UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               -----------------

                                   FORM 10-KSB

(Mark One)

[X]  Annual Report to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year ended December 31, 1998.

[  ] Transition report pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

For the transition period from _____________to______________

Commission File No.0-22809

                                   AZUREL LTD.
                                   -----------
             (Exact name of registrant as specified in its charter)

        DELAWARE                                       13-3842844
        --------                                       ----------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)

509 MADISON AVENUE NEW YORK, NEW YORK                            10022
-------------------------------------                            -----
(Address of principal executive offices)                      (Zip code)

Registrant's telephone number, including area code:   (212) 317-0712
                                                       -------------

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

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED
-------------------                    -----------------------------------------
  Not Applicable                                        None

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

                          COMMON STOCK, $.001 PAR VALUE
                          -----------------------------
                                (Title of Class)
                    REDEEMABLE COMMON STOCK PURCHASE WARRANTS
                    -----------------------------------------
                                (Title of Class)


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

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.      Yes        No X
                                       ------    ----



<PAGE>


          The issuer's net sales for the most recent fiscal year were
$20,858,344.

           The aggregate market value of the voting stock held by non-affiliates
based upon the last sale price on March 23, 1999 was approximately $7,978,118.

         As of March 23, 1999 there were 5,318,745 shares of Common Stock, par
value $.001 per share, outstanding.



<PAGE>


                                     PART I

ITEM 1.  BUSINESS
         --------


GENERAL

         The Company, directly and through wholly-owned subsidiaries,
manufactures, distributes, markets and sells cosmetics, fragrances, skin care
products, luxury bath and body products and perfumes and also provides
accounting, marketing, warehousing and other administrative services to
cosmetic, fragrance and accessory companies. Through wholly-owned subsidiaries
comprising its Private Label Group, acquired by the Company in August 1996, the
Company operates a manufacturing and filling facility which sells cosmetics
principally to major cosmetic companies for sale by each customer under the
customer's own brand name (commonly known as "private label" sales). Through Ben
Rickert Corp., a wholly-owned subsidiary, the Company manufactures, distributes
and assembles luxury bath and body products and perfumes, mostly sold in gift
sets, under the Company's own brand names. In addition, in order to take
advantage of the Company's manufacturing capabilities and product development
expertise, the Company develops cosmetic, skin care and fragrance lines which it
markets under brand names created internally or owned by others and licensed to
the Company. These products are sometimes referred to as "Branded Products." To
date, the Company has developed five lines of Branded Products internally and
has obtained two licenses to sell product lines using brand names owned by third
parties. The Company intended, through its Scent 123 subsidiary, which acquired
the assets of Scent Overnight in October 1996, to sell well- recognized men's
cologne and women's fragrances directly to the consumer by overnight delivery
through toll-free telephone numbers. Due to mixed consumer reaction to the
concept, the Company has determined to defer further development of this
marketing concept at this time. The Company is considering refinements to the
concept, including sales through the Internet, but the Company has not
determined at this time, whether it will again actively seek to develop the
concept.

PRODUCTS AND SERVICES

         The Company's Private Label Group consists of subsidiaries acquired in
August 1996 from Michael J. Assante ("Assante"), who continues to be employed as
the President and CEO of the Private Label Group. These subsidiaries operate a
cosmetic facility (the "Facility") which manufactures, fills and packages a
broad range of cosmetics. The Facility also includes a laboratory which develops
cosmetic products formulae for customers according to their specific
requirements. The laboratory also develops and maintains a library of cosmetic
products formulae for use by customers who have not developed their own formulae
for a specific product. The laboratory also performs quality control functions
for the Facility and is responsible for assuring compliance with governmental
regulations regarding the manufacture and packaging of cosmetics including
compliance with good manufacturing practices ("GMP").

         The Facility manufactures and fills a wide variety of cosmetics,
including body lotions and powders, liquid soaps, colognes, lipsticks, mascara,
eye shadows, eye liners, skin care products and hair care products. Depending
upon the customer's requirements, the Company either provides some or all of the
raw ingredients and packaging for the customer's product or uses material
provided directly by the customer. A quantity of raw ingredients and packaging
material is maintained in inventory, but generally such materials are purchased
by the Company to fill specific orders. Presently, the Facility does not
manufacture or fill fragrances, which require additional machinery, nor does the
Facility manufacture or fill nail products.

           Generally, a customer places an order for a quantity of merchandise
to be produced and shipped over a period of time, typically one to three months,
with payment due 30 days after each shipment. While the raw ingredients and
packaging materials to produce an order are generally readily available, for
cash management purposes, the necessary raw materials and packaging are ordered
by the Company for receipt by it in stages to coincide with the
manufacturing/packaging cycle and the customer's delivery requirements. In this
way, the Company minimizes the need to maintain an inventory of raw ingredients
and packaging materials, and in effect, produces product only against the order.



                                       3



<PAGE>
                                                        



           Except for nail products, which it does not manufacture or fill, the
Facility does not limit its services to a particular market niche within the
cosmetic industry. It manufactures a wide variety of high and low priced
products sold in department, specialty and discount stores. The Company believes
that this diversity minimizes its exposure to business cycles and changes in
customer preferences over time.

         Since the manufacturing operation has been in business for over 49
years, the laboratory maintains a large library of formulae for a wide variety
of products. Moreover, the laboratory continuously develops new formulae based
on the Company's assessment of future product demand, changing consumer
preferences and the availability of new ingredients. The Company believes that
it can quickly and efficiently develop formulations for a customer's product by
using or adapting a formula from its library. When the Company develops a
formula for a customer's product, the Company, and not the customer, owns the
formula; however, since it is the Company's policy not to use the same formula
for different customers, customers generally continue purchasing from the
Company so long as they sell the product and do not change the formula or have
another laboratory replicate the product formula.

         The Company's marketing efforts revolve around its sales force of ten
(10) full-time sales and marketing employees and approximately 50 domestic
representatives. The Company also sells its products internationally through a
network of brokers and distributors worldwide.

         In order to take advantage of the Company's manufacturing capabilities
and product development expertise, the Company currently is developing cosmetic,
skin care and fragrance lines which it intends to market and distribute under
brand names created internally or owned by others and licensed to the Company.
These products are sometimes referred to as "Branded Products." To date, the
Company has developed five lines of Branded Products internally and has obtained
two licenses to sell product lines using brand names owned by third parties.

         Development of the Company's first Branded Product line, an original
unisex fragrance line and related grooming products to be sold under the SPORTS
EXTREME USA(TM) trade name, commenced in January 1996 and was completed in
September 1996, at which time marketing of the line commenced. Presently, the
SPORTS EXTREME USA(TM) line consists of a unisex fragrance, bath and shower gel,
muscle and body relaxer and face moisturizer containing sunscreen and
alphahydroxy fruit acids, of which the unisex fragrance and bath and shower gel
are being marketed. The marketing of the SPORTS EXTREME USA(TM) line features
"extreme" sports such as mountain climbing, ice climbing, bungee jumping, sky
surfing, in-line skating, snowboarding, snow bicycling and mountain biking. The
fragrance for the SPORTS EXTREME USA(TM) line was developed for the Company by
Firmenich Incorporated, a major developer of fragrances for the cosmetic
industry. Retail sales of this line commenced in the second quarter of 1997.

         The Company sells Branded Products in the United States and
internationally. In the United States, the Company sells directly to retail
outlets that sell similar products, such as chain drug stores, mass
merchandisers and discount stores. The Company's personnel and independent sales
representatives sell the Branded Products in the United States. Internationally,
the Company currently sells Branded Products and expects to continue to sell to
distribution companies having a major presence in the Far East, Middle East and
parts of Europe. The Company entered into distribution agreements with two
foreign distributors which cover certain countries in the Middle East and the
Far East, pursuant to which such distributors will purchase the Company's
products for resale in their distribution territories. In addition, the Company
currently has a sales agency agreement with a foreign sales agent which covers
certain countries in Europe. The Company's foreign distribution agreements are
exclusive for the Far East and the Middle East and do not require the
distributor to purchase any minimum quantity of products. The Company
established a sales and distribution facility in France during the latter part
of 1998.

         In October 1997, the Company began developing cosmetics, fragrances and
related products for sale under the HANG TEN trade name pursuant to a license
agreement with the owner of the HANG TEN trade name (the "Licensor"). The HANG
TEN trade name is a brand name used on men's outerwear, active wear and a wide
variety 

                                       4


<PAGE>

of other merchandise which has been marketed in print media in both the
United States and internationally. Hang Ten currently operates approximately 400
free-standing retail outlets internationally, in addition to distribution into
other retail outlets.

           The license agreement relating to the Hang Ten trade name provides
for the Hang Ten products developed by the Company to be sold and marketed
directly to the Hang Ten outlets as well as other retailers. From January 1,
1999 until December 31, 2003 the Company may sell, distribute and market
products developed under the Hang Ten tradename to other parties in the United
States and internationally and to Hang Ten outlets. Under the License, the
Company is required to pay a royalty of five percent of net sales, excluding
sales to Hang Ten outlets, subject to minimum royalties. The Company's
manufacture, sale and promotion of Hang Ten fragrances, grooming products and
cosmetics is subject to the prior review and approval of such products by the
Licensor as is typical in similar licenses. The Licensor has approved the
products currently being developed by the Company.

         The Company entered into a license agreement with Members Only
("Licensor") on May 15, 1996. The Company negotiated a settlement with the
Licensor to terminate such agreement. Initially a customer had indicated that it
would purchase significant amounts of product bearing the Members Only name.
After development of such products the customer informed the Company that
current market conditions did not call for purchase of the products from the
Company. Based upon such customer information the Company terminated the license
agreement with Members Only.

         In July 1998, the Company purchased all of the assets of Ben Rickert
Inc. from Summit Bank. Ben Rickert Inc. was founded in 1970 by Ben Rickert and
throughout the years became a leading manufacturer, distributor and assembler of
luxury bath and body products. With the purchase of the Ben Rickert Inc. assets,
the Company created a wholly-owned subsidiary and named it Ben Rickert Corp.,
which manufactures, distributes and assembles bath and body products and
perfumes, sold mostly in gift sets. Ben Rickert sells its products under its own
brand names including Ben Rickert, Natural Botanicals, Benandre, Privilege,
Extreme, Wrapped in Romance, American Country Garden and Oceanology. Ben
Rickert's products are sold primarily to department stores, mass merchandisers
and drug store chains throughout the United States such as Wal-Mart, Kmart,
Genovese, CVS, J.C. Penny, May Co., Albertsons and Koger. The purchasers of Ben
Rickert products are primarily women between the ages of 12 and 65 years of age.

         Ben Rickert believes that its products are differentiated from its
competitors products by three distinct factors: (i) aesthetics; (ii) price
(value); and (iii) skin feel and fragrance. Ben Rickert's products compete
effectively with its competition by creating handsomely designed quality
products at reasonable prices, and its products have established the concept of
"high gift value" as its core selling strategy.

         While the Company has had discussions with other companies, it has not
entered into any other formal agreements for the development of cosmetic and
fragrance lines under brand names owned by other companies. There can be no
assurance that the Company will market successfully any original cosmetic or
fragrance line, or that the Company will enter into any additional formal
agreements for the development of cosmetic and fragrance lines for other
companies either under brand names created internally or owned by others and
licensed to the Company.

         The Company also sells cosmetic kits, which are varieties of color
cosmetic items packaged in containers and manufactured in Asia, which are custom
made for retailers such as Neiman Marcus and Bloomingdales, as well as for
cosmetic companies. This sector of the overall cosmetic market is growing
rapidly and should continue to expand in the future.

         The Company's internally created Miami Colours brand will be targeted
towards the teen market. Miami Colours is scheduled to be launched
internationally in the second quarter of 1999 and in the United States during
the third quarter of 1999.


                                       5



<PAGE>



         In October 1997, the Company acquired all of the outstanding capital
stock of Cambridge Business Services, Inc. ("Cambridge") for a purchase price of
$212,000, of which $95,000 was paid in October 1997 and the balance was paid in
February 1998. Cambridge provides outsourcing and distribution services such as:
accounting, sales, marketing, warehousing and other administrative and back
offices services to cosmetic, fragrance and accessory companies.

COMPETITION

         All aspects of the cosmetic, fragrance and skin care industry are
subject to intense competition throughout the world. In all aspects of its
business, the Company will compete with numerous companies, many of which are
better known in the industry and have established channels of distribution and
substantially all of which have greater financial and other resources than the
Company. These competitors include Estee Lauder, Revlon, Avon and Maybelline.

         The Company competes against approximately thirty companies in the
United States which manufacture and/or package cosmetic products for
third-parties. To a lesser degree, the Company competes with cosmetic companies
which have their own manufacturing facilities that can produce all, or a part,
of their own products. The Company believes that the primary elements of
competition in the private label manufacture of cosmetics differ depending upon
the retail price point of the particular product. With respect to higher priced
cosmetics and fragrances, the principal methods of competition are quality,
including consistency of the work performed, and reliability of meeting delivery
dates. With respect to lower priced products, the principal method of
competition is price. The Company believes that the Facility has a reputation in
the cosmetic industry as a high quality, reliable source for manufacturing and
packaging cosmetics. It is the Company's belief that the availability of its
laboratory gives it a competitive advantage over those firms not having
laboratories to assist customers in the formulation of their products. The
Company also believes that its ability to produce a broad range of products for
sale at varying retail price points is beneficial in attracting and retaining
customers who would prefer all of their products to be produced by the same
manufacturer.

         In selling the Branded Products, and licensed products the Company
competes against numerous companies, some of which are customers of the Private
Label Group. Many of these competitors are better known in the industry, have
established channels of distribution and greater financial and other resources
than the Company.

         The Company believes that the primary elements of competition in the
sale of Branded Products are product awareness and consumer acceptance of the
competing brands. Achieving market acceptance may require substantial marketing
efforts and expenditure of significant funds. The Company markets its Branded
Products to niche markets such as chain drug stores, discount stores and mass
merchandisers and develops Branded Products which it believes will appeal to the
customers of these retailers.

         The Company believes that Cambridge is the only company organized to
provide complete accounting, marketing, warehousing and other administrative
services to cosmetic, fragrance and accessory companies, by a single company.
Although the Company believes it is the only Company which performs all of these
services, there are other companies that perform each of these services
individually, and such companies have greater financial and personnel resources,
and are better known in the industry than the Company.

GOVERNMENT REGULATION

           The Company's manufacturing activities are subject to extensive and
rigorous governmental regulation relating to the protection of the environment
and the quality of manufacturing. Federal, state and local regulatory agencies
actively enforce these regulations and conduct periodic inspections to determine
compliance with such government regulations. The FDA enforces regulations
regarding GMP through periodic surveillances and audits. The Company believes
that it has obtained all material approvals, permits and licenses for its
manufacturing activities. In the event that the Company seeks to expand its
operations to manufacture and fill fragrances,


                                       6



<PAGE>




the Company would have to obtain new or expanded governmental permits. However,
changes in existing regulations, the interpretation thereof, or adoption of new
regulations could impose costly new procedures for compliance, or prevent the
Company from obtaining, or affect the timing of, additional regulatory
approvals. There can be no assurance that if the Company's manufacturing
facilities were audited that they would be found in compliance with GMP or
environmental regulations. Failure to comply with GMP, environmental or other
applicable regulatory requirements may result in fines, suspension of approvals,
cessation of distribution, product recalls and criminal prosecution, any of
which would have a material adverse effect on the Company.

         The Federal Trade Commission ("FTC") and state and local authorities
regulate the advertising of over-the-counter drugs and cosmetics. The Federal
Food, Drug and Cosmetic Act, as amended (the "Food and Drug Act"), and the
regulations promulgated thereunder, and other federal and state statutes and
regulations, govern, among other things, the testing, manufacture, safety,
effectiveness, labeling, composition storage, record keeping, approval,
advertising and promotion of the Company's products. In general, products
falling within the FDA's definition of "new drugs" require pre-market approval
by the FDA. Products falling within the FDA's definition of "cosmetics" do not
require pre-market approval. In the Company's opinion, the Company's products,
as they are and will be promoted, fall within the FDA's definition of
"cosmetics" and therefore do not require pre-market approval. There can be no
assurance that the FDA will concur in this view. In the event that the Company
fails to comply with applicable regulations with respect to any products, the
Company may be required to change its labeling, formulation or possibly cease
manufacture and marketing of such products.

         The FDA may require post-marketing testing and surveillance to monitor
the record of the Company's products and continued compliance with regulatory
requirements. The FDA also may require the submission of any lot of product for
inspection and may restrict the release of any lot that does not comply with FDA
standards, or may otherwise order the suspension of manufacture, recall or
seizure of non-compliant product is discovered. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems concerning safety or efficacy of a product are discovered following
approval.

         The Company may also be subject to foreign regulatory authorities
governing testing or sales of certain of the Company's products. Whether or not
FDA approval has been obtained, approval of a product by the comparable
regulatory authorities of foreign countries must be obtained in certain cases
prior to the commencement of marketing of the product in those countries. There
can be no assurance that any product developed or marketed by the Company will
be approved by the FDA or any foreign regulatory authority.

         Various laws and regulations relating to safe working conditions, and
other employment matters, including the Occupational Safety and Health Act, are
also applicable to the Company. The Company believes it is in substantial
compliance with all material federal, state and local laws and regulations
regarding safe working conditions, and other employment matters.

TRADEMARKS

         The Company has fifteen United States registered trademarks, Scent
Overnight(R), Scent 123(R) and Sports Extreme(R), U.S. - Privilege (R),
Benandre(R), Bene(R), PP Parfums Privilege & Design(R), American Country
Garden(R), Ben Rickert(R), Extreme Berry(R), Extreme Girl(R), Extreme
Vanilla(R), Private Part(R), France - Privilege(R) and Japan - Ben Rickert(R).

         The right to use trademarks and trade names in connection with the sale
of the Branded Products is material to the Company's business. In cases where
the Company is the licensee of the trademark or trade name, the ownership of the
trademark or trade name will be retained by the licensor. In such cases, the
Company may be subject to material claims of infringement by third- parties and
may or may not be indemnified by the licensor.

         The Company will be the owner of brand names developed by it and will
seek to establish protection of names. There can be no assurance, however, that
trademark rights would sufficiently protect the Company's right to use such
names or that, if and when the Company files trademark applications for such
names, 

                                       7



<PAGE>



such applications would be approved. Notwithstanding such ownership,
third-parties may claim that such names infringe such third party's rights. Such
claims may seek to require the Company to cease use of the names as well as pay
monetary damages. At the time any such claim is brought, the Company may not
have the financial resources to defend against such claim. The cessation of the
use of any brand name used by the Company might have a material adverse effect
on it.

INSURANCE

         In view of the activities conducted by the Company, there are inherent
risks of exposure to certain liabilities including product liability and
negligence claims resulting from the use of the Company's products. The Company
currently carries a general liability insurance policy (including products
liability) which provides for coverage of $1,000,000 per occurrence and
$2,000,000 in the aggregate. The Company also carries property damage insurance
of approximately $2,000,000. The Company does not have insurance coverage for
product withdrawal or recall. Although the Company believes such insurance is
sufficient, no assurance can be given that the amount of the Company's present
coverage will prove to be adequate.

         The Company currently maintains officer and director liability
insurance which provides for coverage of $2,000,000 per occurrence and
$2,000,000 in the aggregate.

MAJOR CUSTOMERS AND SUPPLIERS

         Approximately 25% and 19%, and 19% and 10%, of the Private Label
Group's revenues for the years ended December 31, 1998 and December 31, 1997,
respectively, were derived from the same two major customers. Approximately 81%
of Ben Rickert Corp.'s revenues for the five months ended December 31, 1998,
were derived from two major customers. There can be no assurance that these
customers will maintain their volume of business with either the Private Label
Group or Ben Rickert Corp. A loss of the sales to any or all of these customers
could have a material adverse effect on the Company's results of operations.

EMPLOYEES

         The Company presently employs approximately 521 employees of which 342
are located at the Private Label Group and 167 are located at Ben Rickert Corp.
All of the 342 employees located at the Private Label Group are employed on a
full-time basis, while only 55 of the 167 employees at Ben Rickert Corp. are
full time employees and the remaining 112 are employed on as-needed basis. Ben
Rickert has regularly employed between 50 and 225 individuals on an as-needed
basis for approximately 12 months and anticipates a continued need for a minimum
of 35 such employees in order to maintain its current level of operations. Of
the 342 employees located at the Private Label Group, 294 are manufacturing
personnel, 12 are laboratory personnel, 35 are executive and administrative
personnel and 1 is engaged in sales and marketing. The manufacturing employees
located at the Private Label Group are covered by a collective bargaining
agreement with Local #300-S, affiliated with the Production Service and Sales
Distribution Council, Industrial Union Council, which expires on May 31, 2001.
Of the 167 employees located at the Ben Rickert Corp., 149 are
assembly/manufacturing/shipping personnel, 10 are executive and administrative
personnel and 8 are engaged in sales, marketing and customer service. The
employees of Ben Rickert Corp. are not represented by a union.

         Of the twelve employees that are not located at either the Private
Label Group or Ben Rickert Corp., three are executive officers. The Company
believes that there is an available pool of persons and firms who could be hired
or retained by the Company when needed. The Company considers its relationships
with both union and non-union employees to be satisfactory.

SEASONALITY AND BACKLOG

         The cosmetic and fragrance business in general is subject to seasonal
fluctuations, with net sales in the second half of the year substantially higher
than those in the first half as a result of increased demand by retailers 


                                        8
<PAGE>

in the United States in anticipation of and during the back-to- school,
Thanksgiving and Holiday seasons. The Company anticipates that the sales of
Branded and Ben Rickert Products will follow the general industry trend.

         Although the Company's manufacturing business, as a whole, is not
seasonal, its product mix is subject to seasonal variations. Since the gross
profit margins on various products differ, the backlog and results of operations
in any period are not necessarily indicative of the result for the fiscal year.
At December 31, 1998, the Private Label Group's backlog of orders believed by
the Company to be firm was approximately $3,425,000 and at December 31, 1997 the
Private Label Group's backlog of orders believed by the Company to be firm was
approximately $2,926,000. The Private Label Group expects that approximately 95%
of the current backlog will be filled during the current fiscal year. Since the
Private Label Group's orders for manufacturing and filling are generally for the
delivery of merchandise over a period of time, backlog is viewed as an important
indication of future performance. At December 31, 1998, Ben Rickert Corp.'s
backlog of orders was minimal due to the fact that the majority of its business
occurs during the holiday season and meaningful backlog data is not currently
available.


ITEM 2.   PROPERTIES
          ----------

         The Company leases 2,400 square feet of space at 509 Madison Avenue,
New York, New York, which is used as its executive offices. The lease expires in
April 2001 and provides for an annual base rent of $75,000, including utilities.
These facilities are in good condition and adequate for the Company's current
needs, and substitute space is readily available.

         The Company leases a 155,000 square foot building in Fairlawn, New
Jersey, which is used as a manufacturing and packaging plant and laboratory and
as the Private Label Group's general and executive offices. The lease, expiring
in August 2002 provides for annual rent of approximately $500,000, including
common charges and real estate taxes and is subject to increase based on
increases in the Consumer Price Index. In addition, the Company is responsible
for substantially all repairs to the building. The Facility is presently
operating at less than full capacity and is in good condition and physically
adequate for the Company's present purposes. However, the Company is considering
expansion into an adjacent facility. The Company expects to continue to update
the manufacturing and packaging equipment at the Facility with more modern and
automated equipment.

         The Company leases a 137,000 square foot building in Wayne, New Jersey,
which is used as a manufacturing and packaging plant and as Ben Rickert Corp.'s
executive offices. Approximately 20,000 square feet is used for office space and
117,000 square feet is used for manufacturing, assembling, warehousing and
shipping. The lease expires in June 1999 and provides for annual rent of
approximately $720,000. The Company believes the facilities are in good
condition and are adequate for the Company's present and future purposes. At the
expiration of the Ben Rickert lease the Company intends to remain in the same
building but will reduce the square footage which it will occupy. The Company
intends to utilize an aggregate of 62,000 square feet, 10,000 of which will be
used for Ben Rickert's executive offices and 52,000 of which will be used for
manufacturing. The Company intends to move its warehousing and shipping
operations to a separate location. The Company expects that the new lease will
be for an initial period of three years with two one year options at a price of
$5.25 per square.

         Cambridge leases approximately 2,500 square feet of office space in
Port Washington, New York. The lease is on a month to month basis at a rate of
$3,090 per month.

         Contemporary, a related party, utilizes approximately 10,000 square
feet of the Facility on a month-to-month basis for approximately $7,000 per
month under an oral arrangement. There is no assurance that the landlord will
continue to permit this arrangement.



                                       9
<PAGE>



ITEM 3.   LEGAL PROCEEDINGS
          -----------------

LEGAL PROCEEDINGS

         The Company is not a party to any material legal proceeding, nor is it
aware of any pending or threatened claim of a material nature. The Company
anticipates that it will be subject to claims and suits in the ordinary course
of its business in the future, including product liability and negligence
claims. The Company believes that it will maintain adequate insurance to cover
such anticipated claims, of which, however, there can be no assurance.

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

         On December 9, 1998, the Company held a special meeting of
stockholders. At such meeting, the Company's stockholders were asked to vote on
the following two proposals: (i) Proposal #1 - ratification of the issuance of
shares of the Company's Common Stock upon conversion of its Series A Convertible
Preferred Stock; and (ii) Proposal #2 - to increase the number of shares of
Common Stock authorized for issuance under the Company's 1997 Stock Option Plan
to 1,750,000 from 750,000. As to Proposal #1 there were 2,260,900 votes for,
530,266 votes against, 3,925 votes abstained and 2,523,654 broker non-votes. As
to Proposal #2 there were 2,501,467 votes for, 289,699 votes against, 3,925
votes abstained and 2,523,654 broker non-votes.

                                     PART II

ITEM 5.  MARKET FOR THE COMPANY'S COMMON STOCK
         -------------------------------------

         As of the date hereof, the Company has outstanding 5,318,745 shares of
its Common Stock $.001 par value ("Common Stock"). The Company's Common Stock is
traded on the Nasdaq SmallCap Market ("Nasdaq SmallCap") under the symbol
"AZUR." The following table sets forth the high and low bid prices for the
Common Stock as reported by on the Nasdaq SmallCap. The high and low bid prices
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.



                                                  COMMON STOCK
                                                  ------------
FISCAL 1997                                HIGH                 LOW
-------------------------                  ----                 ---
Third (from July 31, 1997)               $4.6875               $3.875
Fourth                                   5.03125                 4.25
                                                             
                                                             
FISCAL 1998                                HIGH                 LOW
------------------------------             ----                 ---
First                                    $4.9375              $3.1875
Second                                     3.875               2.4375
Third                                       2.50                 1.00
Fourth                                      1.25                0.625
                                                       
FISCAL 1999                                HIGH                 LOW
------------------------------             ----                 ---
First (through March 26, 1999)           $3.28125               $1.00

         On March 26, 1999, there were approximately 79 holders of record of the
Company's 5,318,745 outstanding shares of Common Stock.

         On March 26, 1999, the last sale price of the Common Stock as reported
on the Nasdaq SmallCap Market was $1.50.



                                       10
<PAGE>



                                 DIVIDEND POLICY

         The Company has never paid or declared dividends on its Common Stock.
The payment of cash dividends, if any, in the future is within the discretion of
the Board of Directors and will depend upon the Company's earnings, its capital
requirements, financial condition and other relevant factors. The Company
intends, for the foreseeable future, to retain future earnings for use in the
Company's business.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        ----------------------------------------------------------------------- 
        OF OPERATIONS
        -------------

AZUREL LTD. AND SUBSIDIARIES
----------------------------

FORWARD-LOOKING STATEMENTS

         When used in this Form 10-KSB and in future filings by the Company with
the Securities and Exchange commission, the words or phrases "will likely
result" and "the company expects," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements." The Company wishes to caution readers not
to place undue reliance on any such forward-looking statements, each of which
speak only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.

GENERAL

         Azurel, through its wholly-owned subsidiaries, manufactures, markets
and sells private label cosmetics, fragrances and skincare products and also
provides accounting, marketing, warehousing and other administrative services.

         In August 1996, Azurel acquired the stock of the Private Label Group,
and in October 1996, Azurel acquired the assets of Scent Overnight. In October
1997, Azurel acquired the stock of Cambridge Business Services.

         The following discussion and analysis should be read together with the
financial statements and notes for Azurel included herein.



                                       11
<PAGE>





RESULTS OF OPERATIONS

         The following table sets forth, for the periods indicated, the
percentage of net sales represented by certain items included in the statements
of operations:

                                              YEAR ENDED DECEMBER 31,
                                              -----------------------
                                              (Dollars in thousands)

                                          1998                    1997
                                   -------------------      -------------------

                                    AMOUNT          %        AMOUNT          %
                                    ------     -------     -------       -------

Net Sales .....................   $ 20,858         100%    $ 12,482        100%

Cost of goods sold ............     14,919          72        8,608         69
                                  --------     -------     --------        ----
Gross  profit .................      5,939          28        3,874         31

Selling, general and
administrative expenses .......      7,252          35        3,897         31
                                  --------     -------     --------        ----
Operating (loss) ..............     (1,313)         (7)         (23)        --
Interest expense ..............        367           1          475          4
                                  --------     -------     --------        ----
Net (loss) ....................   $ (1,680)         (8)%   $   (498)        (4)%
                                  =========    ========    =========       =====



YEAR ENDED DECEMBER 31, 1998 (THE "1998 PERIOD") AND YEAR ENDED DECEMBER 31,
1997 (THE "1997 PERIOD").

         Net sales of $20,858,344 for the year ended December 31, 1998 increased
by $8,376,788 or approximately 67% from the 1997 Period. The increase resulted
primarily from the acquisition of Ben Rickert on July 31, 1998 ("Acquisition
Date"), $5,276,501, and an increase in Private Label Group sales of $2,425,508.

        Cost of goods sold for the 1998 Period was $14,919,255 or 72% of net
sales, as compared to cost of goods sold of $8,607,759, or 69% of net sales for
the 1997 Period. The increase in cost of goods sold resulted mainly from the
acquisition of Ben Rickert. The increase in cost of goods sold as a percentage
of net sales to 72% in the 1998 Period from 69% in the 1997 Period was due
primarily to lower margin Ben Rickert products.

         Selling, general and administrative expenses for the 1998 Period were
$7,252,113, or 35% of net sales, as compared to $3,896,990, or 31% of net sales
for the 1997 Period. The increase resulted from the acquisition of Ben Rickert
in 1998, twelve months of expenses for Cambridge Business Services in 1998,
compared to three months in 1997, and the establishment of a full corporate
headquarters in 1998, including a marketing division. The increase in the
selling, general and administrative costs as a percentage of net sales is
chiefly attributable to higher 1998 corporate expenditures.

         Interest expense decreased from $475,310 in the 1997 Period to $366,969
in the 1998 Period. The decrease is attributable to the repayment of long term
debt and reduction in short term debt resulting from the equity received in
August 1998 from the issuance of shares of the Company's Series A Convertible
Preferred Stock.




                                       12
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

         From inception to date, Azurel's operations have been funded by a
combination of debt and equity financings. Azurel completed its initial public
offering of its securities in August 1997, whereby the Company issued 1,200,000
shares of common stock and 1,200,000 common stock purchase warrants. The Company
received approximately $5,538,000 from its initial public offering. In addition,
prior to the Company's initial public offering, it sold 750,000 shares of Common
Stock at $2.00 per share from February through July 1996 and in January and
April of 1997 the Company secured additional debt financing in connection with
the completion of private placements of $200,000 and $350,000 respectively,
which were repaid upon the completion of the Company's initial public offering.

         In December 1997 the Company secured a 4 year term loan of $800,000 at
11.3% from GE Capital. Such loan is secured by the Company's existing machinery
and equipment. During 1998, the Company arranged a new machinery and equipment
line of credit with CIT, which finances 100% of new machinery and equipment
purchases over a five year term at a rate of approximately 10.5%. In 1998, the
Company purchased $281,518 of equipment through capital leases under this
arrangement. In February 1998, the Company secured a revolving line of credit of
$3,500,000 with Finova Capital Corporation through February 2000. Such line of
credit bears an interest rate of 2.5% above the prime rate. The line of credit
is secured by the Company's receivables, inventory and a second lien on
machinery and equipment. On August 12, 1998, the Company sold shares of its
Series A Convertible Preferred Stock receiving net proceeds of approximately
$1,238,000. On September 28, 1998, the Company secured an additional $4,000,000
line of credit with Finova Capital Corp., bearing interest a 2.5% above the
prime rate. Borrowings against this two-year credit line are secured by accounts
receivable, inventory and liens on all of Ben Rickert's machinery and equipment.

         In April 1999, the Company sold an aggregate of 716,667 shares of its
Common Stock at a price of $1.50 per share, for an aggregate sale price of
$1,075,000, to several private investors, pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended.
Additionally, an aggregate of 179,167 warrants (one warrant for every four
shares purchased) to purchase shares of the Company's Common Stock at an
exercise price of $2.00 per share were issued to the above investors. The
Company is in the process of raising up to $5,000,000 in a private transaction
on substantially the same terms as above.

YEAR 2000 COMPLIANCE

         Many computer systems and software products worldwide and throughout
all industries will not function properly as the year 2000 approaches unless
changed, due to a once-common programming standard that represents years using
two-digits. This is the "Year 2000 problem" that has received considerable media
coverage. The Company has recently upgraded its management information systems.
As part of this program, the Company identified those systems and applications
that required modification, redevelopment or replacement. The Company believes
that its management information systems are Year 2000 compliant. Management of
the Company does not believe that failure of the Company's vendors or
third-party providers' systems to be Year 2000 compliant will have a material
adverse effect upon the Company.


ITEM 7.  FINANCIAL STATEMENTS
         --------------------

         See pages F-1 to F-19.


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND    
        ---------------------------------------------------------------
        FINANCIAL DISCLOSURE
        --------------------

There were no changes in or disagreements with the Company's Accountants on
accounting or financial disclosures.




                                       13
<PAGE>



                                    PART III


ITEM 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSON 
         --------------------------------------------------------------
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
         -------------------------------------------------

Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.

ITEM 10.  EXECUTIVE COMPENSATION
          ----------------------


Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
          --------------------------------------------------------------        

Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------

Incorporated by reference from the Registrant's definitive proxy statement, to
be filed in accordance with Rule 14a-101 with the Commission not later than 120
days after the end of the fiscal year covered by this form.

ITEM 13.  EXHIBITS, LISTS AND REPORTS ON FORM 8- K
          ----------------------------------------

(A) EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-B).

EXHIBIT NUMBER                                   DESCRIPTION OF EXHIBIT
--------------                                   ----------------------
     27                                          Financial Data Schedule


                                       14


<PAGE>


                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                              AZUREL LTD.

                                              BY: /S/ GERARD SEMHON
                                                  -----------------
                                              GERARD SEMHON, CHIEF EXECUTIVE
                                              OFFICER AND CHAIRMAN OF THE BOARD

           In accordance with the Exchange Act, this report has been signed
below by the following persons and in the capacities and on the dates indicated.

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

/S/ GERARD SEMHON         Chief Executive Officer and           April 15, 1999
-----------------
Gerard Semhon Chairman 
of the Board

/S/ CONSTANTINE BEZAS     President and Director                April 15, 1999
---------------------
Constantine Bezas

/S/ FRANK DESIMONE        Executive Vice President, Chief       April 15, 1999
------------------
Frank DeSimone            Operating Officer and Director

/S/ PHILIP G. ORSI        Chief Financial Officer               April 15, 1999
------------------
Philip G. Orsi

/S/ KAY SHORTWAY          Director                              April 15, 1999
-----------------
Kay Shortway

/S/ NORMAN GRIEF          Director                              April 15, 1999
-----------------
Norman Grief



                                       15


<PAGE>


                          AZUREL LTD. AND SUBSIDIARIES

                             REPORT ON CONSOLIDATED
                              FINANCIAL STATEMENTS

                          YEAR ENDED DECEMBER 31, 1998


                          


<PAGE>
                          AZUREL LTD. AND SUBSIDIARIES

                              FINANCIAL STATEMENTS



                                     INDEX


                                                                         Page
                                                                        Number
                                                                        ------

INDEPENDENT AUDITORS' REPORT                                            F - 1

CONSOLIDATED FINANCIAL STATEMENTS:

        Balance Sheet                                                   F - 2

        Statement of Operations                                         F - 3

        Statement of Stockholders' Equity                               F - 4

        Statement of Cash Flows                                       F - 5-6

        Notes to Financial Statements                                F - 7-17



<PAGE>

                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------



To the Shareholders and Board of Directors
Azurel Ltd. and Subsidiaries

         We have audited the accompanying consolidated balance sheet of Azurel
Ltd. and Subsidiaries as of December 31, 1998 and the related consolidated
statements of operations and cash flows for the two years then ended. These
financial statements are the responsibility of the Azurel Ltd. and Subsidiaries'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

         We conducted our audit in accordance with generally accepted auditing
standards. 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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Azurel
Ltd. and Subsidiaries as of December 31, 1998 and the results of its
consolidated operations and its consolidated cash flows for the two years then
ended in conformity with generally accepted accounting principles.




                                           /s/ Feldman Sherb Ehrlich & Co., P.C.
                                           -------------------------------------
                                           Feldman Sherb Ehrlich & Co., P.C.
                                           Certified Public Accountants
                                          
               

New York, New York
March 15, 1999
(April 15, 1999, with respect to the 
last paragraph of Note 1)




                                      F-1


<PAGE>






                          AZUREL LTD. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                               DECEMBER 31, 1998
<TABLE>
<CAPTION>


                                     ASSETS
                                     ------

CURRENT ASSETS:
<S>                                                                <C>         
        Cash ..................................................    $     84,711
        Accounts receivable net of allowance for doubtful
                accounts of $71,000 ...........................       4,640,440
        Inventories ...........................................       4,995,113
        Due from related parties ..............................         124,972
        Prepaid expenses and other current assets .............          55,947
                                                                   ------------
                TOTAL CURRENT ASSETS ..........................       9,901,183

FURNITURE AND EQUIPMENT, net ..................................       1,757,444

GOODWILL ......................................................         156,052

FORMULAE AND CUSTOMER LISTS ...................................       2,770,543

DUE FROM RELATED PARTY ........................................          49,066

OTHER ASSETS ..................................................          90,273
                                                                   ------------

                                                                   $ 14,724,561
                                                                   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
                      ------------------------------------

CURRENT LIABILITIES:
        Revolving line of credit ..............................    $  5,041,655
        Accounts payable ......................................       2,696,913
        Accrued expenses and other liabilities ................         494,962
        Customer advances .....................................          31,408
        Current portion of long term debt .....................         784,352
        Capital lease obligation - current portion ............          43,848
                                                                   ------------
                TOTAL CURRENT LIABILITIES .....................       9,093,138

LONG TERM DEBT ................................................       1,003,975

CAPITAL LEASE OBLIGATION - NON-CURRENT PORTION ................         212,471

STOCKHOLDERS' EQUITY:
        Preferred stock - par value $.001 per share
                1,000,000 shares authorized; 1,500
                shares issued and outstanding .................       1,237,587
        Common stock, par value $.001 per share;
                24,000,000 shares authorized; 5,318,745
                shares issued and outstanding .................           5,319
        Additional paid in capital ............................       7,475,476
        Accumulated deficit ...................................      (4,303,405)
                                                                   ------------
                TOTAL STOCKHOLDERS' EQUITY ....................       4,414,977
                                                                   ------------
                                                                   $ 14,724,561
                                                                   ============

</TABLE>



                       See notes to financial statements


                                      F-2

<PAGE>

                          AZUREL LTD. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                     YEARS ENDED DECEMBER 31,
                                                     ------------------------
                                                        1998           1997
                                                        ----           ----

<S>                                                <C>             <C>         
NET SALES ......................................   $ 20,858,344    $ 12,481,556

COST OF GOODS SOLD .............................     14,919,255       8,607,759
                                                   ------------    ------------

GROSS PROFIT ...................................      5,939,089       3,873,797

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ...      7,252,113       3,896,990
                                                   ------------    ------------

LOSS FROM OPERATIONS ...........................     (1,313,024)        (23,193)

INTEREST EXPENSE ...............................        366,969         475,310
                                                   ------------    ------------

NET LOSS .......................................   $ (1,679,993)   $   (498,503)
                                                   ============    ============


BASIC LOSS PER COMMON SHARE ....................   $      (0.32)   $      (0.11)
                                                   ============    ============

WEIGHTED AVERAGE COMMON SHARES
        OUTSTANDING ............................      5,306,245       4,468,325
                                                   ============    ============

</TABLE>

                       See notes to financial statements


                                      F-3


<PAGE>



                          AZUREL LTD. AND SUBSIDIARIES
           CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                     YEARS ENDED DECEMBER 31, 1998 AND 1997


<TABLE>
<CAPTION>

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

<S>                                                              <C>     <C>              <C>         <C>           <C>        
Balance - January 1, 1997                                         --     $      --        3,878,747   $     3,879   $ 2,382,190

        Sale of common stock - initial public offering            --            --        1,200,000         1,200     5,536,810
        Expenses associated with initial public offering          --            --             --            --      (1,373,278)
        Stock issued to shareholders as additional
                compensation in acquisition                       --            --          199,998           200       892,294
        Stock issued for legal services                           --            --           15,000            15           (15)
        Cumulative effect of foreign currency
                translation adjustment --                         --            --             --            --            --   
        Net loss                                                  --            --             --            --            --   
                                                           -----------   -----------      ---------   -----------   -----------
Balance - December 31, 1997                                       --            --        5,293,745         5,294     7,438,001

        Sale of convertible preferred stock                      1,500     1,500,000           --            --            --   
        Expenses associated with issuance
                of preferred stock                                --        (262,413)          --            --            --   
        Stock issued for legal services                           --            --           25,000            25        37,475
        Write off of stock subscriptions receivable               --            --             --            --            --   
        Reclassification of 1997 cumulative translation
                adjustment to accumulated deficit                 --            --             --            --            --   
        Net loss                                                  --            --             --            --            --   
                                                           -----------   -----------      ---------   -----------   -----------
Balance - December 31, 1998                                      1,500   $ 1,237,587      5,318,745   $     5,319   $ 7,475,476
                                                           ===========   ===========      =========   ===========   ===========



                                                                             STOCK        CUMULATIVE
                                                           ACCUMULATED   SUBSCRIPTIONS   TRANSLATION
                                                             DEFICIT       RECEIVABLE     ADJUSTMENT      TOTAL
                                                             -------       ----------     ----------      -----


Balance - January 1, 1997                                  $(2,111,327)   $    (2,175)   $      --      $   272,567

        Sale of common stock - initial public offering            --             --             --        5,538,010
        Expenses associated with initial public offering          --             --             --       (1,373,278)
        Stock issued to shareholders as additional
                compensation in acquisition                       --             --             --          892,494
        Stock issued for legal services                           --             --             --             --
        Cumulative effect of foreign currency
                translation adjustment --                         --             --          (13,582)       (13,582)
        Net loss                                              (498,503)          --             --         (498,503)
                                                           -----------    -----------      ---------    -----------   
Balance - December 31, 1997                                 (2,609,830)        (2,175)       (13,582)     4,817,708

        Sale of convertible preferred stock                       --             --             --        1,500,000
        Expenses associated with issuance
                of preferred stock                                --             --             --         (262,413)
        Stock issued for legal services                           --             --             --           37,500
        Write off of stock subscriptions receivable               --            2,175           --            2,175
        Reclassification of 1997 cumulative translation
                adjustment to accumulated deficit              (13,582)          --           13,582           --
        Net loss                                            (1,679,993)          --             --       (1,679,993)
                                                           -----------    -----------    -----------    -----------   
Balance - December 31, 1998                                $(4,303,405)   $      --      $      --      $ 4,414,977
                                                           ===========    ===========    ===========    ===========
</TABLE>






                       See notes to financial statements
                                      F-4

<PAGE>



                          AZUREL LTD. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>


                                                                         YEARS ENDED DECEMBER 31,
                                                                         ------------------------
                                                                           1998           1997
                                                                           ----           ----

CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                    <C>            <C>         
Net loss ...........................................................   $(1,679,993)   $  (498,503)
Adjustments to reconcile net loss to net cash
        provided by operating activities:
        Depreciation ...............................................       200,277        224,789
        Amortization ...............................................       210,653        202,025
        Issuance of common stock for legal services ................        37,500           --
        Other ......................................................         2,175           --

Changes in assets and liabilities, net of effect of acquisition:
        Increase in accounts receivable ............................    (2,271,065)      (444,027)
        Increase in inventories ....................................    (1,119,987)      (641,298)
        Decrease (increase) in prepaid expenses and other
                current assets .....................................       314,888       (142,925)
        Decrease in other assets ...................................        31,361        217,845
        Increase (decrease) in accounts payable and accrued expenses     1,304,000     (1,302,005)
        (Decrease) increase in customers advances ..................       (72,737)        46,385
        (Decrease) increase in related party loans .................      (314,916)       343,154
                                                                       -----------    -----------
        NET CASH USED IN OPERATING ACTIVITIES ......................    (3,357,844)    (1,994,560)
                                                                       -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
        Business acquisitions, net of cash acquired ................    (1,700,000)       (57,556)
        Purchases of property and equipment ........................      (200,566)      (286,193)
                                                                       -----------    -----------
        NET CASH USED IN INVESTING ACTIVITIES ......................    (1,900,566)      (343,749)
                                                                       -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
        Borrowings for purchase of Ben Rickert, Corp. ..............     1,350,000           --
        Increase in revolving line of credit .......................     2,558,262      1,133,393
        Decrease in cash overdraft .................................          --          (10,635)
        Decrease (increase) in restricted cash .....................       290,521        (21,790)
        Decrease in long-term debt .................................      (469,724)    (2,482,819)
        Reduction in capital lease obligations .....................       (38,256)       (16,259)
        Net proceeds from issuance of common stock .................          --        4,164,732
        Net proceeds from issuance of preferred stock ..............     1,237,587           --
                                                                       -----------    -----------
        NET CASH USED IN FINANCING ACTIVITIES ......................     4,928,390      2,766,622
                                                                       -----------    -----------
        Effect of exchange rate ....................................          --          (13,582)
                                                                       -----------    -----------
NET INCREASE (DECREASE) IN CASH ....................................      (330,020)       414,731

CASH AT BEGINNING OF YEAR ..........................................       414,731           --
                                                                       -----------    -----------
CASH AT END OF YEAR ................................................   $    84,711    $   414,731
                                                                       ===========    ===========

</TABLE>
                       See notes to financial statements


                                      F-5


<PAGE>




                          AZUREL LTD. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>


                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
                                                                 1998       1997
                                                                 ----       ----


SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:

<S>                                                              <C>        <C>     
        Cash paid for interest ...............................   $429,620   $231,656
                                                                 ========   ========

        Cash paid for income taxes ...........................   $  4,242   $   --
                                                                 ========   ========

SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:

        Additional stock issued to shareholder as compensation
                for acquisition of PLC Group .................   $   --     $892,494
                                                                 ========   ========
        Note issued for the acquisition of Cambridge Business
                Services Corp. ...............................   $   --     $121,012
                                                                 ========   ========
        Purchase of equipment through capital leases .........   $281,518   $   --
                                                                 ========   ========

</TABLE>



                       See notes to financial statements


                                      F-6


<PAGE>



                          AZUREL LTD. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. ORGANIZATION AND SIGNIFICANT EVENTS

Azurel Ltd. ("Azurel") was incorporated in Delaware on June 26, 1995. In July
1996, the Company formed a subsidiary, Scent 123, Inc. and subsequently acquired
the assets of Scent Overnight, Inc., an overnight delivery service of men's
cologne and women's fragrances. Azurel intends to market and develop original
cosmetic and fragrance lines. As of December 31, 1998, no significant operations
had commenced.

In August 1996, Azurel purchased all of the outstanding common stock of Private
Label Cosmetics, Inc. and affiliates ("Private Label Group") for cash, notes and
common stock aggregating $2,782,500 plus acquisition costs of $285,000. The
Private Label Group is located in New Jersey and manufactures cosmetics for sale
to major cosmetic companies.

In August 1997, Azurel sold 1,200,000 units consisting of 1,200,000 shares of
common stock and an equal number of common stock purchase warrants in an initial
public offering. The Company received gross proceeds before underwriter
discounts and offering expenses of $5,538,000. Offering expenses were
approximately $1,373,000.

Azurel concurrently issued approximately 200,000 common shares to a principal
shareholder and a former shareholder as additional consideration for machinery
and equipment included in the Private Label Group acquisition.

In October 1997, Azurel acquired all of the outstanding shares of Cambridge
Business Services Corporation for $212,000 of which $95,000 was paid at the
closing and the balance in February 1998.

Azurel opened a sales and distribution facility in France in the latter part of
1998. Significant operations had not commenced at December 31, 1998.

On July 31, 1998, Azurel acquired from a bank the assets of Ben Rickert, Inc. a
manufacturer and distributor of cosmetics, fragrances and gift items, for $1.5
million. The acquisition was financed by $150,000 in cash and a $1,350,000 note.

During the year ended December 31, 1998, the Company issued 1,500 units of
convertible preferred stock and warrants for net proceeds of $1,238,000.

Hereinafter all of the above entities are collectively referred to as the
"Company".

During the two week period ended April 15, 1999 the Company sold to various
investors an aggregate of 716,667 shares of its common stock at a price of $1.50
per share, for an aggregate sale price of $1,075,000. In addition, an aggregate
of 179,167 warrants (one warrant for every four shares) to purchase shares of
the Company's common stock at an exercise price of $2.00 per share were issued
to the above investors. The Company has received $650,000 of such monies with
the balance to be received shortly. The Company is also seeking to raise up to
$5,000,000 for the sale of up to 3,333,333 shares of common stock on
substantially the same terms as above. The consummation of such sale cannot be
assured.


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.   Principles of consolidation - The consolidated financial statements include
     the accounts of the Company and its wholly owned subsidiaries. All material
     intercompany transactions and balances have been eliminated.


                                      F-7


<PAGE>

                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



b.   Accounting estimates - The preparation of financial statements in
     accordance with generally accepted accounting principles requires
     management to make significant estimates and assumptions that affect the
     reported amounts of assets and liabilities at the date of the financial
     statements and the reported amounts of revenues and expenses during the
     reporting period. Actual results could differ from those estimates.

c.   Inventories - Inventories are recorded at the lower of cost or market. Cost
     was determined using the FIFO method.

d.   Property and equipment - Property and equipment are stated at cost and
     depreciated using the straight-line method over the estimated useful lives
     of the assets.

e.   Deferred financing costs - Deferred financing costs are charged to interest
     expense over the terms of the respective loans.

f.   Fair value of financial instruments - The carrying amounts reported in the
     balance sheet for cash, receivables, accounts payable, and accrued expenses
     approximate fair value based on the short-term maturity of these
     instruments.

g.   Income taxes - The Company accounts for income taxes under the provisions
     of Statement of Financial Accounting Standards No. 109, "Accounting for
     Income Taxes" (SFAS No. 109). SFAS No. 109 requires the recognition of
     deferred tax assets and liabilities for both the expected impact of
     differences between the financial statements and tax basis of assets and
     liabilities, and for the expected future tax benefit to be derived from tax
     loss and tax credit carryforwards. SFAS No. 109 additionally requires the
     establishment of a valuation allowance to reflect the likelihood of
     realization of deferred tax assets.

h.   Stock based compensation - The Company accounts for employee stock
     transactions in accordance with APB Opinion No. 25, "Accounting For Stock
     Issued To Employees." The Company has adopted the proforma disclosure
     requirements of Statement of Financial Accounting Standards No. 123,
     "Accounting For Stock-Based Compensation."

i.   Goodwill - Goodwill resulting from various acquisitions represents the
     remaining unamortized value of the excess of the purchase price over the
     fair value of the net assets acquired. Goodwill is amortized on a straight
     line basis over a period of 20 years. The Company periodically assesses the
     recoverability of the cost of its goodwill for impairment.

j.   Impairment of long-lived assets - The Company reviews long-lived assets for
     impairment whenever circumstances and situations change such that there is
     an indication that the carrying amounts may not be recovered. At December
     31, 1998, the Company believes that there has been no impairment of its
     long-lived assets.

k.   Earnings per share - Basic net loss per common share is based on the
     weighted average number of shares outstanding. Potential common shares
     includable in the computation of fully diluted per share results are not
     presented in the financial statements as their effect would be
     anti-dilutive.


                                      F-8


<PAGE>


                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


3. Ben Rickert, Inc. Acquisition

     The following table gives an aggregate summary of the acquisition in July
     1998 of the assets of Ben Rickert, Inc.

<TABLE>

<S>                                                                 <C>        
     Purchase Price .........................................       $ 1,500,000

     Acquisition Costs ......................................           200,000

     Fair Value of Assets Acquired ..........................        (2,376,000)

     Fair Value of Liabilities Assumed ......................           676,000
                                                                    -----------
     Total ..................................................       $      --
                                                                    ===========

The detailed components consist of the following:

     Purchase Price
     --------------

     Cash to Sellers ........................................       $   150,000

     Notes to Sellers .......................................         1,350,000
                                                                    -----------
        Total Purchase Price ................................       $ 1,500,000
                                                                    ===========
     Fair Market Value of Assets Acquired
     ------------------------------------

     Accounts Receivable ....................................       $   384,000

     Inventory ..............................................         1,992,000
                                                                    -----------

        Total Fair Value of Assets ..........................       $ 2,376,000
                                                                    ===========

     Fair Market Value of Liabilities Assumed
     ----------------------------------------

     Accrued Expenses .......................................       $   631,000

     Notes to Related Party .................................            45,000
                                                                    -----------
        Total Fair Value of Liabilities .....................       $   676,000
                                                                    ===========
</TABLE>


                                      F-9


<PAGE>


                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



Subsequent to the purchase of the assets of Ben Rickert, Inc., the Company
completed its evaluation of the acquisition and determined that inventory was
overstated by $1,112,000 and liabilities were understated by $31,000. The above
amounts have been adjusted to reflect such revaluation.

The following tables summarize pro forma consolidated results of operations
(unaudited) of the Company and the 1998 and 1997 Ben Rickert asset acquisition
as though the acquisition had been consummated at January 1, 1997. The pro forma
amounts give effect to the appropriate adjustments of the fair value of assets
acquired and the amortization of goodwill depreciation and the debt incurred and
resulting interest expense.
<TABLE>
<CAPTION>

                                                  Azurel Without Ben Rickert
                                                    Year Ended December 31,
                                                  ---------------------------
                                                      1998             1997
                                                      ----             ----

<S>                                             <C>                <C>         
Total Revenue ............................      $ 15,581,843       $ 12,481,556

Net Loss .................................      $   (895,727)      $   (498,503)

Basic Net Loss Per Share .................      $       (.17)      $       (.11)

Weighted Average Number of Shares ........         5,306,245          4,468,325


                                                     Ben Rickert Corp. Only
                                                     Year Ended December 31,
                                                  ---------------------------
                                                     1998               1997
                                                     ----               ----

Total Revenue ............................      $  7,679,081       $ 11,348,766

Net Loss .................................      $ (4,549,834)      $ (2,807,221)

Basic Net Loss Per Share .................      $       (.86)      $       (.63)

Weighted Average Number of Shares ........         5,306,245          4,468,325

                                                          Consolidated
                                                      Year Ended December 31,
                                                  ----------------------------
                                                     1998              1997
                                                     ----              ----

Total Revenue ............................      $ 23,260,924       $ 23,830,322

Net Loss .................................      $ (5,445,561)      $ (3,305,724)

Basic Net Loss Per Share .................      $      (1.03)      $       (.74)

Weighted Average Number of Shares ........         5,306,245          4,468,325
</TABLE>


                                      F-10


<PAGE>


                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


4. INVENTORIES

     Inventories at December 31, 1998 consisted of the following:

         Raw Materials ........................................   $2,508,310
         Work In Process ......................................      885,703
         Finished Goods .......................................    1,601,100
                                                                  ----------
                                                                  $4,995,113
                                                                  ==========


5. RELATED PARTY TRANSACTIONS

     Amounts due from related parties consist of loans and advances to officers,
     shareholders and an affiliated entity. The loans are interest-free and are
     summarized as follows:

         Loans to affiliate .............................      $133,179
         Advances to officers/shareholders ..............        40,859
                                                               --------
                                                                174,038

         Less loans to affiliate - non-current ..........        49,066
                                                               --------
                                                               $124,972
                                                               ========

     Additionally, trade receivables included $21,500 due from affiliates at
     December 31, 1998.

     Private Label Group has an informal arrangement with an affiliate to
     sublease part of its facilities at a cost of $86,000 per annum.


6. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:

                                            Estimated years  December 31,
                                            of useful lives      1998
                                            ---------------  ------------

         Furniture and fixtures ............    5 years     $    21,779
         Machinery and equipment held
              under capital leases .........    5-7 years       332,304
         Machinery and equipment ...........    3-9 years     3,845,842
         Leasehold improvements ............    15 years        254,613
                                                            -----------         
                                                              4,454,538
                                                        
         Less accumulated depreciation .....                  2,697,094
                                                             ----------
                                                             $1,757,444
                                                             ==========


                                      F-11


<PAGE>


                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


7. FORMULAE AND CUSTOMER LIST

     These assets which result from the acquisition of Private Label Group are
     summarized as follows:

                                               Estimated
                                              Useful Life       Cost
                                              -----------    ----------

         Formulae .........................     15 Years     $2,285,000
         Customer list ....................     19 Years        952,000
                                                             ----------
                                                              3,237,000

         Less accumulated amortization ....                     466,457
                                                             ----------
                                                             $2,770,543
                                                             ==========

8. GOODWILL:

     Goodwill which results from the acquisition of Private Label Group and
     Cambridge is as follows:

                                                    Estimated
                                                   Useful Life     Cost
                                                   -----------   --------
         Goodwill ..............................     20 Years    $164,265
         Less accumulated amortization .........                    8,213
                                                                 --------
                                                                 $156,052
                                                                 ========
                                                               
9. REVOLVING CREDIT FACILITY

     In February 1998, the Company refinanced its borrowing arrangement with a
     financial institution. The line of credit was increased to $3,500,000 and
     bears interest at 2.5% per annum above the existing prime rate. In
     September 1998, the Company financed an additional $4,000,000 line of
     credit with the institution for the Ben Rickert Corp subsidiary at 2.5% per
     annum interest rate above prime. Proceeds of $1,350,000 from such credit
     line was used to repay the loan for the acquisition of the assets of Ben
     Rickert, Inc. Borrowings are secured by trade receivables, inventories and
     a second lien on machinery and equipment; except for Ben Rickert borrowing
     which have a first lien on machinery and equipment.


10. LONG-TERM DEBT

     The following is a summary of long-term debt at December 31, 1998:

     Note payable -- shareholder, payable in monthly installments of 
     $5,551 including interest at 6% per annum, through August 
     2003. ............................................................ $264,377

     Note payable -- shareholder, payable in semi-annual installments 
     of $9,219 plus interest at 9% per annum, through 2000.  ..........   36,876


                                      F-12


<PAGE>

                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


     Note payable -- payable on the earlier of December 31, 1999, or 
     upon receipt by the Company of gross proceeds of at least 
     $1,000,000 pursuant to any public or private debt or equity 
     financing of any securities of the Company, the principal plus 
     interest at 9% per annum. ........................................$ 149,574

     Note payable - shareholder, payable in semi-annual installments of 
     $184,375 plus interest at 9% per annum, through October 2000. 
     ..................................................................  737,500

     Note payable -- payable in monthly installments of $16,667 plus 
     interest at 11.3% per annum through 2001. The note is secured by 
     machinery and equipment. .........................................  600,000
                                                                       ---------
                                                                       1,788,327

Less current portion...................................................  784,352
                                                                       ---------
                                                                      $1,003,975
                                                                      ==========

     Notes payable to shareholders are unsecured.

     Long-term debt mature as follows:

          2000..............................................$   642,170
          2001..............................................    258,373
          2002..............................................     61,974
          2003..............................................     41,458
                                                            -----------
                                                             $1,003,975
                                                            ===========

     The fair value of the Company's long term debt approximates its carrying
     amount.


11. OBLIGATIONS UNDER CAPITAL LEASES

     The Company leases certain equipment under various capital lease
     arrangements expiring in July 1999 through June 2003:

        Current Long-Term
        Portion Portion Total

          Total minimum lease payments          $ 80,954   $ 254,165  $ 335,119

          Less: Amounts representing interest     37,106      41,694     78,800
                                                --------   ---------  ---------
                                                $ 43,848   $ 212,471  $ 256,319
                                                ========   =========  =========


                                      F-13


<PAGE>


                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


12. INCOME TAXES

     The Company accounts for income taxes under Statement of Financial
     Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No. 109").
     SFAS No. 109 requires the recognition of deferred tax assets and
     liabilities for both the expected impact of differences between the
     financial statements and tax basis of assets and liabilities, and for the
     expected future tax benefit to be derived from tax loss and tax credit
     carry forwards. SFAS No. 109 additionally requires the establishment of a
     valuation allowance to reflect the likelihood of realization of deferred
     tax assets. At December 31, 1998, the Company had net deferred tax assets
     of $2,120,000. The Company has recorded a valuation allowance for the full
     amount of the net deferred tax assets.

     The following table illustrates the source and status of the Company's
     major deferred tax assets:

         Net operating loss carryforward ...............   $ 1,008,000
         Accumulated depreciation book/tax difference ..       804,000
         Accounts receivable allowance .................        28,000
         Inventory allowance ...........................       280,000
         Valuation allowance ...........................    (2,120,000)
                                                           -----------
         Net deferred tax asset recorded ...............   $      --
                                                           ===========

     The provision for income taxes for year ended December 31, 1998 differs
     from the amount computed by applying the statutory federal income tax rate
     to income before income taxes as follows:

         Income tax benefit computed at statutory rate ..    $(571,000)
                                                             
         Tax benefit not recognized .....................      571,000
                                                             ---------
         Provision for income taxes .....................    $    --
                                                             =========

     The Company has net operating loss carry forwards for tax purposes totaling
     $2,521,000 at December 31, 1998 expiring in the years 2010 to 2013.
     Approximately $952,000 of the carry forwards are subject to limitations on
     annual utilization because there are "equity structure shifts" or "owner
     shifts" involving 5% stockholders (as these terms are defined in Section
     382 of the Internal Revenue Code), which have resulted in a more than 50%
     change in ownership. The annual limitation is based primarily on the value
     of the Private Label Group as of the date of the ownership change
     multiplied by the applicable Federal Long Term Tax Exempt Bond Rate.

13. STOCK OPTION AND WARRANTS

     In March 1997, the Company adopted a stock option plan which provides for
     grants to officers and other employees, directors, consultants and other
     persons who perform significant services for the Company. The exercise
     price of each option may not be less than 100% of the fair market value of
     the common stock at the time of the grant. Options to acquire up to
     1,750,000 shares may be granted under the plan.


                                      F-14


<PAGE>


                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



     For disclosure purposes the fair value of each stock option grant is
     estimated on the date of grant using the Black-Scholes option-pricing model
     with the weighted-average assumptions used for stock options granted during
     the years ended December 31, 1998 and 1997, respectively: annual dividends
     of $0.00 for both years, expected volatility of 50%, risk-free interest
     rate of 5.7% and expected life of five years. The weighted-average fair
     value of the stock options granted during the years ended December 31, 1998
     and 1997 were $.50 and $2.03, respectively.

     If the Company recognized compensation cost for the employee stock option
     plan in accordance with SFAS No. 123, the Company's pro forma net loss and
     loss per share would have been $1.77 million and $.33 in 1998 and $.52
     million and $.12 in 1997.

     Prior to the Company's initial public offering, 980,500 warrants were
     issued at an exercise price of $4.50 per share. The Company issued
     1,200,000 warrants in connection with the initial public offering of its
     common stock. Each warrant entitles its holder to purchase one share of
     Common Stock at an exercise price of $4.50 per share. The warrants are
     exercisable commencing July 30, 1998 and expire in July 2003. The warrants
     are redeemable by the company at a price of $.10 each commencing July 30,
     1998 and thereafter up to their expiration. The Company additionally issued
     120,000 redeemable warrants to the underwriter for $18,000. Such warrants
     are exercisable for four years commencing July 30, 1998 at a price equal to
     150% of the initial public offering price of the Common Stock and
     Redeemable Warrants. Also, 180,000 warrants were issued pursuant to the
     exercise of the underwriter's over-allotment option. During 1998, the
     Company issued 200,000 warrants at an exercise price of $2 per share. Each
     warrant entitles its holder to purchase one share of Common Stock at an
     exercise price of $2.00 per share. The Company has reserved 2,680,500
     shares of common stock for issuance upon exercise of the warrants.

<TABLE>
<CAPTION>

                                                        Options                                    Warrants
                                          ----------------------------------------------------------------------------------

                                           Number      Price per    Number of       Number        Price per     Number of
                                            of           Share       Shares           of            Share         Shares
                                           Shares        Range     Exercisable      Shares          Range       Exercisable

         Outstanding
<S>                                        <C>        <C>            <C>         <C>                 <C>          <C>               
                 at January 1,1997 ..         --            --           --              --              --          --

         Granted ....................      166,250    $4.25- 4.38                  2,480,500       $    6.75         --

         Canceled ...................      (12,000)   $4.25- 4.38        --              --              --          --
                                         ---------                   ---------     ----------                     --------
         Outstanding
                 at December 31, 1997      154,250    $4.25- 4.38        --         2,480,500      $    6.75         --
                                                      ===========    =========                     =========      ========

         Granted ....................    1,546,352    $ .81-$4.00                     200,000      $    2.00         --

         Canceled ...................     (227,250)   $ .81-$4.38                        --              --          --             
                                         ---------                   ---------      ---------                     ---------

         Outstanding
                 at December 31, 1998    1,473,352    $ .81-$4.38        --         2,680,500      $2.00-$6.75    2,680,500
                                         =========    ===========     ========      =========      ===========    =========
</TABLE>


                                      F-15


<PAGE>

                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


14. PREFERRED STOCK

     The Company is authorized to issue preferred stock with such designations,
     rights and preferences as may be determined from time to time by the Board
     of Directors. Accordingly, the Board of Directors is empowered, without
     stockholder approval, to issue preferred stock with dividend, liquidation,
     conversion, voting or other rights. During 1998, the Company issued 1,500
     units of convertible preferred stock and warrants. Each unit consisted of
     (i) one share of the Company's Series A Convertible Preferred Stock, par
     value $.001 per share, convertible into shares of the Company's common
     stock, par value $.001 per share, and (ii) a warrant to acquire 375 shares
     of Common Stock. The purchase price per unit was $1,000. Net proceeds
     received were $1,238,000.

15. LEASES

     The Company is obligated under two leases for its two operating facilities
     in New Jersey. The annual rentals for the first facility range from
     $493,000 to $547,000 and expires in August 2004. The Company sub-lets part
     of its premises to a related party for an annual rental of $86,000. The
     second facility has a monthly rent of $60,000 through June 1999. The
     Company is negotiating a three-year lease with the landlord for lesser
     space at the current location. The Company is further obligated under a
     lease for its administrative and marketing facility in New York City for
     annual rentals of $75,000 through April 2001. In addition, the Company
     rents its facility in Long Island on a month-to-month basis at $3,000 per
     month.

     Total rent expense for the years ended December 31, 1998 and 1997 was
     $897,000 and $574,000, respectively.

     Future minimum rental payments under non cancelable leases as of December
     31, 1998 were as follows:

Year Ended      Amount

            1999....................................... $  928,000
            2000....................................... $  580,000
            2001....................................... $  545,000
            2002....................................... $  353,000
                                                        ----------
                                                        $2,406,000
                                                        ==========

16. SIGNIFICANT CUSTOMERS

     Three separate customers represented 20%, 18%, and 13% of 1998 sales, while
     two separate customers accounted for 19% and 10% of 1997 sales.


17. COMMITMENTS

     a.  In October 1997, the Company entered into a license agreement with the
         owner of the "Hang-Ten" trademark. The agreement grants the Company the
         exclusive right to manufacture and distribute cosmetics and other items
         under the "Hang-Ten" mark. The agreement which expires in December
         2003, requires the Company to pay aggregate minimum royalties of
         $563,000 through December 2003.


                                      F-16


<PAGE>




                          AZUREL LTD. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



     b.  The Company has a three-year employment agreement with an officer for a
         base salary of $250,000 which expires in August 1999. The officer has
         an option to renew the agreement for an additional two years.
         Additionally, the officer will receive a bonus equal to 10% of the
         Private Label Group's annual profits, as defined, in excess of $500,000
         for the years ending December 31, 1997, 1998 and 1999. The officer
         earned bonuses of $80,000 and $76,000 for the years ended December 31,
         1998 and 1997, respectively.

     c.  The Company is obligated under a consulting agreement with a former
         officer for monthly payments of $11,117 through August 2003.

     d.  The Company is obligated under a three-year employment agreement with
         its chief executive officer commencing November 1, 1998. The officer
         will receive an annual salary of $135,000 plus bonuses as determined by
         the Board of Directors.

     e.  The Company is obligated under a three-year employment agreement with
         its chief operating officer commencing January 1, 1999. The officer
         will receive an annual salary of $110,000 plus bonuses as determined by
         the Board of Directors.

     f.  The Company is obligated under a five-year employment agreement with
         its vice president of research for the period from October 1998 through
         October 2003 at an annual salary ranging from $112,000 to $132,000
         through March 2000, increasing up to $141,000 per annum, thereafter.


                                      F-17