Proxy Statement filed on October 20, 1999).+

      21          List of Subsidiaries*

      *           Included with this Annual Report on Form 10-KSB.

      +           Management Contract or Compensatory Plan

(b)   Current Reports on Form 8-K:

      None.



<PAGE>


                                POWER OF ATTORNEY


         The Registrant and each person whose signature appears below hereby
appoint each of Jason S. Apfel and Dennis M. Apfel as attorneys-in-fact with
full power of substitution, severally, to execute in the name and on behalf of
the Registrant and each such person, individually and in each capacity stated
below, one or more amendments to this Annual Report on Form 10-KSB, which
amendments may make such changes in this Report as the attorney-in-fact acting
in the premises deems appropriate and to file any such amendment to this Report
with the Securities and Exchange Commission.

                                   SIGNATURES

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

         Dated: June 28, 2001

                                     FRAGRANCENET.COM, INC.


                                     By /s/ Jason S. Apfel
                                        --------------------------------
                                        Jason S. Apfel
                                        President 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.


Dated: June 28, 2001                 By /s/ Jason S. Apfel
                                        --------------------------------
                                        Jason S. Apfel
                                        President, Chief Executive Officer
                                        and Director

Dated: June 28, 2001                 By /s/ Dennis M. Apfel
                                        ---------------------------------
                                        Dennis M. Apfel
                                        Chairman of the Board, Director, and
                                        Chief Financial Officer,
                                        Principal Accounting Officer

Dated: June 28, 2001                 By /s/ Philip D. Gunn
                                        ----------------------------------
                                        Philip D. Gunn
                                        Vice-Chairman of the Board and Director

Dated: June 28, 2001                 By
                                        -----------------------------------
                                        James J. Pinto
                                        Director



<PAGE>

                      FRAGRANCENET.COM,INC. AND SUBSIDIARY


                   Index to Consolidated Financial Statements


<TABLE>
<CAPTION>

                                                                                                          Page
                                                                                                          ----
<S>                                                                                                     <C>
Independent Auditors' Report                                                                              F-1

Consolidated Balance Sheets as of March 31, 2001 and 2000                                                 F-2

Consolidated Statements of Operations for the years ended March 31, 2001 and 2000                         F-3

Consolidated Statements of Stockholders' Deficit for the years ended March 31, 2001 and 2000              F-4

Consolidated Statements of Cash Flows for the years ended March 31, 2001 and 2000                         F-5

Notes to Consolidated Financial Statements                                                                F-6

</TABLE>


<PAGE>



                          Independent Auditors' Report


The Board of Directors and Stockholders
FragranceNet.com, Inc.:


We have audited the accompanying consolidated balance sheets of
FragranceNet.com, Inc. and subsidiary as of March 31, 2001 and 2000, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FragranceNet.com,
Inc. as of March 31, 2001 and 2000, and the results of its operations and its
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.



June 4, 2001                                                 KPMG LLP
Melville, New York




                                       F-1



<PAGE>

                   FRAGRANCENET.COM,INC. AND SUBSIDIARY

                        Consolidated Balance Sheets

                          March 31, 2001 and 2000


<TABLE>
<CAPTION>


      Assets                                                                            2001                2000
                                                                                     ----------           ----------
<S>                                                                                <C>                  <C>
Current assets:
    Cash and cash equivalents                                                         $ 184,437           $ 283,433
    Accounts receivable, net of allowance for returns
       of $1,497 and $5,570                                                              16,480              22,049
    Inventory                                                                           175,000              54,896
    Prepaid expenses and other current assets                                            28,256              24,054
                                                                                      ----------          ----------
                   Total current assets                                                 404,173             384,432

    Property and equipment, net                                                         145,784              28,517
    Intangible assets, net of accumulated amortization
       of $1,125 and $625                                                                 6,375               6,875
    Other assets                                                                         21,130              12,700
                                                                                      ----------          ----------
                   Total assets                                                       $ 577,462           $ 432,524
                                                                                      ==========          ===========

                   Liabilities and Stockholders' Deficit

Current liabilities:
    Accounts payable                                                                  $ 297,244           $ 144,004
    Accrued expenses                                                                    157,705             311,093
    Deferred revenue                                                                      8,020              20,387
    Obligation under capital lease                                                        4,097                   -
                                                                                      ----------          ----------
                   Total current liabilities                                            467,066             475,484

    Obligation under capital lease                                                        7,681                   -
    Accrued expenses                                                                    251,187                   -
                                                                                      ----------          ----------
                   Total liabilities                                                    725,934             475,484
                                                                                      ----------          ----------

Stockholders' deficit:
    Convertible Series A preferred stock - $.01 par value;
       3,000,000 shares authorized, none issued                                               -                   -
    Common stock, $.01 par value; 50,000,000 shares
       authorized, 16,968,330 shares issued and outstanding                             169,683             169,683
    Additional paid-in capital                                                          368,020             368,020
    Accumulated deficit                                                                (686,175)           (580,663)
                                                                                      ----------          ----------
                   Total stockholders' deficit                                         (148,472)            (42,960)
                                                                                      ----------          ----------

                   Total liabilities and stockholders' deficit                        $ 577,462           $ 432,524
                                                                                      ==========          ==========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-2

<PAGE>


                    FRAGRANCENET.COM,INC. AND SUBSIDIARY

                    Statements of Consolidated Operations

                     Years ended March 31, 2001 and 2000


<TABLE>
<CAPTION>

                                                                                         2001               2000
                                                                                     -------------      -------------
<S>                                                                                 <C>                <C>

Net sales                                                                            $    7,923,347     $    4,423,545
Cost of sales                                                                             4,961,062          3,030,812
                                                                                     ---------------    ---------------

                Gross profit                                                              2,962,285          1,392,733
                                                                                     ---------------    ---------------

Operating expenses:
    Selling and marketing                                                                 1,594,692            940,270
    General and administrative                                                            1,491,598            947,893
                                                                                     ---------------    ---------------

                Total operating expenses                                                  3,086,290          1,888,163
                                                                                     ---------------    ---------------

                Loss from operations                                                       (124,005)          (495,430)

Interest expense                                                                            (12,265)              (602)
Interest income                                                                              10,000             11,885
Other income                                                                                 21,558                  -
                                                                                     ---------------    ---------------

                Loss before provision for income taxes                                     (104,712)          (484,147)

Provision for income taxes                                                                      800                800
                                                                                     ---------------    ---------------

                Net loss                                                             $     (105,512)    $     (484,947)
                                                                                     ===============    ===============

Basic and diluted net loss per common share                                          $        (0.01)    $        (0.03)
                                                                                     ===============    ===============

Weighted average number of common
    shares outstanding (and preferred stock
    on a converted basis in 2000)                                                        16,968,330         16,377,266
                                                                                     ===============    ===============

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-3

<PAGE>

                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                Consolidated Statements of Stockholders' Deficit

                       Years ended March 31, 2001 and 2000


<TABLE>
<CAPTION>


                                       Preferred stock            Common stock          Additional
                                    --------------------      ---------------------      paid-in        Accumulated
                                    Shares        Amount      Shares         Amount      capital           deficit        Total
                                    ------        ------      ------         ------     -----------    -------------      -----
<S>                              <C>            <C>         <C>             <C>        <C>           <C>
Balance at March 31, 1999           1,029,514  $  10,295       4,900,000      49,000      40,705         (95,716)         4,284

Issuance of stock in merger of
   FragranceNet.com, Inc.
    and Telescents                        -            -       1,773,190      17,732     419,971               -        437,703

Conversion of preferred stock
    into common stock              (1,029,514)   (10,295)     10,295,140     102,951     (92,656)              -             -

Net loss                                    -          -               -           -           -        (484,947)      (484,947)
                                  -----------  ---------    ------------    --------    --------        --------       --------

Balance at March 31, 2000                   -          -      16,968,330     169,683     368,020        (580,663)       (42,960)

Net loss                                    -          -               -           -           -        (105,512)      (105,512)
                                  -----------    -------    ------------    --------    --------        --------       ---------

Balance at March 31, 2001                   -  $       -      16,968,330   $ 169,683     368,020        (686,175)      (148,472)
                                  ===========    =======    ============    ========    ========        ========       =========

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-4

<PAGE>


                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                      Consolidated Statements of Cash Flows

                       Years ended March 31, 2001 and 2000


<TABLE>
<CAPTION>

                                                                                     2001               2000
                                                                                 ------------       ------------
<S>                                                                             <C>                <C>
Cash flows from operating activities:
    Net loss                                                                      $  (105,512)      $  (484,947)
    Adjustments to reconcile net loss to net cash
       provided by (used in) operating activities:
          Depreciation and amortization                                                21,513            11,636
          Changes in assets and liabilities:
            Accounts receivable                                                         5,569           (14,623)
            Inventory                                                                (120,104)          (48,396)
            Prepaid expenses and other assets                                         (12,632)          (36,358)
            Accounts payable and accrued expenses                                     245,752           356,050
            Deferred revenue                                                          (12,367)           20,387
            Accrued rent                                                                5,287                 -
                                                                                  ------------      ------------

                 Net cash provided by (used in)
                    operating activities                                               27,506          (196,251)
                                                                                  ------------      ------------

Cash flows from investing activities:
    Acquisitions of property and equipment                                           (126,199)          (10,688)
                                                                                  ------------      ------------

Cash flows from financing activities:
    Repayment of loans payable                                                              -           (25,000)
    Cash received from merger with TeleScents                                               -           437,703
    Principal payments on capital lease obligation                                       (303)                -
                                                                                  ------------      ------------

                 Net cash (used in) provided by
                    financing activities                                                 (303)          412,703
                                                                                  ------------      ------------

Net (decrease) increase in cash and cash equivalents                                  (98,996)          205,764

Cash and cash equivalents at beginning of year                                        283,433            77,669
                                                                                  ------------      ------------

Cash and cash equivalents at end of year                                          $   184,437       $   283,433
                                                                                  ============      ============

Supplemental disclosure of cash flow information:
    Cash paid during year for income taxes                                        $       893       $       380
                                                                                  ============      ============

    Cash paid during year for interest                                            $     3,760       $     1,005
                                                                                  ============      ============

    Acquisition of equipment under capital lease                                  $    12,081       $         -
                                                                                  ============      ============

</TABLE>

See accompanying notes to consolidated financial statements.

                                      F-5

<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000


(1)    Nature of Business

       FragranceNet.com Inc. (the Company) is engaged in the retail sale of
       brand name fragrances and related products over the Internet.
       Accordingly, the Company considers itself to be operating in a single
       industry segment.


(2)    Summary of Significant Accounting Policies

       (a)    Basis of Presentation

              The accompanying consolidated financial statements present the
              historical financial results of TeleScents, Inc. and include the
              net assets acquired in National Capital Management Corporation's
              (NCMC) acquisition of TeleScents on July 28, 1999, which was
              accounted for as a reverse acquisition (note 3). NCMC had no
              operations subsequent to July 28, 1999. In connection with the
              merger, NCMC changed its name to FragranceNet.com, Inc. (note 3).

       (b)    Cash Equivalents

              The Company considers all highly liquid investments purchased with
              an original maturity of three months or less to be cash
              equivalents. Cash equivalents of $119,550 and $211,710 at March
              31, 2001 and 2000 consisted of money market accounts.

       (c)    Accounts Receivable

              The Company generally purchases products only after they have been
              ordered and paid for by the customer. Payment is made by credit
              card or check and goods are not shipped to the customer until the
              check is cleared or authorization from the credit card company is
              obtained. Therefore, the accounts receivable balance represents
              payments due from credit card companies.

       (d)    Revenue Recognition

              The Company recognizes revenue from product sales, net of any
              discounts and coupons, when the products are shipped to customers.
              The Company provides an allowance for sales returns. Revenue from
              the sale of gift certificates is deferred until the gift
              certificates are redeemed. The Company generally does not charge
              its customers for shipping costs, which are included in selling
              and marketing expenses in the consolidated statements of
              operations. Outbound shipping charges for the shipment of product
              to customers amounted to $699,901 and $412,224 for the year ended
              March 31, 2001 and 2000, respectively. In the fourth quarter of
              fiscal 2000, the Company adopted the provisions of EITF No. 00-14,
              "Accounting for Sales Incentives", and reflects its sales
              incentives as a reduction of sales.

                                       F-6

                                                                     (Continued)

<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000



       (e)    Inventory

              Inventory of fragrance products is stated at the lower of cost
              (computed on the first-in, first-out method) or market.

       (f)    Property and Equipment

              Property and equipment are stated at cost. Depreciation of
              property and equipment is calculated on the straight-line method
              over the estimated useful lives of the assets as follows:

                           Computer and office equipment      5 years
                           Computer software                  3 years

       (g)    Intangible Asset

              The intangible asset consists of a purchased trade name that is
              amortized using the straight-line method over its expected useful
              life of fifteen years.

       (h)    Income Taxes

              Deferred tax assets and liabilities are recognized for the future
              tax consequences attributable to differences between the
              consolidated financial statement carrying amounts of existing
              assets and liabilities and their respective tax bases and
              operating loss and tax credit carryforwards. Deferred tax assets
              and liabilities are measured using enacted tax rates expected to
              apply to taxable income in the years in which those temporary
              differences are expected to be recovered or settled. The effect on
              deferred tax assets and liabilities of a change in tax rates is
              recognized in income in the period that includes the enactment
              date.

       (i)    Accounting for Stock Options

              The Company applies the intrinsic value-based method of accounting
              prescribed by Accounting Principles Board (APB) Opinion No. 25,
              "Accounting for Stock Issued to Employees", and related
              interpretations, in accounting for its employee stock options. As
              such, compensation expense for fixed option awards is recorded
              only if the market price of the underlying common stock on the
              date of grant exceeded the exercise price. For disclosure
              purposes, pro forma net loss and pro forma net loss per common
              share information are provided in accordance with Statement of
              Financial Accounting Standards No. 123, "Accounting for
              Stock-Based Compensation", as if the fair value-based method had
              been applied.

                                       F-7

                                                                     (Continued)


<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000



       (j)    Fair Value of Financial Instruments

              The fair value of financial instruments is determined by reference
              to market data and other valuation techniques as appropriate. The
              Company believes the fair value of its financial instruments at
              March 31, 2001 and 2000, principally cash and cash equivalents,
              accounts receivable, accounts payable and accrued expenses,
              approximates their recorded values due to the short-term nature of
              the instruments.

       (k)    Impairment of Long-lived Assets

              Long-lived assets and certain identifiable intangibles are
              reviewed for impairment whenever events or changes in
              circumstances indicate that the carrying amount of an asset may
              not be recoverable. Recoverability of assets to be held and used
              is measured by a comparison of the carrying amount of an asset to
              future undiscounted net cash flows expected to be generated by the
              asset. If such assets are considered to be impaired, the
              impairment charge to be recognized is measured by the amount by
              which the carrying amount of the assets exceeds the fair value of
              the assets. Assets to be disposed of are reported at the lower of
              the carrying amount or fair value less costs to sell.

       (l)    Advertising Costs

              Advertising costs are expensed as incurred. Advertising costs were
              $502,126 and $658,973 for the years ended March 31, 2001 and 2000,
              respectively.

       (m)    Use of Estimates

              The preparation of the consolidated 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 consolidated
              financial statements and the reported amount of revenues and
              expenses during the reporting period. Actual results could differ
              from those estimates.

       (n)    Commitments and Contingencies

              Liabilities for loss contingencies arising from claims,
              assessments, litigation, fines, and penalties and other sources
              are recorded when it is probable that a liability has been
              incurred and the amount of the assessment can be reasonably
              estimated.

                                       F-8


                                                                     (Continued)

<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000


       (o)    Recent Accounting Standards

              Statement of Financial Accounting Standards No. 133 (SFAS 133),
              "Accounting for Derivative Instruments and Hedging Activities",
              establishes comprehensive standards for the recognition and
              measurement of derivative instruments and hedging activities. SFAS
              133, as amended, is effective for fiscal years beginning after
              June 15, 2000. The Company does not expect that the adoption of
              SFAS 133 in the first quarter of fiscal 2002 will have a material
              effect on the Company's financial position or results of
              operations.

              In September 2000, the EITF reached a final consensus on EITF
              Issue 00-10, "Accounting for Shipping and Handling Fees and
              Costs." This consensus requires that all amounts billed to a
              customer in a sale transaction related to shipping and handling,
              if any, should be classified as revenue. The Company historically
              has classified shipping charges to customers, if any, as revenue.
              With respect to the classification of costs related to shipping
              and handling incurred by the seller, the EITF determined that the
              classification of such costs is an accounting policy decision that
              should be disclosed. Adoption of this consensus, which occurred
              during the fourth quarter of fiscal 2001, did not change the
              Company's existing accounting policies.

       (p)    Comprehensive Loss

              For each year presented comprehensive loss equaled net loss.

(3)    Merger of TeleScents and FragranceNet.com, Inc.

       The Company was formerly known as National Capital Management Corporation
       ("NCMC"), a publicly held shell company with no substantial business
       operations. On July 28, 1999, NCMC entered into an Agreement and Plan of
       Merger (the "Merger Agreement") to acquire TeleScents, Inc., a New York
       corporation ("TeleScents"). Pursuant to the Merger Agreement, NCMC issued
       to the shareholders of TeleScents an aggregate of 4,900,000 shares of its
       common stock and an aggregate of 1,029,514 shares of its Series A
       Preferred Stock (the "Preferred Stock") in exchange for all the
       outstanding shares of TeleScents. The Preferred Stock was convertible
       into common stock on a 1-for-10 basis at such time as the Certificate of
       Incorporation of the Company was amended to increase the authorized
       shares of common stock to a number of shares sufficient to effect the
       conversion. The Preferred Stock had voting privileges on an "as
       converted" basis. Accordingly, after the merger the shareholders of
       TeleScents, in the aggregate, held approximately 90% of the total voting
       power of the Company's voting stock. The conversion of the Preferred
       Stock into 10,295,140 shares of common stock occurred subsequent to the
       Shareholders' meeting on November 16, 1999 where an amendment to the
       Company's Certificate of Incorporation was approved to increase the
       authorized shares of common stock from 6,666,666 to 50,000,000.

       In connection with the Merger, the Company changed its name to
       FragranceNet.com, Inc. and changed its ticker symbol to "FRGN".

                                       F-9

                                                                     (Continued)
<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000



       The Company's acquisition of TeleScents was accounted for as a reverse
       acquisition with TeleScents as the accounting acquirer, as the
       shareholders of TeleScents gained voting control of the Company pursuant
       to the merger. The only asset remaining in NCMC at the time of the merger
       was $437,703 of cash. Accordingly, the reverse acquisition was in
       substance a recapitalization of TeleScents with the issuance of shares of
       common stock by TeleScents to the pre-transaction stockholders of
       FragranceNet.com in exchange for cash. For periods prior to the business
       combination, the equity of the combined enterprise is the historical
       equity of the accounting acquirer prior to the merger retroactively
       restated to reflect the number of shares received in the business
       combination.

       The following unaudited pro forma statement of operations data for the
       year ended March 31, 2000 gives effect to the merger as if it had
       occurred on April 1, 1999 and reflects the historical operations of the
       purchased business (FragranceNet.com, Inc.) adjusted for reduced interest
       income to that amount earned on the cash balances retained by the merged
       entity and reduced corporate expenses for those not associated with the
       merged entity.

                           Net sales                       $     4,423,545
                           Net loss                               (459,947)
                           Net loss per share                        (0.03)

       The unaudited pro forma results of operations are not necessarily
       indicative of what the actual results of operations would have been had
       the transaction occurred on the date indicated above, nor do they
       represent future financial results of operations.


(4)    Property and Equipment

       Property and equipment consists of the following:

<TABLE>
<CAPTION>

                                                                                 March 31,
                                                                         ------------------------
                                                                            2001          2000
                                                                         ----------    ----------
<S>                                                                    <C>           <C>

                  Computer and office equipment                          $  164,798    $   39,966
                  Computer software                                          24,676        11,228
                                                                         -----------   -----------
                                                                            189,474        51,194
                  Less accumulated depreciation                              43,690        22,677
                                                                         -----------   -----------

                                                                         $  145,784    $   28,517
                                                                         ===========   ===========

</TABLE>

       Depreciation expense amounted to $21,013 and $11,136 for the years ended
       March 31, 2001 and 2000, respectively.

                                      F-10

                                                                     (Continued)


<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000


(5)    Leases

       The Company entered into a capital lease during fiscal 2001 for the
       acquisition of certain office equipment. As of March 31, 2001, the future
       minimum lease payments under this lease are as follows:

<TABLE>
<S>                                                                                   <C>
                  Year ending March 31,
                  ---------------------
                           2002                                                         $   4,849
                           2003                                                             4,476
                           2004                                                             3,730
                                                                                        ----------

                  Total minimum lease payments                                             13,055
                  Less amount representing interest at 7%                                   1,277
                                                                                        ----------

                  Present value of net minimum lease payments                              11,778
                           Less current installments                                        4,097
                                                                                        ----------

                           Obligations under capital leases, excluding
                           current installments                                         $   7,681
                                                                                        ==========

</TABLE>

(6)    Related Party Transactions

       (a)    Office Space

              The Company subleases a portion of its office space in Hauppauge,
              New York to a professional services firm, which is owned by an
              executive of the Company. Sublease rental income was $11,050 for
              the year ended March 31, 2001, which is included in other income
              in the consolidated statement of operations.

       (b)    Outstanding Loans

              At March 31, 1999 the Company had outstanding loans from its
              stockholders aggregating $25,000, which were repayable upon
              demand. All loans due to stockholders bore interest at a rate of
              7% per annum. The loans were repaid in July 1999. Related interest
              expense was $602 for the year ended March 31, 2000.

       (c)    Stockholder Services

              One of the Company's stockholders, who was not an employee, was
              involved in the day-to-day operations of the Company in part of
              fiscal 2000, and did not receive any compensation during this
              period. In August 1999 the stockholder became an employee of the
              Company.

                                      F-11

                                                                     (Continued)

<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000


       (d)    Bonus Deferrals

              Pursuant to employment agreements of certain of the Company's
              executives and a consultant, these individuals were entitled to
              bonuses in the aggregate of approximately $123,400 and $122,500
              for the years ended March 31, 2001 and 2000, respectively. All
              recipients agreed to defer these bonuses until June 30, 2002. The
              accrued bonuses of $245,900 and $122,500, respectively were
              included in accrued expenses at March 31, 2001 and 2000. For the
              year ended March 31, 2001, the Company has incurred interest at 7%
              on the bonuses approximating $8,575 which has been included in
              interest expense in the consolidated statement of operations.


(7)    Stock Options

       On November 16, 1999, the Company's stockholders approved and adopted the
       1999 Long-Term Incentive Plan (the "Plan") under which the Company's
       Board of Directors may grant stock options to employees and directors.
       The Plan authorizes grants of options to purchase up to 1.5 million
       shares of common stock. The number of shares of common stock subject to
       all awards granted to any individual under the Plan in any one-year
       period shall not exceed 250,000 shares.

       The exercise price per share of options may not be less than the fair
       market value of the common stock on the date of grant. The term of each
       option will generally be fixed by the Board, except no incentive stock
       option may exceed a term of ten years. At the discretion of the Board,
       options may be exercised by payment of the exercise price in cash, stock,
       outstanding awards or other property having a fair market value equal to
       the exercise price.

       In fiscal 2000, the Company granted 20,000 options to a director of the
       Company at an exercise price of $.40 per share which was equal to the
       fair value of the common stock on the date of grant. The options expire
       in July 2009. At March 31, 2001 and 2000, these were the only options
       outstanding, all of which were exercisable. Had the Company determined
       compensation cost based on the fair value of its stock options at the
       grant date under SFAS No. 123, the Company's pro forma net loss and net
       loss per share for fiscal 2001 and 2000 would have approximated the
       actual net loss and net loss per share.

(8)    Income Taxes

       The provision for income taxes in each of the two years ended March 31,
       2001 consisted of state minimum taxes.

                                      F-12

                                                                     (Continued)



<PAGE>



                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000


       The tax effects of temporary differences that give rise to significant
       portions of the deferred tax assets and liabilities at March 31 are as
       follows:

<TABLE>
<CAPTION>

                                                                                 2001              2000
                                                                               --------           ------
<S>                                                                         <C>                 <C>
              Deferred tax assets and liabilities:
                  Accounts receivable (allowance for returns)                  $     600        $  2,000
                  Accrued expenses                                                98,400          49,000
                  Other                                                                -           8,000
                  Fixed assets                                                    (8,100)              -
                  Net operating loss carryforwards                               246,000         172,000
                                                                               ---------        --------
                                                                                 336,900         231,000
              Less: valuation allowance                                          336,900         231,000
                                                                               ---------        --------
                          Deferred tax assets                                  $       -        $      -
                                                                               =========        =========

</TABLE>

       As of March 31, 2001, the Company has a Federal net operating loss (NOL)
       carryforward of approximately $615,000 expiring in fiscal 2018 to 2021.
       In addition, certain of NCMC's NOL's may be utilizable by the Company,
       subject to an annual limitation imposed by Section 382 of the Internal
       Revenue Code for changes in ownership. In assessing the realizability of
       deferred tax assets, management considers whether it is more likely than
       not that some portion or all of the deferred tax assets will not be
       realized. The ultimate realization of deferred tax assets is dependent
       upon the generation of future taxable income during the periods in which
       those temporary differences become deductible or losses are carried
       forward. Management considers the scheduled reversal of deferred tax
       assets, projected future taxable income, and tax planning strategies in
       making this assessment. Due to historical taxable losses, management
       believes it is more likely than not the Company will not realize the
       benefits of these deductible differences and operating loss
       carryforwards, and, accordingly, has established a valuation allowance at
       March 31, 2001 and 2000.

(9)    Commitments and Contingencies

       The Company leased a building, commencing September 1, 2000, under a
       non-cancelable operating lease, which expires on May 31, 2005. The future
       lease payments under the operating lease are as follows:

                                Years ending March 31,:
                                        2002                      $    77,936
                                        2003                           81,054
                                        2004                           84,292
                                        2005                           87,669
                                        2006                           14,858
                                                                  ------------
                                                                  $   345,809
                                                                  ============
                                      F-13


                                                                  (Continued)

<PAGE>


                      FRAGRANCENET.COM,INC. AND SUBSIDIARY

                   Notes to Consolidated Financial Statements

                             March 31, 2001 and 2000


       Total rent expense for the years ended March 31, 2001 and 2000, was
       $57,825 and $23,167, respectively.

(10)   Concentration with Suppliers

       For the year ended March 31, 2001, 40% of purchases were from one
       distributor and for the year ended March 31, 2000, 43% of purchases were
       from another distributor.

(11)   Quarterly Results of Operations (Unaudited)

       The following is a summary of the quarterly results for the years ended
       March 31, 2001 and 2000.

<TABLE>
<CAPTION>

                                                                   Quarter Ended

                                    June 30, 2000     September 30, 2000    December 31, 2000   March 31, 2001
                                    -------------     -------------------   -----------------   --------------
<S>                               <C>                <C>                   <C>                  <C>

        Net sales                     $1,786,561            $1,505,508           $3,001,116       $1,630,162
        Gross profit                     614,712               654,561            1,162,930          530,082
        Net income (loss)                (40,887)              121,791              240,412         (426,828)
        Basic and diluted income
        (loss) per share                   (0.00)                 0.01                 0.01            (0.03)


</TABLE>

<TABLE>
<CAPTION>

                                                                   Quarter Ended

                                    June 30, 1999     September 30, 1999    December 31, 1999   March 31, 2000
                                    -------------     -------------------   -----------------   ----------------
<S>                               <C>                <C>                   <C>                  <C>
        Net sales                      $383,611              $688,213           $2,136,502          $1,215,219
        Gross profit                    123,756               255,424              823,663             219,890
        Net income (loss)               (69,355)              (58,590)              13,094            (370,096)
        Basic and diluted income
        (loss) per share                  (0.00)                (0.00)                0.00               (0.02)

</TABLE>



                                      F-14