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

                                    FORM 10-K

        FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
                         OF THE SECURITIES EXCHANGE ACT

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

      For the fiscal year ended January 28, 2006

                                       OR

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

      For the transition period from ___________ to ___________

                         Commission file number: 0-10714

                              E COM VENTURES, INC.
             (Exact name of Registrant as specified in its charter)

            Florida                                               65-0977964
(State or other jurisdiction of                                (I.R.S. Employer
incorporation or organization)                               Identification No.)

         251 International Parkway
             Sunrise, Florida                                        33325
 (Address of principal executive offices)                          (Zip Code)

       Registrant's telephone number, including area code: (954) 335-9100

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

                                      None

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

                           Common stock $.01 par value

      Indicate by check mark if the Registrant is a well-known  seasoned issuer,
as defined in Rule 405 of the Securities Act. Yes |_| No|X|

      Indicate by check mark if the  Registrant  is not required to file reports
pursuant to Section 12 or Section 15(d) of the Exchange Act. Yes |_| No|X|

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

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

      Indicate  by check mark  whether  the  Registrant  is a large  accelerated
filer,  an  accelerated  filer or a  non-accelerated  filer.  See  definition of
"accelerated  filer and large accelerated  filer" in Rule 12b-2) of the Exchange
Act.

   Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|

      Indicate  by check mark  whether  the  Registrant  is a shell  company (as
defined in Rule 12b-2 of the Exchange Act). Yes |_| No|X|

      The aggregate market value of the voting stock held by  non-affiliates  of
the Registrant was  approximately  $17.7 million as of July 30, 2005, based on a
market price of $15.50 per share. For purposes of the foregoing computation, all
executive  officers,  directors and 5% beneficial  owners of the  registrant are
deemed  to be  affiliates.  Such  determination  should  not be  deemed to be an
admission that such executive  officers,  directors or 5% beneficial owners are,
in fact, affiliates of the registrant.

      The number of shares  outstanding of the  Registrant's  common stock as of
April 24, 2006: 2,959,791 shares

                       Documents Incorporated By Reference

      Portions  of the  Registrant's  definitive  proxy  statement  for its 2006
annual  meeting of  shareholders,  which proxy  statement will be filed no later
than 120 days after the close of the Registrant's  fiscal year ended January 28,
2006, are hereby  incorporated by reference in Part III of this Annual Report on
Form 10-K.

<PAGE>

                                TABLE OF CONTENTS



ITEM                                                                        PAGE
----                                                                        ----

                                     PART I

 1.   Business                                                               3
1A.   Risk Factors                                                           6
 2.   Properties                                                             9
 3.   Legal Proceedings                                                      9
 4.   Submission of Matters to a Vote of Security Holders                    9


                                     PART II

 5.   Market for Registrant's Common Equity, Related Stockholder
      Matters and Issuer Purchases of Equity Securities                     10
 6.   Selected Financial Data                                               11
 7.   Management's Discussion and Analysis of Financial Condition
      and Results of Operations                                             12
7A.   Quantitative and Qualitative Disclosures About Market Risk            22
 8.   Financial Statements and Supplementary Data                           23
 9.   Changes in and Disagreements with Accountants on
      Accounting and Financial Disclosure                                   41
9A.   Controls and Procedures                                               41
9B.   Other Information
                                                                            41
                                    PART III

10.   Directors and Executive Officers of the Registrant                    42
11.   Executive Compensation                                                42
12.   Security Ownership of Certain Beneficial Owners and
      Management and Related  Stockholder Matters                           42
13.   Certain Relationships and Related Transactions                        42
14.   Principal Accountant Fees and Services                                42


                                     PART IV

15.   Exhibits and Financial Statement Schedules                            43



                                       2
<PAGE>

                                     PART I.

ITEM 1.  BUSINESS

GENERAL

      E Com Ventures,  Inc., a Florida  corporation  ("ECOMV" or the "Company"),
performs  all  of  its  operations   through  two   wholly-owned   subsidiaries,
Perfumania,  Inc.  ("Perfumania"),  a Florida corporation,  which is a specialty
retailer and wholesaler of fragrances and related products,  and perfumania.com,
Inc.,  ("perfumania.com"),  a Florida corporation, which is an Internet retailer
of fragrances and other specialty items.

      Perfumania is a leading specialty retailer and wholesale  distributor of a
wide range of brand name and designer fragrances. Perfumania operates a chain of
retail stores  specializing in the sale of fragrances at discounted prices up to
75% below the  manufacturers'  suggested retail prices.  Perfumania's  wholesale
division distributes  fragrances and related products primarily to an affiliate.
Perfumania.com  offers a selection of the  Company's  more popular  products for
sale over the  Internet  and serves as an  alternative  shopping  experience  to
Perfumania retail customers.

      Perfumania  operates its wholesale business directly.  The retail business
is operated through Magnifique Parfumes and Cosmetics,  Inc.  ("Magnifique"),  a
wholly-owned  subsidiary  of  Perfumania,  although  the  stores  are  generally
operated  under the name  Perfumania  as  described  below under "Trade Name and
Service  Mark."  Perfumania's  retail stores are  generally  located in regional
malls,  manufacturers'  outlet  malls,  life style  centers,  airports  and on a
stand-alone  basis in  suburban  strip  shopping  centers.  The number of retail
stores in operation at January 28, 2006,  January 29, 2005, and January 31, 2004
were 239, 223 and 232, respectively.

      Sales of  perfumania.com  are included within those of our retail business
in this Form  10-K.  For ease of  reference  in this Form  10-K,  our retail and
wholesale  business are referred to as segments.  See further discussion in Note
12 to our Consolidated Financial Statements.

      Our executive offices are located at 251 International  Parkway,  Sunrise,
Florida  33325,  our telephone  number is (954)  335-9100,  our retail  internet
address  is   www.perfumania.com.   and  our   business   internet   address  is
www.ecomv.com.  Through our business website, we make available, free of charge,
our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports
on  Form  8-K,  and  amendments  to  those  reports  as  soon  as is  reasonably
practicable  after we  electronically  file them with,  or furnish  them to, the
Securities  and  Exchange  Commission.  These  reports and  amendments  are also
available at www.sec.gov. In addition, we have made our Code of Business Conduct
and  Ethics  available  through  our  website  under  "about  ECOMV -  corporate
compliance."  The reference to our website does not constitute  incorporation by
reference  of the  information  contained on our  website,  and the  information
contained on the website is not part of this Form 10-K.

      The  Company's  fiscal  year ends on the  Saturday  closest to January 31.
Fiscal  year 2005 ended on January 28,  2006,  fiscal year 2004 ended on January
29,  2005 and fiscal  year 2003 ended on January  31,  2004.  Each of the fiscal
years presented contain fifty-two weeks.

RETAIL DIVISION

STRATEGY

      Each of Perfumania's  retail stores  generally  offers  approximately  300
different  fragrance  brands  for  women  and men at  prices up to 75% below the
manufacturer's  suggested  retail  prices.  Stores stock brand name and designer
brands such as Estee Lauder(R), Yves Saint Laurent(R),  Calvin Klein(R), Giorgio
Armani(R),  Gucci(R),  Ralph Lauren/Polo(R),  Perry Ellis(R),  Liz Claiborne(R),
Giorgio(R), Hugo Boss(R), Halston(R),  Christian Dior(R), Chanel(R), Cartier(R),
and Paris Hilton(R). Perfumania also carries a private label line of bath & body
treatment products under the name Jerome Privee(R).

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


                                       3
<PAGE>

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

      Perfumania  relies on its distinctive  store design and window displays to
attract  the  attention  of  prospective  customers.  In  addition,   Perfumania
distributes  advertising  flyers and  brochures by mail in and around its stores
and in the  malls  in  which  its  stores  are  located.  Radio  and  television
advertising  is done  occasionally  in certain  geographic  regions  that have a
cluster of stores.  The amount of advertising  varies due to the  seasonality of
the business with the greatest portion in the fourth fiscal quarter. See further
discussion at Note 13 to our Consolidated Financial Statements.

RETAIL STORES

      Perfumania's standard store design includes signs and merchandise displays
which are  designed to enhance  customer  recognition  of  Perfumania's  stores.
Perfumania's stores average  approximately  1,400 square feet;  however,  stores
located in manufacturers' outlet malls tend to be larger than Perfumania's other
stores. A store is typically  managed by one manager and one assistant  manager.
The  average  number  of  employees  in a  Perfumania  store is five,  including
part-time help.  Regional and District  managers visit stores on a regular basis
in an  effort  to  ensure  knowledgeable  and  attentive  customer  service  and
compliance with operational policies and procedures.

INFORMATION SYSTEMS

      Perfumania has an integrated  information  system  including retail outlet
and corporate  systems.  Perfumania.com has a completely  integrated  e-commerce
system.  These systems  encompass every  significant phase of our operations and
provide information for planning, purchasing, pricing, distribution, finance and
human resource decisions.  E-mail and other information are communicated between
the corporate office and store locations  through an  enterprise-wide  Intranet.
Daily  compilation  of  sales,   gross  margin,  and  inventory  levels  enables
management to analyze profitability and sell-through by item and product line as
well as monitor the success of sale promotions. Inventory is tracked through its
entire  life  cycle.  Perfumania's  point of sale  system is standard in all its
stores. The system enables communication,  pricing and promotion programs,  time
and attendance reporting, and inventory control.

STORE LOCATION AND EXPANSION

      Perfumania's stores are located in 34 states, the District of Columbia and
Puerto  Rico,  with the highest  concentration  consisting  of 40  locations  in
Florida,  23 in Texas,  21 in California,  18 in New York and 16 in Puerto Rico.
Perfumania's  current  business  strategy focuses on maximizing sales by raising
the  average  dollar sale per  transaction,  increasing  transactions  per hour,
reducing  expenses  at existing  stores,  selectively  closing  under-performing
stores and on a limited basis,  opening new stores in proven geographic markets.
When opening new stores,  Perfumania  seeks locations  primarily in regional and
manufacturers'  outlet  malls,   lifestyle  centers  and,   selectively,   on  a
stand-alone basis in suburban shopping centers in metropolitan areas. To achieve
economies of scale with respect to advertising and management costs,  Perfumania
evaluates  whether to open  additional  stores in markets where it already has a
presence or whether to expand into  additional  markets that it believes  have a
population density and demographics to support a cluster of stores.

      In fiscal  years  2005,  2004 and 2003,  Perfumania  opened 26 stores,  14
stores and 11  stores,  respectively.  Perfumania  continuously  monitors  store
performance  and  from  time  to  time  closes  under-performing  stores,  which
typically  have been older stores in less  trafficked  locations.  During fiscal
years  2005,  2004 and  2003,  Perfumania  closed 5  stores,  27 and 17  stores,
respectively.  For  fiscal  year  2006,  Perfumania  will  continue  to focus on
improving the  profitability  of its existing  stores and management  expects to
open approximately 30 stores and close approximately 5 stores.

WHOLESALE DIVISION

      During fiscal years 2005 and 2004 Perfumania  distributed  fragrances on a
wholesale basis to Quality King  Distributors,  Inc.  ("Quality King").  Quality
King   distributes   pharmaceuticals,   health  and  beauty  care  products  and
fragrances.  Our  President  and Chief  Executive  Officer,  Michael  Katz is an
executive of Quality King and our principal shareholders,  Stephen Nussdorf, the
Chairman  of our  Board of  Directors  and  Glenn  Nussdorf,  his  brother,  are
shareholders and executives of Quality King.  Quality King accounted for 100% of
net  wholesale  sales during fiscal years 2005 and 2004 and 81% of net wholesale
sales in 2003. See further  discussion at Note 5 to our  Consolidated  Financial
Statements included in Item 8, hereof.


                                       4
<PAGE>

PERFUMANIA.COM

      Perfumania.com provides a number of advantages for retail fragrance sales.
Internet  fragrance sales are highly  competitive and we compete on the basis of
selling price,  merchandise variety, ease of selection and cost of delivery. Our
Internet site enables us to display a larger number of products than traditional
store-based or catalog sellers.  In addition,  the ability to frequently  adjust
featured   selections  and  edit  content  and  pricing   provides   significant
merchandising flexibility.  Our Internet site benefits from the ability to reach
a large group of customers from a central  location.  Additionally,  we can also
obtain  demographic and behavioral data of customers,  increasing  opportunities
for direct  marketing  and  personalized  services.  Because  brand loyalty is a
primary  factor  influencing  a  fragrance  purchase,  we believe the ability to
physically  sense  the  fragrance  product  is not  critical  to the  purchasing
decision.  Perfumania.com's  online  store  provides its  customers  with value,
selection, pricing and convenience.

CHANGE OF CONTROL

      Effective  January 30, 2004,  Ilia Lekach,  the Company's then Chairman of
the Board and Chief Executive  Officer,  and several other parties controlled by
Mr. Lekach and his wife Deborah Lekach (collectively, "Lekach"), entered into an
option  agreement (the "Nussdorf  Option  Agreement")  with Stephen Nussdorf and
Glenn Nussdorf (the  "Nussdorfs"),  pursuant to which the Nussdorfs were granted
options to acquire up to an aggregate  720,954  shares of the  Company's  common
stock  beneficially  owned by Lekach,  for a purchase price of $12.70 per share,
exercisable at various dates. As of May 10, 2004, the Nussdorfs had acquired all
720,954 shares pursuant to the Nussdorf Option Agreement. See further discussion
in Note 5 to our Consolidated Financial Statements.

SOURCES OF SUPPLY

      During fiscal years 2005 and 2004,  Perfumania  purchased  fragrances from
approximately 120 suppliers, including national and international manufacturers,
distributors,  wholesalers,  importers and retailers. Perfumania generally makes
its  purchases  based  on  an  optimal  combination  of  prices,  credit  terms,
quantities and merchandise selection and, accordingly,  the extent and nature of
Perfumania's   purchases   from  its  various   suppliers   change   constantly.
Perfumania's  purchases  generally peak in the third quarter in  anticipation of
the December Holiday season,  which results in higher retail sales in the fourth
quarter  than in the first three  quarters.  As is  customary  in the  fragrance
industry, Perfumania has no long-term or exclusive contracts with suppliers.

      Approximately 22% and 27% of Perfumania's  total merchandise  purchased in
fiscal years 2005 and 2004, respectively,  was from our affiliate, Quality King.
Approximately 18% and 26% of Perfumania's total merchandise  purchased in fiscal
years  2005  and  2004,  respectively,   was  from  another  affiliate,   Parlux
Fragrances,   Inc.  ("Parlux"),  a  manufacturer  and  distributor  of  prestige
fragrances and related beauty products. Ilia Lekach is the Chairman of the Board
and  Chief  Executive   Officer  of  Parlux.   Parlux  owns  378,102  shares  or
approximately  13% of our  outstanding  common stock and Lekach  separately owns
300,000 or 10% of our outstanding common stock. Besides Quality King and Parlux,
no other  supplier  accounted  for more  than 10% of our  merchandise  purchases
during 2005 or 2004.

      A portion of Perfumania's  merchandise is purchased from secondary sources
such  as  distributors,   wholesalers,   importers  and  retailers.  Merchandise
purchased from secondary sources includes  trademarked and copyrighted  products
that were  manufactured in the United States,  sold to foreign  distributors and
then re-imported into the United States,  as well as trademarked and copyrighted
products  manufactured and intended for sale in foreign countries.  From time to
time,  U.S.  trademark  and  copyright  owners  and  their  licensees  and trade
associations  have initiated  litigation or administrative  agency  proceedings,
based on U.S.  Customs  Service  regulations  or trademark  or  copyright  laws,
seeking to halt the  importation  into the United  States of such "gray  market"
merchandise  or to restrict its resale in the United  States,  and some of these
actions have been  successful.  However,  the U.S.  courts remain divided on the
extent to which  trademark,  copyright or other existing laws or regulations can
be used to restrict the  importation  or sale of "gray market"  merchandise.  In
addition,  from time to time federal  legislation to restrict the importation or
sale of "gray market" merchandise has been proposed, but no such legislation has
been  adopted.  No  litigation or  administrative  proceedings  related to "gray
market"  merchandise  were brought against us in fiscal years 2005, 2004 or 2003
and no such matters, to our knowledge, are pending.

      As is often the case in the fragrance and cosmetics business,  some of the
merchandise  purchased by  Perfumania  may have been  manufactured  by entities,
particularly  foreign  licensees  and  others,  who are not  the  owners  of the
trademarks or copyrights  for the  merchandise.  Perfumania's  secondary  market
sources generally will not disclose the identity of their suppliers,  which they
consider to be proprietary trade  information.  As a result,  Perfumania may not
always be able to demonstrate that the manufacturer of specific  merchandise had
proper   authority  from  the  trademark  or  copyright  owner  to  produce  the
merchandise or permit it to be resold in the United States.  Accordingly,  there
is a risk that if  Perfumania  were called upon or  challenged by the owner of a
particular  trademark or copyright to demonstrate that specific  merchandise was
produced  and  sold  with  the  proper  authority  and it was  unable  to do so,
Perfumania  could,   among  other  things,  be  restricted  from  reselling  the
particular merchandise or be subjected to other liabilities.


                                       5
<PAGE>

      Perfumania's  business  activities  could  become the  subject of legal or
administrative actions brought by manufacturers,  distributors or others, any of
which actions could have a material  adverse effect on our business or financial
condition.  In addition,  future judicial,  legislative or administrative agency
action,  including possible import,  export, tariff or other trade restrictions,
could limit or eliminate some of Perfumania's secondary sources of supply or any
of its business activities.

DISTRIBUTION

      Perfumania  utilizes  independent  national trucking  companies to deliver
merchandise to its stores.  Retail store  deliveries  generally are made weekly,
with more frequent  deliveries during the holiday season. Such deliveries permit
the stores to minimize  inventory storage space and increase the space available
for display and sale of merchandise.  To expedite delivery of merchandise to its
customers,  Perfumania  sometimes  instructs its  suppliers to ship  merchandise
directly to its wholesale customers. Sales of perfumania.com are shipped through
national  carriers  and are  typically  delivered  within  a few  days of  being
ordered.

COMPETITION

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

EMPLOYEES

      At January 28, 2006, we had 1,420  employees,  of whom 1,247 were employed
in Perfumania's  retail stores,  62 were employed in Perfumania's  warehouse and
distribution  operations and 111 were employed in executive,  administrative and
other   positions.   Temporary  and   part-time   employees  are  added  between
Thanksgiving  and  Christmas.  None of our employees are covered by a collective
bargaining  agreement and we consider our relationship  with our employees to be
good.

TRADE NAME AND SERVICE MARK

      Perfumania's  stores use the trade name and  service  mark  Perfumania(R);
Perfumania also operates under the trade names, Also Perfumania, Class Perfumes,
Perfumania  Too and  Perfumania  Plus.  Perfumania  has common law rights to its
trade names and service mark in those general areas in which its existing stores
are located and has  registered  the service  mark  Perfumania(R)  with the U.S.
Patent and Trademark Office. The registration expires in 2009 and may be renewed
for 10-year terms thereafter.

ITEM 1A. RISK FACTORS

      The  following  set forth  risk  factors  that may  materially  affect the
Company and results of operations.

We could face  liquidity  and working  capital  constraints  if we are unable to
generate sufficient cash flows from operations

      If we are unable to  generate  sufficient  cash flows from  operations  to
service  our   obligations,   we  could  face  liquidity  and  working   capital
constraints, which could adversely impact our future operations and growth.

Failure to comply with  covenants  in our credit  facility  could  result in our
inability to borrow additional funds

      Our credit  facility  requires  us to  maintain  compliance  with  various
financial  covenants.  Our  ability to meet those  covenants  can be affected by
events  beyond  our  control,  and  therefore  we may be  unable  to meet  those
covenants. If our actual results deviate significantly from our projections,  we
may not be in  compliance  with the covenants and might not be allowed to borrow
under the credit facility or may be required to accelerate repayment. If we were
not able to borrow under our credit facility, we would be required to develop an
alternative  source of liquidity,  or to sell additional  securities which would
result in dilution to existing shareholders.  Our credit facility expires on May
12, 2007. We are currently  negotiating an extension of this facility. We cannot
assure we will obtain an extension or replacement credit facilities on favorable
terms or be successful  in selling  additional  securities.  Without a source of
financing,  we could experience cash flow  difficulties and be forced to curtail
our then current operations.


                                       6
<PAGE>

Perfumania  may have problems  raising  money needed in the future,  which could
adversely impact operations

      Our  growth  strategy  includes  selectively  opening  and  operating  new
Perfumania  retail  locations and increasing the average retail sales per store.
We may need to  obtain  funding  to  achieve  our  growth  strategy.  Additional
financing  may not be  available  on  acceptable  terms,  if at all. In order to
obtain additional financing,  we might issue additional common stock which could
dilute our existing  shareholders'  ownership  interest or we may be required to
issue  securities with greater rights than those currently  possessed by holders
of our common stock.  We may also be required to take other  actions,  which may
lessen the value of our common stock,  including  borrowing  money on terms that
are not favorable.

Perfumania's business is subject to seasonal  fluctuations,  which could lead to
fluctuations in our stock price

      Perfumania   has   historically   experienced   and  expects  to  continue
experiencing  higher sales in the fourth fiscal  quarter than in the first three
fiscal  quarters.  Purchases of  fragrances  as gift items  increase  during the
Holiday  season,  which results in  significantly  higher fourth fiscal  quarter
retail sales. If our quarterly operating results are below expectations of stock
market analysts, our stock price might decline. Sales levels of new and existing
stores  are  affected  by a variety  of  factors,  including  the  retail  sales
environment,  the level of competition,  the effect of marketing and promotional
programs,  acceptance of new product introductions,  adverse weather conditions,
general economic conditions and other factors beyond our control.  Our quarterly
results may also vary as a result of the timing of new store  openings and store
closings,  net sales  contributed by new stores and  fluctuations  in comparable
sales of existing stores.

Perfumania may experience  shortages of the merchandise it needs because it does
not have long-term agreements with suppliers

      Perfumania's  success  depends to a large degree on our ability to provide
an extensive assortment of brand name and designer fragrances. Perfumania has no
long-term purchase contracts or other contractual assurance of continued supply,
pricing or access to new products. If Perfumania is unable to obtain merchandise
from one or more key  suppliers on a timely  basis or  acceptable  terms,  or if
there  is  a  material  change  in  Perfumania's  ability  to  obtain  necessary
merchandise, our results of operations could be adversely affected.

Perfumania  purchases  merchandise  from  related  parties,  which  may  cause a
conflict of interest

      Approximately 40% and 53%, respectively, of Perfumania's total merchandise
purchased  in fiscal years 2005 and 2004 were from our  affiliates  Quality King
and  Parlux.  There may be a  conflict  of  interest  between  our  interest  in
purchasing  at the best  price  and  those  of our  principal  shareholders  and
affiliates in obtaining the best price for their respective companies.

Perfumania needs to successfully manage its growth

      Perfumania  may not be able to sustain  growth in  revenues.  Perfumania's
growth is somewhat  dependent  upon opening and operating new retail stores on a
profitable  basis,  which in turn is subject to,  among other  things,  securing
suitable  store sites on  satisfactory  terms,  hiring,  training and  retaining
qualified management and other personnel,  having adequate capital resources and
successfully  integrating  new stores into existing  operations.  It is possible
that   Perfumania's  new  stores  might  not  achieve  sales  and  profitability
comparable  to  existing  stores,  and it is  possible  that the  opening of new
locations might adversely affect sales at existing locations.

Perfumania could be subject to litigation because of the merchandising aspect of
its business

      Some of the  merchandise  Perfumania  purchases  from  suppliers  might be
manufactured  by entities who are not the owners of the trademarks or copyrights
for the  merchandise.  The owner of a  particular  trademark  or  copyright  may
challenge  Perfumania to demonstrate that the specific  merchandise was produced
and sold with the proper  authority,  and if Perfumania is unable to demonstrate
this, it could,  among other things, be restricted from reselling the particular
merchandise.  This  type of  restriction  could  adversely  affect  Perfumania's
business and results of operations.


                                       7
<PAGE>

Our stock price volatility  could result in securities class action  litigation,
substantial cost, and diversion of management's attention

      The price of our common  stock has been and  likely  will  continue  to be
subject to wide fluctuations in response to a number of events, such as:

      o     quarterly variations in operating results;

      o     acquisitions,  capital  commitments of strategic  alliances by us or
            our competitors;

      o     legal regulatory matters that are applicable to our business;

      o     the operating and stock price  performances  of other companies that
            investors may deem comparable to us;

      o     news reports relating to trends in our markets; and

      o     the amount of shares constituting our public float.

      In addition, the stock market in general has experienced significant price
and volume  fluctuations  that often have been  unrelated to the  performance of
specific  companies.  The broad market  fluctuations  may  adversely  affect the
market price of our common stock,  regardless of our operating performance.  Our
stock price  volatility  could  result in class  action  litigation  which would
require  substantial  monetary  cost to  defend,  as well  as the  diversion  of
management  attention from day-to-day  activities which could negatively  affect
operating performance.  Such litigation could also have a negative impact on the
price  of our  common  stock  due  to the  uncertainty  and  negative  publicity
associated with litigation.

Future growth may place  strains on our  managerial,  operational  and financial
resources

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

We are subject to competition

      Some of  Perfumania's  competitors  sell fragrances at discount prices and
some are part of large  national  or  regional  chains  that have  substantially
greater  resources and name  recognition than  Perfumania.  Perfumania's  stores
compete on the basis of selling price, customer service, merchandise variety and
store  location.  Many of our current and  potential  competitors  have  greater
financial,  technical,  operational, and marketing resources. We may not be able
to compete  successfully against these competitors in developing our products or
services.  These factors, as well as demographic trends, economic conditions and
discount   pricing   strategies  by  competitors,   could  result  in  increased
competition  and could  have a  material  adverse  effect on our  profitability,
operating cash flow, and many other aspects of our business,  prospects, results
of operations and financial condition.

The loss of or disruption  in our  distribution  facility  could have a material
adverse effect on our sales

      We currently have one distribution facility,  which is located in Sunrise,
Florida.  The loss of,  or  damage to this  facility,  as well as the  inventory
stored therein,  would require us to find replacement  facilities and assets. In
addition, weather conditions,  such as natural disasters,  including hurricanes,
could disrupt our distribution operations. If we cannot replace our distribution
capacity and inventory in a timely,  cost-efficient  manner, it could reduce the
inventory we have available for sale,  adversely affecting our profitability and
operating cash flows.

Expanding our business through  acquisitions and investments in other businesses
and technologies presents special risks

      We  may  expand  through  the  acquisition  of  and  investment  in  other
businesses. Acquisitions involve a number of special problems, including:

      o     difficulty  integrating  acquired  technologies,   operations,   and
            personnel with our existing business;

      o     diversion  of   management's   attention  in  connection  with  both
            negotiating the  acquisitions and integrating the assets;

      o     the need for additional financing;

      o     strain on managerial and operational  resources as management  tries
            to oversee larger operations; and

      o     exposure to unforeseen liabilities of acquired companies.


                                       8
<PAGE>

      We may not be able to successfully address these problems.  Moreover,  our
future operating  results will depend to a significant  degree on our ability to
successfully manage growth or integrate acquisitions.

ITEM 2. PROPERTIES

      Our  executive  offices and  distribution  center are located in a 179,000
square foot  facility  in  Sunrise,  Florida.  The  facility  is leased  through
December 2017 pursuant to a lease which  currently  provides for monthly rent of
approximately $82,000 with specified increases.

      All of Perfumania's retail stores are located in leased premises.  Most of
the store  leases  provide for the payment of a fixed amount of base rent plus a
percentage of sales,  ranging from 3% to 15%, over certain minimum sales levels.
Store leases  typically  require  Perfumania to pay its  proportionate  share of
common area expenses, utility charges, insurance premiums, real estate taxes and
certain other costs.  Some of Perfumania's  leases permit the termination of the
lease  if  specified  minimum  sales  levels  are not  met.  See  Note 11 to our
Consolidated  Financial  Statements  included in Item 8 hereof,  for  additional
information with respect to our store leases.

ITEM 3. LEGAL PROCEEDINGS

      We are involved in legal  proceedings in the ordinary  course of business.
Management  cannot  presently  predict  the outcome of these  matters,  although
management  believes that the ultimate resolution of these matters will not have
a materially adverse effect on our financial position.

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

      On December 14, 2005, we held our annual meeting of  shareholders.  At the
annual meeting,  the  shareholders  elected Michael W. Katz,  Stephen  Nussdorf,
Carole  Ann  Taylor,  Joseph  Bouhadana,  and  Paul  Garfinkle  to the  Board of
Directors.  In addition, the shareholders ratified the appointment of Deloitte &
Touche LLP as our independent  registered  public accounting firm. The following
table reflects the results of the meeting:

ELECTION OF DIRECTORS:
---------------------

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

Michael W. Katz              2,044,921     2,020,458        24,463    908,170

Stephen Nussdorf             2,044,921     2,015,884        29,037    908,170

Carole Ann Taylor            2,044,921     2,042,500         2,421    908,170

Joseph Bouhadana             2,044,921     2,044,121           800    908,170

Paul Garfinkle               2,044,921     2,044,121           800    908,170


      RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM:
      -------------------------------------------------------------

<TABLE>
<CAPTION>
                            SHARES     SHARES VOTED  SHARES VOTED   ABSTAIN/
       TOTAL                VOTED           FOR          AGAINST     WITHHELD       NON-VOTES
---------------------       -----     --------------  ---------    ---------      ---------
<S>                       <C>           <C>                 <C>            <C>      <C>
Ratify Appointment of     2,044,921     2,044,171           750            --       908,170
Deloitte & Touche LLP
</TABLE>


                                       9
<PAGE>

                                    PART II.

ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

      Our common  stock is traded on the NASDAQ  Stock  Market  under the symbol
ECMV.  The following  table sets forth the high and low closing sales prices for
our common  stock for the periods  indicated,  as  reported by the NASDAQ  Stock
Market.

               FISCAL 2005            HIGH           LOW
             -----------------    ------------   ------------

             First Quarter             $14.51          $9.52
             Second Quarter             15.99          11.00
             Third Quarter              15.50          10.04
             Fourth Quarter             17.94          11.39

               FISCAL 2004            HIGH           LOW
             -----------------    ------------   ------------

             First Quarter             $14.70          $9.92
             Second Quarter             12.16           6.85
             Third Quarter              12.04           8.35
             Fourth Quarter             15.42          10.02

      As of April 10,  2006,  there  were 54 holders  of record  which  excluded
common stock held in street name.  The closing  sales price for the common stock
on April 10, 2006 was $19.27 per share.

DIVIDEND POLICY

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

EQUITY COMPENSATION PLAN INFORMATION

      The following  table sets forth  information as of January 28, 2006,  with
respect  to our  compensation  plans  under  which  our  equity  securities  are
authorized for issuance.

<TABLE>
<CAPTION>
                                                                                      Number of securities
                                                                                      remaining available
                                                                                      for future issuance
                                 Number of securities                                     under equity
                                   to be issued upon         Weighted-average          compensation plans
                                      exercise of            exercise price of       (excluding securities
                                 outstanding options,      outstanding options,       reflected in column
                                  warrants and rights       warrants and rights             (a)(1))
                                 --------------------      --------------------      ---------------------
Plan Category:                            (a)                       (b)                       (c)
<S>                                           <C>                  <C>                             <C>
Equity compensation plans
   approved by stockholders                   239,788              $     10.27                     509,970
Equity compensation plans
   not approved by
stockholders                                       --                       --                          --
                                          -----------              -----------                   ---------

Total                                         239,788              $     10.27                     509,970
                                          ===========              ===========                   =========
</TABLE>


                                       10
<PAGE>

      (1)   The  number of shares  available  under our 2000 Stock  Option  Plan
            automatically  increases  each  year by 3% of the  shares  of common
            stock  of  the  Company  outstanding  at the  end  of the  immediate
            preceding year.

ITEM 6. SELECTED FINANCIAL DATA

      The  selected   financial  data  presented  below  are  derived  from  the
consolidated  financial statements of the Company. The data below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and  Results of  Operations,"  "Risk  Factors"  and the  Company's  consolidated
financial statements and related notes.

      Our fiscal year ends on the Saturday closest to January 31. All references
herein to fiscal years are to the calendar year in which the fiscal year begins;
for  example,  fiscal  year 2005 refers to the fiscal year that began on January
30, 2005 and ended on January 28, 2006. All fiscal years presented below contain
fifty-two weeks. Fiscal year 2006 will contain fifty-three weeks.

<TABLE>
<CAPTION>
                                                                                FISCAL YEAR ENDED
                                                -------------------------------------------------------------------------------
                                                JANUARY 28,      JANUARY 29,      JANUARY 31,      FEBRUARY 1,      FEBRUARY 2,
                                                   2006             2005             2004             2003             2002
                                                -----------      -----------      -----------      -----------      -----------
                                                             (IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS)
<S>                                             <C>              <C>              <C>              <C>              <C>
STATEMENT OF OPERATIONS DATA:
Net sales, retail division                      $   215,841      $   201,425      $   198,479      $   199,369      $   184,142
Net sales, wholesale division                        17,853           23,578           14,089            2,145            9,210
                                                -----------      -----------      -----------      -----------      -----------
  Total net sales                                   233,694          225,003          212,568          201,514          193,352
                                                -----------      -----------      -----------      -----------      -----------
Gross profit, retail division                        95,354           90,049           81,923           84,159           78,468
Gross profit, wholesale division                      1,147            1,288            1,454              435            1,767
                                                -----------      -----------      -----------      -----------      -----------
  Total gross profit                                 96,501           91,337           83,377           84,594           80,235
                                                -----------      -----------      -----------      -----------      -----------
Selling, general and administrative expenses         80,677           78,521           82,297           76,178           72,918
Provision for doubtful accounts                          --               --               --               --               55
Provision for receivables from affiliate                 --               --               --            1,961               --
Provision for impairment of assets
  and store closings                                    162              314              593              663              727
Depreciation and amortization                         5,156            5,875            6,103            6,024            6,825
Expenses incurred in connection with
  change of control                                      --               --            4,931               --               --
                                                -----------      -----------      -----------      -----------      -----------
  Total operating expenses                           85,995           84,710           93,924           84,826           80,525
                                                -----------      -----------      -----------      -----------      -----------
Income (loss) from operations                        10,506            6,627          (10,547)            (232)            (290)
Other income (expense)
  Interest expense, net                              (3,878)          (3,326)          (2,153)          (1,883)          (3,095)
  Realized loss on investments                           --               --             (172)            (711)              --
  Miscellaneous expense, net                             --               --               --               --              (18)
                                                -----------      -----------      -----------      -----------      -----------
Income (loss) before income taxes                     6,628            3,301          (12,872)          (2,826)          (3,403)
Income tax benefit (provision)                        7,637             (150)              --               --              211
                                                -----------      -----------      -----------      -----------      -----------
Net income (loss)                               $    14,265      $     3,151      $   (12,872)     $    (2,826)     $    (3,192)
                                                ===========      ===========      ===========      ===========      ===========
Weighted average shares outstanding:                     --
  Basic                                           2,949,146        2,832,107        2,454,340        2,528,326        2,420,467
  Diluted                                         3,463,480        3,001,844        2,454,340        2,528,326        2,420,467

Basic income (loss) per share                   $      4.84      $      1.11      $     (5.24)     $     (1.12)     $     (1.32)
Diluted income (loss) per share                 $      4.23      $      1.06      $     (5.24)     $     (1.12)     $     (1.32)

BALANCE SHEET DATA:
Working capital (deficiency)                    $    12,530      $     2,240      $    (9,090)     $     1,804      $     2,760
Total assets                                        113,956          107,817           92,463          103,423          102,559
Long-term debt, less current portion                 12,898           12,972            7,746            7,752            5,204
Total shareholders' equity                           32,239           15,060           10,222           21,853           22,603

SELECTED OPERATING DATA:
Number of stores open at end of period                  239              223              232              238              247
Comparable store sales increase                         5.8%             1.8%             1.1%            10.2%             2.5%
</TABLE>


                                       11
<PAGE>

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


GENERAL

      Perfumania's  retail division accounts for most of our net sales and gross
profit. Perfumania's overall profitability depends principally on our ability to
purchase a wide assortment of merchandise at favorable prices, attract customers
and   successfully   conclude   retail  sales.   Other  factors   affecting  our
profitability include general economic conditions, competition,  availability of
volume  discounts,  number of stores in operation,  timing of store openings and
closings and the effect of special promotions offered by Perfumania.

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

                             PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
                                                                            FISCAL YEAR
                                                                  2005         2004         2003
                                                                -------      -------      -------
<S>                                                               <C>          <C>          <C>
Net sales, retail division .................................       92.4%        89.5%        93.4%
Net sales, wholesale division ..............................        7.6         10.5          6.6
                                                                -------      -------      -------
     Total net sales .......................................      100.0        100.0        100.0
                                                                -------      -------      -------
Gross profit, retail division ..............................       40.8         40.0         38.5
Gross profit, wholesale division ...........................        0.5          0.6          0.7
                                                                -------      -------      -------
     Total gross profit ....................................       41.3         40.6         39.2
                                                                -------      -------      -------
Selling, general and administrative expenses ...............       34.5         34.9         38.7
Provision for impairment of assets and store closings ......        0.1          0.1          0.3
Depreciation and amortization ..............................        2.2          2.6          2.9
Expenses incurred in connection with change of control .....        0.0          0.0          2.3
                                                                -------      -------      -------
     Total operating expenses ..............................       36.8         37.6         44.2
                                                                -------      -------      -------
Income (loss) from operations before other expense .........        4.5          2.9         (5.0)
                                                                -------      -------      -------
Other expense:
     Interest expense, net .................................       (1.7)        (1.5)        (1.0)
     Realized loss on investments ..........................        0.0          0.0         (0.1)
                                                                -------      -------      -------
Income (loss) before income taxes ..........................        2.8          1.5         (6.0)
Income tax benefit (provision) .............................        3.3         (0.1)         0.0
                                                                -------      -------      -------
Net income (loss) ..........................................        6.1%         1.4%        (6.1)%
                                                                -------      -------      -------
</TABLE>

FORWARD LOOKING STATEMENTS

      Some of the statements in this Annual Report on Form 10-K, including those
that contain the words "anticipate,"  "believe," "plan,"  "estimate,"  "expect,"
"should,"  "intend,"  and  other  similar   expressions,   are  "forward-looking
statements' within the meaning of the Private  Securities  Litigation Reform Act
of 1995.  Those  forward-looking  statements  involve  known and unknown  risks,
uncertainties  and other factors that may cause our actual results,  performance
or  achievements  of those of our industry to be materially  different  from any
future  results,  performance  or  achievements  expressed  or  implied by those
forward-looking  statements.  Among the factors that could cause actual results,
performance or achievement to differ  materially from those described or implied
in the forward-looking statements are our ability to service our obligations and
refinance our credit  facility on acceptable  terms,  our ability to comply with
the covenants in our credit facility,  general economic conditions including the
level of discretionary spending by consumers, competition,  potential technology
changes,  changes  in or the  lack  of  anticipated  changes  in the  regulatory
environment  in  various  countries,   the  ability  to  secure  partnership  or
joint-venture relationships with other entities, the ability to raise additional
capital to finance  expansion,  the risks  inherent  in new  product and service
introductions  and the entry  into new  geographic  markets  and  other  factors
included in our filings with the Securities and Exchange Commission (the "SEC"),
including the Risk Factors  included in this Annual Report on Form 10-K.  Copies
of our SEC filings are  available  from the SEC or may be obtained  upon request
from us. We do not undertake any obligation to update the information  contained
herein, which speaks only as of this date.

CRITICAL ACCOUNTING ESTIMATES

      Our  consolidated  financial  statements  have been prepared in accordance
with accounting  principles  generally accepted in the United States of America.
Preparation  of these  statements  requires  management  to make  judgments  and
estimates.  As such,  some  accounting  policies  have a  significant  impact on
amounts reported in these financial statements. The judgments and estimates made
can significantly affect results. Materially different amounts would be reported
under  different  conditions  or by using  different  assumptions.  A summary of
significant  accounting  policies  can be  found  in Note 2 to the  Consolidated
Financial Statements.


                                       12
<PAGE>

      We consider an accounting policy to be critical if it requires significant
judgment and estimates in its application. We have identified certain accounting
policies that we consider critical to our business and our results of operations
and have provided below additional information on those policies.

Inventory Adjustments and Writeoffs

      Inventories  are  stated  at the  lower  of cost  or  market,  cost  being
determined  on a weighted  average  cost  basis.  We review our  inventory  on a
regular basis for excess and  potentially  slow moving  inventory based on prior
sales,   forecasted   demand,   historical   experience  and  through   specific
identification  of  obsolete  or  damaged  merchandise  and we record  inventory
writeoffs in accordance with our expectations.  If there are material changes to
these estimates, additional writeoffs could be necessary.

Impairment of Long-Lived Assets

      When  facts and  circumstances  indicate  that the  values  of  long-lived
assets, including intangibles,  may be impaired, an evaluation of recoverability
is performed by comparing the carrying  value of the assets to projected  future
cash flows in addition to other quantitative and qualitative analyses.  Inherent
in this process is  significant  management  judgment as to the  projected  cash
flows.  Upon  indication  that  the  carrying  value of such  assets  may not be
recoverable,  the Company  recognizes  an  impairment  loss as a charge  against
current  operations.  Cash  flows  for  retail  assets  are  identified  at  the
individual store level.  Judgments are also made as to whether  under-performing
stores  should  be  closed.  Even if a  decision  has been  made not to close an
under-performing  store, the assets at that store may be impaired.  If there are
material  changes to these judgments or estimates,  additional  charges could be
necessary.

Valuation of Deferred Tax Assets

      Statement of Financial  Accounting Standard ("SFAS") No. 109,  "Accounting
for Income  Taxes,"  requires  that  deferred tax assets be evaluated for future
realization  and  reduced by a  valuation  allowance  to the extent we believe a
portion  will not be realized.  We consider  many  factors  when  assessing  the
likelihood of future realization of our deferred tax assets including our recent
cumulative  earnings experience by taxing  jurisdiction,  expectations of future
taxable  income,  the  carry-forward  periods  available to us for tax reporting
purposes, and other relevant factors.

      We had a net tax benefit in fiscal year 2005 of approximately $7.6 million
resulting  primarily  from the effect of changes in our valuation  assessment of
deferred tax assets.  The range of possible  judgments relating to the valuation
of our  deferred  tax assets is very wide.  Significant  judgment is required in
making this  assessment,  and it is very difficult to predict when, if ever, our
assessment may conclude that the remaining portion of our deferred tax assets is
realizable.


                                       13
<PAGE>

FISCAL YEAR 2005 COMPARED TO FISCAL YEAR 2004

Management Overview

      During fiscal year 2005 the Company  realized its second  consecutive year
of net income.  The Company has achieved this as a result of  increasing  sales,
improving  product  mix  and  selection,   closing  underperforming  stores  and
selectively  opening new stores. In addition to the improvements  resulting from
these actions, the Company has focused on increasing the average transaction per
hour, average dollar sale per transaction and number of units per transaction at
the retail level to generate increased sales and reduce expenses as a percentage
to total  sales.  Despite the  improved  results the Company has an  accumulated
deficit of approximately $37.5 million.

      The  Company's  goal is to continue to increase  the number of its stores,
either  by  acquisition  of  smaller  fragrance  retailers  or  by  opening  new
locations.  The Company  believes  there are numerous  opportunities  for retail
store  locations  domestically  and is focused on expansion in markets where the
Company already has a presence or by expanding into new geographic regions where
the population density and demographics will support a cluster of stores.

Revenues:

<TABLE>
<CAPTION>
                                             For the year ended
                --------------------------------------------------------------------------------
                                              ($ in thousands)
                                                                                     Percentage
                                   Percentage                      Percentage         Increase
                January 28, 2006  of Revenues    January 29, 2005  of Revenues       (Decrease)
                  ------------    ------------     ------------    ------------     ------------
<S>               <C>             <C>              <C>             <C>                       <C>
Retail            $    215,841            92.4%    $    201,425            89.5%             7.2%

Wholesale               17,853             7.6%          23,578            10.5%           (24.3%)
                  ------------    ------------     ------------    ------------     ------------

Total Revenues    $    233,694           100.0%    $    225,003           100.0%             3.9%
                  ------------    ------------     ------------    ------------     ------------
</TABLE>

      In fiscal year 2005 total revenue increased by $8.7 million or 3.9%. Total
retail sales increased by $14.4 million or 7.2%, which included comparable store
sales  increases of 5.8%.  Comparable  store sales measure the sales from stores
that have been open for one year or more. The average number of stores  operated
increased  from 230 during  fiscal year 2004 to 234 in fiscal year 2005.  Retail
sales  during  fiscal year 2005 were  improved by the  greater  availability  of
merchandise  brands,  quantity of product  and more  competitive  retail  prices
offered to our customers.  In addition,  our average dollar sale per transaction
and transactions per hour were improved as a result of more efficient scheduling
of our retail store associates.

      Wholesale  sales  decreased by $5.7 million or 24.3% as demand for certain
wholesale  products were less than anticipated and less than the prior year. All
wholesale  sales are made to Quality  King.  The  Company,  through its supplier
relationships,  is able to  obtain  certain  merchandise  at better  prices  and
quantities than Quality King.

Cost of Goods Sold:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                                                                    Increase
                          January 28, 2006   January 29, 2005      (Decrease)
                            ------------       ------------       ------------
Retail                      $    120,487       $    111,376                8.2%

Wholesale                         16,706             22,291              (25.1%)
                            ------------       ------------       ------------

Total cost of goods sold    $    137,193       $    133,667                2.6%
                            ------------       ------------       ------------


                                       14
<PAGE>

Gross Profit:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                                                                    Increase
                          January 28, 2006   January 29, 2005      (Decrease)
                            ------------       ------------       ------------
Retail                      $     95,354       $     90,049                5.9%

Wholesale                          1,147              1,288              (10.9%)
                            ------------       ------------       ------------

Total gross profit          $     96,501       $     91,337                5.7%
                            ------------       ------------       ------------

      Gross profit for the retail  division  increased  principally  from higher
sales as a result of the improvements in retail sales noted above offset in part
by lower gross margin  percentages.  Total gross profit increased as a result of
higher sales and gross profit in the retail  division  offset by the lower sales
and lower gross profit in the wholesale division.

Gross Profit Margin Percentages:

                                   For the year ended
                          ------------------------------------
                          January 28, 2006   January 29, 2005
                            ------------       ------------
Retail                              44.2%              44.7%
Wholesale                            6.4%               5.5%

Gross profit margin                 41.3%              40.6%


      The  decrease in gross margin on retail sales  resulted  principally  from
price reductions during our promotional events which contributed to the increase
in our retail sales.

Operating Expenses:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                                                                    Increase
                          January 28, 2006   January 29, 2005      (Decrease)
                            ------------       ------------       ------------
Selling, general and
  administrative            $     80,677       $     78,521                2.7%

Asset impairment charges             162                314              (48.4%)

Depreciation and
  amortization                     5,156              5,875              (12.2%)
                            ------------       ------------       ------------

Total operating expenses          85,995             84,710                1.5%
                            ------------       ------------       ------------

Income from operations      $     10,506       $      6,627               58.5%
                            ------------       ------------       ------------


                                       15
<PAGE>

      The majority of our selling, general and administrative expenses relate to
the retail  division.  The  increase  in  selling,  general  and  administrative
expenses is attributable  primarily to higher store operating costs and expenses
that are directly variable with sales volume. Additionally,  occupancy costs for
stores  increased  from new stores opened during the year and the higher average
number of stores in operation  compared to fiscal year 2004.  During fiscal year
2005 we continued to improve our method of scheduling  store  associates,  which
consequently  reduced store  compensation as a percentage of sales in comparison
to fiscal year 2004.

      The asset  impairment  charges in both fiscal years relate to retail store
locations  with  negative  cash flows that were either  closed or  targeted  for
closure. The asset impairment charges were reduced as we identified fewer stores
for closure in fiscal year 2006.

      Depreciation and amortization expenses in fiscal year 2005 were reduced by
$0.7  million  from fiscal  year 2004  primarily  as a result of software  costs
associated with year 2000 upgrades being fully amortized.

Other Expenses, Income Tax Benefit (Provision) and Net Income:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                          January 28, 2006   January 29, 2005       Increase
                          ----------------   ----------------      -----------
Interest expense, net     $          3,877   $          3,326             16.6%

      The  increase in interest  expense,  net is from the higher  average  loan
balance  on our  revolving  line of  credit  used to fund  quicker  payments  of
non-affiliates  accounts payable to obtain better prices and to increase product
purchases to fulfill  higher retail sales.  In addition,  the Company's  average
effective  interest  rate in  fiscal  year 2005 was 6.6%  compared  with 4.7% in
fiscal year 2004.

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                          January 28, 2006   January 29, 2005       Increase
                          ----------------   ----------------      -----------
Income tax benefit
  (provision)             $          7,637   $           (150)              --
                          ----------------   ----------------      -----------

      Income tax benefits  recorded in fiscal year 2005 result from management's
current  assessment  that it is now more likely  than not that the Company  will
realize the benefit of certain  deferred tax assets.  The prior year's valuation
allowance was reduced by approximately  $11.9 million as of January 28, 2006 due
to management's  determination that approximately $10.3 million of the Company's
deferred  tax  assets  will be  utilized.  As a result  of the  reversal  of the
valuation  allowance from the prior fiscal year, $7.6 million has been reflected
as a current year tax benefit.  We do not expect a benefit of this  magnitude to
be realized in future periods.  We presently expect that our provision for taxes
on income for fiscal  year 2006 will be higher  than  expected  based on federal
statutory  rates as a result of state income taxes and the impact of losses from
our Puerto Rican  operations for which we are less likely to be able to record a
tax benefit.  See Note 8 to our  Consolidated  Financial  Statements for further
discussion.


                                       16
<PAGE>

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                          January 28, 2006   January 29, 2005       Increase
                          ----------------   ----------------      -----------

Net Income                $         14,265   $          3,151            353.7%
                          ----------------   ----------------      -----------

      As a result of our increase in sales and gross  profit,  the  reduction in
expenses as a percentage of sales and the realization of the income tax benefits
described  above our net  income was  increased  by $11.1  million  over the net
income realized in the prior year.


FISCAL YEAR 2004 COMPARED TO FISCAL YEAR 2003

Revenues:

<TABLE>
<CAPTION>
                                            For the year ended
                --------------------------------------------------------------------------------
                                            ($ in thousands)
                                   Percentage                      Percentage of     Percentage
                 January 29, 2005  of Revenues   January 31, 2004    Revenues        Increase
                  ------------    ------------     ------------    ------------     ------------
<S>               <C>             <C>              <C>             <C>              <C>
Retail            $    201,425            89.5%    $    198,479            93.4%             1.5%


Wholesale               23,578            10.5%          14,089             6.6%            67.4%
                  ------------    ------------     ------------    ------------     ------------

Total Revenues    $    225,003           100.0%    $    212,568           100.0%             5.9%
                  ============    ============     ============    ============     ============
</TABLE>

      In fiscal  year 2004 net sales  increased  for both  wholesale  and retail
sales.  The  increase in wholesale  sales was due to  purchases  made by Quality
King. The Company, through its supplier relationships, is able to obtain certain
merchandise  at better prices and quantities  than Quality King.  Overall retail
sales increased by $2.9 million or 1.5% and comparable  store sales increased by
1.8%.  Comparable  store sales measure the sales from stores that have been open
for one year or more. The average number of stores  operated  decreased from 235
during fiscal year 2003 to 230 in fiscal year 2004  primarily due to the closure
of older, underperforming stores. We believe that Perfumania's retail sales were
negatively  impacted  in fiscal  year 2004 by the  overall  soft  United  States
economy  earlier in the year and management  transition  following the change in
control.  However,  the later months of fiscal 2004 were improved due to greater
availability  of merchandise  brands,  quantity of product and as new management
programs, which are discussed below, took effect.

Cost of Goods Sold:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                                                                    Increase
                          January 29, 2005   January 31, 2004      (Decrease)
                            ------------       ------------       ------------
Retail                      $    111,376       $    116,556               (4.4%)

Wholesale                         22,291             12,635               76.4%
                            ------------       ------------       ------------

Total cost of goods sold    $    133,667       $    129,191                3.5%
                            ------------       ------------       ------------


                                       17
<PAGE>

Gross Profit:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                                                                    Increase
                          January 29, 2005   January 31, 2004      (Decrease)
                            ------------       ------------       ------------

Retail                      $     90,049       $     81,923                9.9%

Wholesale                          1,288              1,454              (11.4%)
                            ------------       ------------       ------------

Total gross profit          $     91,337       $     83,377                9.5%
                            ------------       ------------       ------------

      Gross profit for the retail division increased  principally as a result of
lower cost of inventory  purchases  and marginal  adjustments  to sales  prices.
Total gross profit  increased as a result of higher sales and profit  margins in
the  retail  division  offset by higher  sales and lower  profit  margins in the
wholesale division.

Gross Profit Margin Percentages:

                                   For the year ended
                          ------------------------------------
                                  ($ in thousands)


                          January 29, 2005   January 31, 2004
                            ------------       ------------

Retail                              44.7%              41.3%
Wholesale                            5.6%              10.3%

Gross profit margin                 40.6%              39.2%

      The decrease in gross margin on wholesale  sales resulted from an increase
in the cost of the  wholesale  goods  which were sold to Quality  King.  We were
unable to offset this higher cost by  increasing  sales prices to Quality  King.
See Note 5 to our Consolidated Financial Statements for further discussion.

Operating Expenses and Income (Loss) from Operations:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)

                                                                   Percentage
                             January 29, 2005   January 31, 2004    Decrease
                               ------------       ------------    ------------
Selling, general and
  administrative               $     78,521       $     82,297            (4.6%)

Asset impairment charges                314                593           (47.1%)

Depreciation and amortization         5,875              6,103            (3.7%)

Expenses incurred in
  connection with change
  of control                             --              4,931              --
                               ------------       ------------    ------------

Total operating expenses             84,710             93,924            (9.8%)
                               ------------       ------------    ------------

Income (loss) from operations  $      6,627       $    (10,547)             --
                               ------------       ------------    ------------


                                       18
<PAGE>

      The  decrease  in  selling,   general  and   administrative   expenses  is
attributable  primarily  to lower store  associate  compensation  costs,  better
control of store  operating  costs and a result of the  reduction of our average
number of stores.  During fiscal 2004 we improved our method of scheduling store
associates,  modified our sales incentive programs and refocused our advertising
and promotional efforts at lower costs. The majority of our selling, general and
administrative expenses relate to the retail division

      Change of  control  expenses  did not  affect  fiscal  2004.  See  further
discussion  regarding  the  change  of  control  in  Note 5 to our  Consolidated
Financial  Statements.  The asset impairment charges in both fiscal years relate
to retail store  locations  with  negative cash flows that were either closed or
targeted for closure.  The asset impairment  charges were reduced as we expected
less store closures during fiscal year 2005.

Other Expense:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                          January 29, 2005   January 31, 2004       Increase
                            ------------       ------------       ------------
Interest expense            $      3,326       $       2,153              54.5%

Loss on investments                   --                172                 --
                            ------------       ------------       ------------

Total other expense         $      3,326       $      2,325               43.1%
                            ============       ============       ============

      The increase in interest expense resulted from higher loan balances on our
new expanded  revolving line of credit,  higher  interest rates and the interest
expense  on  our  $5  million  subordinated  convertible  note  payable  to  the
Nussdorfs.

Provision for Income Taxes:

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                          January 29, 2005   January 31, 2004       Increase
                            ------------       ------------       ------------

Income tax provision        $       (150)      $         --                 --
                            ------------       ------------       ------------


      The tax provision resulted primarily from alternative minimum taxes due to
the  utilization  of net operating  loss carry  forwards  which offset the taxes
which would otherwise have been provided for.

Net Income (Loss):

                                          For the year ended
                          ----------------------------------------------------
                                           ($ in thousands)
                                                                   Percentage
                          January 29, 2005   January 31, 2004       Increase
                            ------------       ------------       ------------

Net Income (loss)           $      3,151       $    (12,872)                --
                            ------------       ------------       ------------

      As a result of our increase in sales and gross profit and the reduction in
expenses described above, we realized net income in fiscal year 2004 compared to
a net loss in fiscal year 2003.


                                       19
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      Our principal  capital  requirements  for  operating  purposes are to fund
Perfumania's inventory purchases,  renovate existing stores and selectively open
new stores.  During fiscal years 2005 and 2004, we financed  these  requirements
primarily  through  cash flows  from  operations,  borrowings  under our line of
credit,  credit  terms  from our  vendors,  including  extended  terms  from our
affiliates,  issuance of a convertible note and other short-term borrowings.  We
believe we will have  adequate  liquidity  in fiscal  year 2006 to  operate  our
business and to meet our cash requirements.

      A summary of our cash flows is as follows:

                                                        For the year ended
                                                         January 28, 2006
                                                           ------------
                                                         ($ in thousands)
Summary Cash Flow Information:
Cash provided by operating activities                      $     18,524
Cash used in investing activities                                (7,143)
Cash used in financing activities                               (11,370)
                                                           ------------
     Increase in cash and cash equivalents                           11

Cash and cash equivalents, January 29, 2005                       1,250
                                                           ------------
Cash and cash equivalents. January 28, 2006                $      1,261
                                                           ============

      In May 2004, we entered into a three-year  senior secured credit  facility
with GMAC  Commercial  Finance LLC and  Wachovia  Capital  Finance.  The line of
credit provides for borrowings of up to $60 million,  depending on the Company's
levels of  eligible  inventories.  As of January  28,  2006,  $20.1  million was
outstanding  under the line of credit and $19.3 million was available to support
normal  working  capital  requirements  and other  general  corporate  purposes.
Advances under the line of credit are based on a formula of eligible inventories
and bears interest at a floating rate ranging from (a) prime to prime plus 1.25%
or (b) LIBOR plus 2.5% to 3.75%  depending on a financial  ratio test.  Advances
are  secured by a first lien on all assets of  Perfumania.  The credit  facility
contains  limitations on additional  borrowings,  capital expenditures and other
items, and contains various covenants including a fixed charge coverage ratio, a
leverage  ratio and capital  expenditure  limits as  defined.  As of January 28,
2006, we were in  compliance  with all covenant  requirements.  We are currently
negotiating an extension to our credit facility.

      In March 2004, the Nussdorfs  provided a $5,000,000  subordinated  secured
demand loan to Perfumania.  The demand loan bore interest at the prime rate plus
1%, required  quarterly interest payments and was secured by a security interest
in Perfumania's assets pursuant to a Security Agreement, by and among Perfumania
and the  Nussdorfs.  There  were  no  prepayment  penalties  and  the  loan  was
subordinate  to all bank related  indebtedness.  In December  2004,  we issued a
Subordinated  Convertible  Note (the  "Note")  in  exchange  for the  $5,000,000
subordinated secured demand loan. The Note bears interest at the prime rate plus
1%, requires  quarterly  interest payments and is secured by a security interest
in the  Company's  assets  pursuant  to a Security  Agreement,  by and among the
Company and the  Nussdorfs.  There are no  prepayment  penalties and the Note is
subordinate  to all bank related  indebtedness.  The Note was payable in January
2007 and allows the  Nussdorfs  to  convert  the Note into  shares of our common
stock at a conversion price of $11.25,  which equals the closing market price of
the Company's  common stock on the date the Note was issued.  The Nussdorfs have
agreed to extend the due date of the Convertible Note to January 2009.

      In fiscal  year  2005,  net cash  provided  by  operating  activities  was
approximately $18.5 million and was generated primarily by net earnings adjusted
for non cash depreciation and amortization expenses, a tax benefit from exercise
of  stock  options  in  prior  years,   additional  extended  credit  terms  for
merchandise  from our  affiliates  and a reduction  in inventory  purchases  and
inventory levels.  We delayed the receipt of certain inventory  purchases during
the last month of our fiscal  year in order to perform  our  physical  inventory
counts which  contributed  to the  reduction in our inventory  levels.  Net cash
provided by operating  activities was reduced by approximately  $4.6 million due
to a reduction in the accounts payable-nonaffiliates.

      Net  cash  used  in   investing   activities   in  fiscal  year  2005  was
approximately $7.1 million.  Investing  activities  generally represent spending
for the renovation of existing stores and new store openings. During fiscal year
2005 we opened 26 new stores  and  remodeled/relocated  53 stores.  We intend to
continue  improving the appearance of our existing stores and growing the number
of  stores.  We  anticipate  that we will open  approximately  30 new stores and
remodel 50 stores in fiscal year 2006.


                                       20
<PAGE>

      In  fiscal  year  2005,   net  cash  used  in  financing   activities  was
approximately  $11.4  million  as a  result  of the  reduction  to our net  bank
borrowings.

       Management  believes  that  Perfumania's  borrowing  capacity  under  its
current credit facility,  projected cash flows from operations, other short term
borrowings  and credit  terms from  vendors  will be  sufficient  to support our
working capital needs,  capital  expenditures  and debt service for at least the
next  twelve  months.  There can be no  assurance  that  management's  plans and
expectations will be successful.

<TABLE>
<CAPTION>
                                                                           Payments due by period
                                                      ------------------------------------------------------------------
                                                                               ($ in thousands)
                                                                       less                                      more
                                                                      than 1                                    than 5
Contractual Obligations                                 Total          year       1-3 years       3-5 years      years
---------------------------------------------------   ----------    ----------    ----------    ----------    ----------
<S>                                                   <C>           <C>           <C>           <C>           <C>
Bank line of credit (1)                               $   20,148    $   20,148            --            --            --
Subordinated convertible note payable affiliate (1)        5,000            --         5,000            --            --
Capital lease obligations                                 15,352         1,249         2,455         2,472         9,176
Operating lease obligations                               60,773        14,228        20,955        13,259        12,331
                                                      ----------    ----------    ----------    ----------    ----------

Total                                                 $  101,273    $   35,625    $   28,410    $   15,731    $   21,507
                                                      ==========    ==========    ==========    ==========    ==========
</TABLE>

      (1)   Debt amounts include principal maturities only.

OFF-BALANCE SHEET ARRANGEMENTS

      We have no off-balance sheet arrangements as defined by Item 303 (a)(4) of
Regulation S-K.

SEASONALITY AND QUARTERLY RESULTS

      Our operations  historically have been seasonal,  with higher sales in the
fourth fiscal quarter than the other three fiscal quarters. Significantly higher
fourth  quarter  retail sales result from  increased  purchases of fragrances as
gift items during the holiday season.  Our quarterly results may vary due to the
timing  of  new  store  openings,  net  sales  contributed  by  new  stores  and
fluctuations  in  comparable  sales of existing  stores.  Results of any interim
period are not necessarily indicative of the results that may be expected during
a full fiscal year.

RECENT ACCOUNTING STANDARDS

      In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123R,  "Share-Based  Payment," ("SFAS No. 123R") which revises SFAS No.
123,  "Accounting  for  Stock-Based  Compensation,"  and  supersedes  Accounting
Principles  Board  ("APB")  Opinion  No.  25,  "Accounting  for Stock  Issued to
Employees." This Statement  focuses  primarily on accounting for transactions in
which an entity obtains employee services in share-based  payment  transactions.
This  Statement  requires an entity to recognize  the cost of employee  services
received  in  share-based  payment  transactions  and  measure  the  cost  on  a
grant-date fair value of the award. That cost will be recognized over the period
during  which an employee is  required  to provide  service in exchange  for the
award.  The  provisions  of SFAS No. 123R will be  effective  for the  Company's
financial statements issued for periods beginning after December 15, 2005. We do
not anticipate being significantly  affected by this pronouncement as management
has no formal plans to issue a significant  amount of additional options nor are
there any unvested options.

      In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections"  ("SFAS No. 154"),  which replaces APB Opinion No. 20,  "Accounting
Changes," and SFAS No. 3,  "Reporting  Accounting  Changes in Interim  Financial
Statements."  SFAS No. 154 changes the requirements for accounting and reporting
a change in  accounting  principle,  and  applies  to all  voluntary  changes in
accounting   principles,   as  well  as  changes   required  by  an   accounting
pronouncement in the unusual  instance it does not include  specific  transition
provisions.  Specifically,  SFAS No. 154 requires  retrospective  application to
prior periods' financial statements, unless it is impracticable to determine the
period-specific  effects  or the  cumulative  effect of the  change.  When it is
impracticable  to  determine  the  effects  of the  change,  the new  accounting
principle  must be applied to the balances of assets and  liabilities  as of the
beginning  of  the  earliest  period  for  which  retrospective  application  is
practicable and a  corresponding  adjustment must be made to the opening balance
of retained  earnings  for that period  rather than being  reported in an income
statement.  When it is impracticable  to determine the cumulative  effect of the
change,  the new principle  must be applied as if it were adopted  prospectively
from the earliest date  practicable.  SFAS No. 154 is effective  for  accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005. SFAS No. 154 does not change the transition provisions of any existing
pronouncements.  The Company has  evaluated  the impact of SFAS No. 154 and does
not expect the adoption of this  statement to have a  significant  impact on its
consolidated balance sheets or statements of operations.  The Company will apply
SFAS No. 154 in future periods, when applicable.


                                       21
<PAGE>

CHANGES IN FOREIGN EXCHANGE RATES; INFLATION

      Although  large  fluctuations  in  foreign  exchange  rates  could  have a
material  effect on the prices we pay for  products  purchased  from outside the
United  States,  such  fluctuations  have not been  material  to our  results of
operations  to date.  Transactions  with foreign  suppliers are  denominated  in
United States dollars. We believe inflation has not had a material impact on our
results of operations  and we are generally  able to pass through cost increases
by increasing sales prices.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      We conduct business in the United States where the functional  currency of
the country is the United States dollar.  As a result, we are not at risk to any
foreign exchange translation exposure on a prospective basis.

      Our  exposure  to  market  risk for  changes  in  interest  rates  relates
primarily to our bank line of credit.  The bank line of credit bears interest at
a variable rate, as discussed above under "Liquidity and Capital Resources".  We
mitigate  interest rate risk by  continuously  monitoring the interest rates and
reacting  to  changes  in LIBOR  and  prime  rates.  As a result  of  borrowings
associated  with our  operating  and  investing  activities,  we are  exposed to
interest  rate risk.  As of January 28, 2006 and January 29,  2005,  our primary
source of funds for  working  capital  and other  needs is a line of credit that
provides for borrowings up to $60 million.

      Of the $33.4  million  and  $44.7  million  of  short-term  and  long-term
borrowings  on our balance  sheet as of January  28, 2006 and January 29,  2005,
respectively,  approximately  24.6% and 18.4%,  respectively,  represented fixed
rate  instruments.  The line of credit bears interest at a floating rate ranging
from (a) prime to prime plus 1.25%, or (b) LIBOR plus 2.5% to 3.75% depending on
financial  ratio tests.  For fiscal year 2005, the credit facility bore interest
at an average rate of 6.6%. A  hypothetical  10% adverse move in interest  rates
would increase fiscal year 2005 interest expense by approximately $0.2 million.


                                       22
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

                                                                            PAGE
                                                                            ----

E Com Ventures, Inc. and Subsidiaries

Report of Independent Registered Public Accounting Firm.................     24

Consolidated Balance Sheets as of January 28, 2006 and
January 29, 2005........................................................     25

Consolidated Statements of Operations for the Fiscal
Years Ended January 28, 2006, January 29, 2005 and
January 31, 2004........................................................     26

Consolidated Statements of Changes in Shareholders' Equity
for the Fiscal Years Ended January 28, 2006, January 29, 2005,
and January 31, 2004....................................................     27

Consolidated Statements of Cash Flows for the Fiscal
Years Ended January 28, 2006, January 29, 2005, and
January 29, 2004........................................................     28

Notes to Consolidated Financial Statements..............................     29

Supplemental  schedules  have been  omitted,
as all required information is disclosed or not applicable.


                                       23
<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
E Com Ventures, Inc.
Sunrise, Florida


We have audited the accompanying  consolidated balance sheets of E Com Ventures,
Inc. and  subsidiaries  (the  "Company")  as of January 28, 2006 and January 29,
2005,  and  the  related  consolidated  statements  of  operations,  changes  in
shareholders'  equity,  and cash flows for each of the three fiscal years in the
period ended January 28, 2006. These financial statements are the responsibility
of the  Company's  management.  Our  responsibility  is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company has determined that it
is not  required  to  have,  nor were we  engaged  to  perform,  an audit of its
internal control over financial reporting.  Our audits included consideration of
internal  control  over  financial  reporting  as a basis  for  designing  audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the  effectiveness  of the Company's  internal  control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by  management,  as well as evaluating the
overall financial statement  presentation.  We believe that our audits provide a
reasonable basis for our opinion.

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the  financial  position  of  E  Com  Ventures,   Inc.  and
subsidiaries  as of January 28, 2006 and  January 29,  2005,  and the results of
their  operations and their cash flows for each of the three fiscal years in the
period  ended  January  28,  2006,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP
-------------------------
Certified Public Accountants



Fort Lauderdale, Florida
April 28, 2006

                                       24
<PAGE>

                      E COM VENTURES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS:                                                  JANUARY 28, 2006    JANUARY 29, 2005
                                                           -------------       -------------
<S>                                                        <C>                 <C>
Current assets:
Cash and cash equivalents                                  $   1,260,444       $   1,249,543
Trade receivables, no allowance required                         819,072             695,812
Deferred tax asset                                             5,343,839                  --
Inventories, net                                              72,976,845          78,929,639
Prepaid expenses and other current assets                        950,146           1,149,723
                                                           -------------       -------------
  Total current assets                                        81,350,346          82,024,717

Property and equipment, net                                   25,308,899          23,070,723
Goodwill, net                                                  1,904,448           1,904,448
Deferred tax asset                                             4,935,161                  --
Other assets, net                                                457,627             817,156
                                                           -------------       -------------
  Total assets                                             $ 113,956,481       $ 107,817,044
                                                           =============       =============

LIABILITIES AND SHAREHOLDERS' EQUITY:

Current liabilities:
Bank line of credit                                        $  20,147,978       $  31,528,212
Accounts payable- non affiliates                              13,470,670          18,111,196
Accounts payable, affiliates                                  26,905,433          23,228,325
Accrued expenses and other liabilities                         7,973,168           6,685,494
Current portion of obligations under capital leases              322,284             231,353
                                                           -------------       -------------
  Total current liabilites                                    68,819,533          79,784,580

Subordinated convertible note payable - affiliate              5,000,000           5,000,000
Long-term portion of obligations under capital leases          7,898,354           7,972,455
                                                           -------------       -------------
  Total liabilities                                           81,717,887          92,757,035
                                                           -------------       -------------

Commitments and contingencies (See Note 11)

Shareholders' equity:
Preferred stock, $0.10 par value, 1,000,000
   shares authorized, none issued                                     --                  --
Common stock, $.01 par value, 6,250,000 shares
   authorized; 3,857,216 and 3,834,684 shares issued
   at fiscal year-end 2005 and 2004, respectively                 38,572              38,347
Additional paid-in capital                                    78,260,686          75,347,588
Treasury stock, at cost, 898,249 shares                       (8,576,944)         (8,576,944)
Accumulated deficit                                          (37,483,720)        (51,748,982)
                                                           -------------       -------------
  Total shareholders' equity                                  32,238,594          15,060,009
                                                           -------------       -------------
  Total liabilities and shareholders' equity               $ 113,956,481       $ 107,817,044
                                                           =============       =============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       25
<PAGE>
                      E COM VENTURES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              FOR THE FISCAL YEAR ENDED
                                                  --------------------------------------------------------
                                                  January 28, 2006    January 29, 2005    January 31, 2004
                                                    -------------       -------------       -------------
<S>                                                 <C>                 <C>                 <C>
Net sales                                           $ 233,694,081       $ 225,003,201       $ 212,567,569
Cost of goods sold                                    137,192,922         133,666,605         129,190,549
                                                    -------------       -------------       -------------
Gross profit                                           96,501,159          91,336,596          83,377,020
                                                    -------------       -------------       -------------

Operating expenses:
  Selling, general and administrative expenses         80,677,406          78,521,215          82,297,031
  Provision for impairment of
      assets and store closings                           162,370             313,888             593,109
  Depreciation and amortization                         5,155,645           5,874,591           6,102,823
  Expenses incurred in connection with
    change of control                                          --                  --           4,931,221
                                                    -------------       -------------       -------------
    Total operating expenses                           85,995,421          84,709,694          93,924,184
                                                    -------------       -------------       -------------

Income (loss) from operations                          10,505,738           6,626,902         (10,547,164)
                                                    -------------       -------------       -------------

Other expenses:
  Interest expense, net:
    Affiliates                                           (371,458)           (248,124)            (93,510)
    Other                                              (3,506,018)         (3,077,497)         (2,059,347)
                                                    -------------       -------------       -------------
                                                       (3,877,476)         (3,325,621)         (2,152,857)
                                                    -------------       -------------       -------------

  Realized loss on investments                                 --                  --            (171,679)
                                                    -------------       -------------       -------------

Income (loss) before income taxes                       6,628,262           3,301,281         (12,871,700)
Income tax benefit (provision)                          7,637,000            (150,000)                 --
                                                    -------------       -------------       -------------
    Net income (loss)                               $  14,265,262       $   3,151,281       $ (12,871,700)
                                                    =============       =============       =============

Basic income (loss) per common share                $        4.84       $        1.11       $       (5.24)
                                                    =============       =============       =============
Diluted income (loss) per common share              $        4.23       $        1.06       $       (5.24)
                                                    =============       =============       =============

Weighted average number of shares
   outstanding:
  Basic                                                 2,949,146           2,832,107           2,454,340
                                                    =============       =============       =============
  Diluted                                               3,463,480           3,001,844           2,454,340
                                                    =============       =============       =============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       26
<PAGE>

                      E COM VENTURES, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
         FOR THE FISCAL YEARS ENDED JANUARY 28, 2006, JANUARY 29, 2005
                              AND JANUARY 31, 2004

<TABLE>
<CAPTION>
                                                Common Stock               Additional                Treasury Stock
                                       ------------------------------        Paid-In          ------------------------------
                                          Shares            Amount           Capital             Shares            Amount
                                       ------------      ------------      ------------       ------------      ------------
<S>                                    <C>               <C>               <C>                <C>               <C>
Balance at February 2, 2003               3,215,761      $     32,158      $ 71,387,794            779,952      $ (7,085,940)

Components of comprehensive loss:
  Net loss                                       --                --                --                 --                --
  Unrealized gain
    on investments                               --                --                --                 --                --

  Total comprehensive loss                       --                --                --                 --                --

Exercise of stock options                    69,997               700           235,805                 --                --
Purchase of treasury stock                       --                --                --            118,297        (1,491,004)

Stock Compensation                               --                --         2,285,640                 --                --
Reclass in notes and
   interest receivable from
   shareholder and officer                       --                --                --                 --                --
Premium repayment of
   convertible notes payable                     --                --          (243,046)                --                --
                                       ------------      ------------      ------------       ------------      ------------
Balance at January 31, 2004               3,285,758            32,858        73,666,193            898,249        (8,576,944)

Net income                                       --                --                --                 --                --

Exercise of stock options                   548,926             5,489         1,681,395                 --                --
                                       ------------      ------------      ------------       ------------      ------------

Balance at January 29, 2005               3,834,684            38,347        75,347,588            898,249        (8,576,944)

Net income                                       --                --                --                 --                --

Exercise of stock options                    22,531               225            83,507                 --                --
Repayment of profits
   under Section 16(b) of
   the Exchange Act                              --                --           181,591                 --                --
Tax benefit from exercise of
   stock options                                 --                --         2,242,000                 --                --
Executive compensation
   contributed to
   capital                                       --                --           406,000                 --                --
                                       ------------      ------------      ------------       ------------      ------------

Balance at January 28, 2006               3,857,216      $     38,572      $ 78,260,686            898,249      $ (8,576,944)
                                       ============      ============      ============       ============      ============
<CAPTION>

                                        Accumulated                            Notes and
                                           Other                          Interest Receivable
                                        Comprehensive     Accumulated      From Shareholders
                                       Income (Loss)        Deficit           and Officers          Total
                                       ------------       ------------       ------------       ------------
<S>                 <C>                <C>                <C>                <C>                <C>
Balance at February 2, 2003            $   (140,404)      $(42,028,563)      $   (311,604)      $ 21,853,441

                                                                                                ------------
Components of comprehensive loss:
  Net loss                                       --        (12,871,700)                --        (12,871,700)
  Unrealized gain
    on investments                          140,404                 --                 --            140,404

                                                                                                ------------
  Total comprehensive loss                       --                 --                 --        (12,731,296)

                                                                                                ------------
Exercise of stock options                        --                 --                 --            236,505
Purchase of treasury stock                       --                 --                 --         (1,491,004)


Stock Compensation                               --                 --                 --          2,285,640
Net change in notes and
   interest receivable from
   shareholder and officer                       --                 --            311,604            311,604
Premium repayment of
   convertible notes payable                     --                 --                 --           (243,046)
                                       ------------       ------------       ------------       ------------
Balance at January 31, 2004                      --        (54,900,263)                --         10,221,844


Net income                                       --          3,151,281                 --          3,151,281


Exercise of stock options                        --                 --                 --          1,686,884
                                       ------------       ------------       ------------       ------------


Balance at January 29, 2005                      --        (51,748,982)                --         15,060,009


Net income                                       --         14,265,262                 --         14,265,262


Exercise of stock options                        --                 --                 --             83,732
Receipt of profits
   under Section 16(b) of
   the Exchange Act                              --                 --                 --            181,591
Tax benefit from exercise of
   stock options                                 --                 --                 --          2,242,000
Executive compensation
   contributed to
   capital                                       --                 --                 --            406,000
                                       ------------       ------------       ------------       ------------

Balance at January 28, 2006            $         --       $(37,483,720)      $         --       $ 32,238,594
                                       ============       ============       ============       ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       27
<PAGE>
                      E COM VENTURES, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                       FOR THE FISCAL YEAR ENDED
                                                                        -------------------------------------------------------
                                                                        January 28, 2006    January 29, 2005   January 31, 2004
                                                                           ------------       ------------       ------------
<S>                                                                        <C>                <C>                <C>
Cash flows from operating activities:
Net income (loss)                                                          $ 14,265,262       $  3,151,281       $(12,871,700)
Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
  Deferred income tax benefit                                                (8,037,000)                --                 --
  Provision for impairment of assets and store closings                         162,370            313,388            593,109
  (Recovery) write-off of inventories                                          (184,547)           188,035            897,874
  Depreciation and amortization                                               5,155,645          5,874,591          6,102,823
  Write-off of discontinued inventory                                           228,427            185,088          2,558,805
  Realized loss on investments                                                       --                 --            171,679
  Stock compensation                                                                 --                 --          2,285,640
  Change in operating assets and liabilities:
    Trade receivables                                                          (123,260)            81,374            (32,730)
    Inventories                                                               5,908,914        (18,425,311)         4,383,033
    Prepaid expenses and other current assets                                   199,577            311,770          1,507,259
    Other assets                                                                218,281           (309,799)           368,363
    Accounts payable, non-affiliate                                          (4,640,526)         1,651,410         (4,446,040)
    Accounts payable, affiliate                                               3,677,108          5,537,833          4,258,774
    Accrued expenses and other liabilities                                    1,693,674         (2,928,793)         4,445,653
                                                                           ------------       ------------       ------------
Net cash provided by (used in) operating activities                          18,523,925         (4,369,133)        10,222,542
                                                                           ------------       ------------       ------------

Cash flows from investing activities:
  Additions to property and equipment                                        (7,143,201)        (4,148,335)        (5,907,018)
  Proceeds from sale of investments                                                  --                 --            179,332
                                                                           ------------       ------------       ------------
Net cash used in investing activities                                        (7,143,201)        (4,148,335)        (5,727,686)
                                                                           ------------       ------------       ------------

Cash flows from financing activities:
  Net borrowings and (repayments) under bank line
    of credit                                                               (11,380,234)         1,056,185         (1,641,664)
  Principal payments under capital lease obligations                           (254,912)          (264,679)        (1,143,767)
  Proceeds from note and interest receivable, shareholder and officer                --            327,311                 --
  Proceeds from subordinated secured demand loan, affiliate                          --          5,000,000                 --
  Repayments of convertible notes payable                                            --                 --         (1,458,261)
  Proceeds from exercise of stock options                                        83,732          1,686,884            236,505
  Receipt of profits under
    Section 16(b) of the Exchange Act                                           181,591                 --                 --
  Purchases of treasury stock                                                        --                 --         (1,491,004)
                                                                           ------------       ------------       ------------
    Net cash provided by (used in) financing activities                     (11,369,823)         7,805,701         (5,498,191)
                                                                           ------------       ------------       ------------
Increase (decrease) in cash and cash equivalents                                 10,901           (711,767)        (1,003,335)
Cash and cash equivalents at beginning of period                              1,249,543          1,961,310          2,964,645
                                                                           ------------       ------------       ------------
Cash and cash equivalents at end of period                                 $  1,260,444       $  1,249,543       $  1,961,310
                                                                           ============       ============       ============

Cash paid during the period for:
   Interest                                                                $  3,612,573       $  3,139,425       $  2,034,666
                                                                           ============       ============       ============
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       28
<PAGE>

                      E COM VENTURES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
          FOR THE FISCAL YEARS ENDED JANUARY 28, 2006, JANUARY 29, 2005
                              AND JANUARY 31, 2004

NOTE 1 - NATURE OF BUSINESS

      E Com Ventures,  Inc., a Florida  corporation  ("ECOMV" or the "Company"),
performs  all  of  its  operations   through  two   wholly-owned   subsidiaries,
Perfumania,  Inc.  ("Perfumania"),  a Florida corporation,  which is a specialty
retailer and wholesaler of fragrances and related  products and  perfumania.com,
inc., a Florida  corporation  which is an Internet  retailer of  fragrances  and
other specialty items.

      Perfumania's  retail stores are located in regional malls,  manufacturers'
outlet  malls,  life  style  centers,  airports  and on a  stand-alone  basis in
suburban  strip  shopping  centers.  The number of retail stores in operation at
January 28, 2006,  January 29, 2005, and January 31, 2004 were 239, 223 and 232,
respectively.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

FISCAL YEAR END

      The  Company's  fiscal  year ends the  Saturday  closest  to January 31 to
enable the Company's  operations to be reported in a manner,  which more closely
coincides with general retail  reporting  practices and the financial  reporting
needs of the Company. In the accompanying notes, fiscal year 2005, 2004 and 2003
refer to the years  ended  January  28,  2006,  January 29, 2005 and January 31,
2004, respectively. The fiscal years presented each contain fifty-two weeks.

MANAGEMENT ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

      The consolidated  financial statements include accounts of E Com Ventures,
Inc. and its wholly owned subsidiaries.  All significant  intercompany  balances
and transactions have been eliminated in consolidation.

REVENUE RECOGNITION

      Revenue from wholesale transactions is recorded upon shipment of inventory
when risk of  ownership  and title  transfers  to the buyer.  Revenue from store
sales is recorded, net of discounts, at the point of sale. Revenue from Internet
sales is recognized at the time products are delivered to customers.  Returns of
store and Internet sales are allowed within 30 days of purchase. Because returns
are primarily  exchanged,  there is no significant effect on revenue and returns
are considered  immaterial  for the three years ended January 28, 2006,  January
29, 2005 and January 31, 2004.

CASH AND CASH EQUIVALENTS

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


                                       29
<PAGE>

INVENTORIES

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

      In fiscal year 2003 management had identified  approximately  3,400 of the
Company's  25,000 stock  keeping  units  ("skus")  that the Company  intended to
discontinue selling. The total cost of this inventory as of January 31, 2004 was
approximately $9.4 million.  The Company recorded a charge of approximately $2.6
million in fiscal  year 2003,  which  represented  the  difference  between  the
estimated selling value and the weighted average cost of this inventory. Using a
similar   analytical   approach,   the  Company's   inventory   write-offs  were
approximately $200,000 and $400,000 in fiscal years 2005 and 2004, respectively.
These  charges  are  included  in  cost  of  goods  sold  in  the   accompanying
consolidated statements of operations.

PROPERTY AND EQUIPMENT

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

GOODWILL

      Goodwill  represents  the  excess  purchase  price paid over net assets of
businesses  acquired  resulting from the  application of the purchase  method of
accounting.  Goodwill is not amortized but is tested  annually for impairment at
the end of the Company's fiscal year. No impairment  occurred as a result of the
annual tests in fiscal years 2005, 2004, and 2003.

OTHER INTANGIBLE ASSETS

      Other  intangible  assets  include  store  design,  real estate leases and
non-compete agreements which were recorded based upon their relative fair values
at the date of acquisition as determined by management with the assistance of an
independent  valuation  consultant.  Other  intangible  assets  do  not  include
goodwill. The amortization of intangible assets totaled approximately  $140,000,
$232,000, and $229,000 in fiscal years 2005, 2004, and 2003, respectively. There
is no further  amortization of intangible assets  anticipated during fiscal year
2006 as all  intangible  assets with  finite  lives were fully  amortized  as of
January 28, 2006.

INCOME TAXES

      Income tax  expense is based  principally  on  pre-tax  financial  income.
Deferred tax assets and liabilities  are recognized for the differences  between
the  financial  reporting  carrying  values  and the tax  bases  of  assets  and
liabilities  and are measured  using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. A valuation allowance is
recognized to reduce net deferred tax assets to amounts that management believes
are more likely than not expected to be realized.

BASIC AND DILUTED INCOME (LOSS) PER SHARE

      Basic  income  (loss) per common  share is computed by dividing net income
(loss) by the weighted  average number of common shares  outstanding  during the
period. Diluted net income (loss) per common share includes, in periods in which
they are dilutive,  the dilutive effect of those common stock  equivalents where
the average  market price of the common shares  exceeds the exercise  prices for
the respective  years.  As described  below,  for fiscal year 2003,  incremental
shares  attributed to common stock  equivalents and  convertible  notes were not
included because the results would have been anti-dilutive.


                                       30
<PAGE>

       Basic and diluted loss per share are computed as follows:

<TABLE>
<CAPTION>
                                                                              FISCAL YEAR
                                                            ------------------------------------------------
                                                                2005              2004              2003
                                                            ------------      ------------      ------------
<S>                                                         <C>               <C>               <C>
Numerator:
  Net income (loss) - basic                                 $ 14,265,262      $  3,151,281      $(12,871,700)
     Add: interest on convertible note                           371,458            44,131                --
                                                            ------------      ------------      ------------
  Net income (loss) - diluted                               $ 14,636,720      $  3,195,412      $(12,871,700)
                                                            ============      ============      ============

Denominator:
  Weighted average number of shares
     for basic net income (loss) per share                     2,949,146         2,832,107         2,454,340
  Options to purchase common stock                                69,890           105,024                --
  Convertible note                                               444,444            64,713                --
                                                            ------------      ------------      ------------
  Denominator for dilutive net income (loss) per share         3,463,480         3,001,844         2,454,340
                                                            ============      ============      ============

Basic net income (loss) per share                           $       4.84      $       1.11      $      (5.24)
                                                            ============      ============      ============
Diluted net income (loss) per share                         $       4.23      $       1.06      $      (5.24)
                                                            ============      ============      ============
</TABLE>

      Excluded  from the  above  computations  of  weighted-average  shares  for
diluted earnings per share were options to purchase 5,256 shares,  86,256 shares
and  696,436  shares  of common  stock for  fiscal  years  2005,  2004 and 2003,
respectively,  because the exercise  price was greater  than the average  market
price of the Company's common stock during the period and, therefore, the effect
is antidilutive.


ASSET IMPAIRMENT

      The Company reviews long-lived assets and makes a provision for impairment
whenever  events or changes in  circumstances  indicate that the projected  cash
flows of related  activities  may not  provide  for  recovery  of the asset.  An
impairment loss is generally  recorded when the net book value of assets exceeds
projected  undiscounted  future cash flows.  The  impairment  loss is determined
based on the  difference  between  the net book  value and the fair value of the
assets. The estimated fair value is based on anticipated  discounted future cash
flows.  Any  impairment  is charged to  operations  in the period in which it is
identified.

STOCK BASED COMPENSATION


      The Company  accounts for  stock-based  compensation  using the  intrinsic
value  method  prescribed  in  Accounting   Principles  Board  Opinion  No.  25,
"Accounting  for Stock Issued to Employees"  ("APB 25"). In December  2004,  the
Financial  Accounting  Standards  Board ("FASB")  issued  Statement of Financial
Accounting Standard ("SFAS") No. 123R, "Share-Based Payment," which revises SFAS
No. 123, "Accounting for Stock-Based  Compensation," and supersedes APB 25. This
Statement  focuses  primarily on accounting for  transactions in which an entity
obtains employee services in share-based  payment  transactions.  This Statement
requires  an entity to  recognize  the cost of  employee  services  received  in
share-based payment transactions and measure the cost on a grant-date fair value
of the  award.  That cost will be  recognized  over the period  during  which an
employee  is  required  to  provide  service  in  exchange  for the  award.  The
provisions  of SFAS No.  123R  will be  effective  for the  Company's  financial
statements  issued for periods  beginning  after  December 15, 2005. The Company
does not  anticipate  being  significantly  affected  by this  pronouncement  as
management  has no formal  plans to issue a  significant  amount  of  additional
options nor are there any unvested  options.  The pro-forma effects of our stock
based compensation are presented below (in thousands except for per share data):


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                                                        FISCAL YEAR
                                                  -------------------------------------------------------
                                                       2005                 2004                2003
                                                  --------------       --------------      --------------
<S>                                               <C>                  <C>                 <C>
Net income (loss)                                 $       14,265       $        3,151      $      (12,872)
Add: Total stock-based employee compensation
  expense included in reported net loss,
  net of tax                                                  --                   --               2,286
Deduct: Total stock-based employee compensation
  expense determined under fair market
  value based method, net of tax                            (883)                 (95)             (3,711)
                                                  --------------       --------------      --------------
Proforma net income (loss)                        $       13,382       $        3,056      $      (14,297)
                                                  ==============       ==============      ==============
Net income (loss) per
  common share-basic:
  As reported                                     $         4.84       $         1.11      $        (5.24)
  Stock based compensation                                 (0.30)               (0.03)              (0.59)
                                                  --------------       --------------      --------------
  Proforma                                        $         4.54       $         1.08      $        (5.83)
                                                  ==============       ==============      ==============
Net income (loss) per
  common share-diluted:
  As reported                                     $         4.23       $         1.06      $        (5.24)
  Stock based compensation                                 (0.26)               (0.03)              (0.59)
                                                  --------------       --------------      --------------
  Proforma                                        $         3.97       $         1.03      $        (5.83)
                                                  ==============       ==============      ==============
</TABLE>

      The fair value for these stock  options was estimated at the date of grant
using a Black-Scholes  option pricing model with the following  weighted average
assumptions:

                                        FISCAL YEAR
                                2005        2004        2003
                              --------    --------    --------
Expected life (years)                7           7           7
Expected volatility                164%        168%        165%
Risk-free interest rates          3.88%       4.08%       3.68%
Dividend yield                       0%          0%          0%

      For the  purposes of the  proforma  presentation  of employee  stock-based
compensation  expense,  the Company  currently  amortizes  the expense  over the
related vesting period.  The weighted  average  estimated fair values of options
granted during fiscal year 2005,  2004, and 2003 were $12.42,  $11.12 and $4.79,
respectively.

INVESTMENTS

      Equity  securities  classified  as available for sale are adjusted to fair
market value as of the balance  sheet date based on quoted  market  prices.  The
related   unrealized   gain  (loss)  on   investments   is  reflected  in  other
comprehensive income (loss) and accumulated other comprehensive income (loss) on
the consolidated  statements of changes in shareholders' equity and consolidated
balance sheets, respectively.  Realized losses on investments resulting from the
sale or  other-than-temporary  declines  in fair  market  values  of  securities
classified as available for sale are included in the results of operations.  The
Company had no equity  security  investments  as of January 28, 2006 and January
29, 2005.

PRE-OPENING EXPENSES

      Pre-opening  expenses  related to  opening  new  stores  are  expensed  as
incurred.

SHIPPING AND HANDLING FEES AND COSTS

      Income  generated  from  shipping  and  handling  fees  is  classified  as
revenues.  The Company  classifies the costs related to shipping and handling as
cost of goods sold.  The income and cost  associated  with shipping and handling
when combined is immaterial.


                                       32
<PAGE>

ADVERTISING COSTS

      Advertising  expense  for  the  fiscal  years  2005,  2004  and  2003  was
approximately  $1,650,000,  $1,441,000  and  $1,876,000,  respectively,  and  is
charged to expense when incurred.  There was no cooperative  advertising amounts
received  from vendors for fiscal  years 2005 and 2004.  In fiscal year 2003 the
Company received $200,000 in cooperative  advertising amounts which was recorded
as an offset to advertising expense.

RECLASSIFICATION

      Certain  fiscal  year  2004 and 2003  amounts  have been  reclassified  to
conform with the fiscal 2005 presentation.

RECENT ACCOUNTING PRONOUNCEMENTS

      In December  2004, the FASB issued SFAS No. 123R,  "Share-Based  Payment,"
which  revises SFAS No. 123,  "Accounting  for  Stock-Based  Compensation,"  and
supersedes APB Opinion No. 25,  "Accounting for Stock Issued to Employees." This
Statement  focuses  primarily on accounting for  transactions in which an entity
obtains employee services in share-based  payment  transactions.  This Statement
requires  an entity to  recognize  the cost of  employee  services  received  in
share-based payment transactions and measure the cost on a grant-date fair value
of the  award.  That cost will be  recognized  over the period  during  which an
employee  is  required  to  provide  service  in  exchange  for the  award.  The
provisions  of SFAS No.  123R  will be  effective  for the  Company's  financial
statements  issued for periods  beginning  after  December 15, 2005. The Company
does not  anticipate  being  significantly  affected  by this  pronouncement  as
management  has no formal  plans to issue a  significant  amount  of  additional
options nor are there any unvested options.

      In May 2005, the FASB issued SFAS No. 154,  "Accounting  Changes and Error
Corrections"  ("SFAS No. 154"), which replaces APB Opinion No. 120,  "Accounting
Changes," and SFAS No. 3,  "Reporting  Accounting  Changes in Interim  Financial
Statements."  SFAS No. 154 changes the requirements for accounting and reporting
a change in  accounting  principle,  and  applies  to all  voluntary  changes in
accounting   principles,   as  well  as  changes   required  by  an   accounting
pronouncement in the unusual  instance it does not include  specific  transition
provisions.  Specifically,  SFAS No. 154 requires  retrospective  application to
prior periods' financial statements, unless it is impracticable to determine the
period-specific  effects  or the  cumulative  effect of the  change.  When it is
impracticable  to  determine  the  effects  of the  change,  the new  accounting
principle  must be applied to the balances of assets and  liabilities  as of the
beginning  of  the  earliest  period  for  which  retrospective  application  is
practicable and a  corresponding  adjustment must be made to the opening balance
of retained  earnings  for that period  rather than being  reported in an income
statement.  When it is impracticable  to determine the cumulative  effect of the
change,  the new principle  must be applied as if it were adopted  prospectively
from the earliest date  practicable.  SFAS No. 154 is effective  for  accounting
changes and  corrections of errors made in fiscal years beginning after December
15, 2005. SFAS No. 154 does not change the transition provisions of any existing
pronouncements.  The Company has  evaluated  the impact of SFAS No. 154 and does
not expect the adoption of this  statement to have a  significant  impact on its
consolidated balance sheets or statements of operations.  The Company will apply
SFAS No. 154 in future periods, when applicable.

NOTE 3 - NON-CASH TRANSACTIONS

Supplemental disclosures of non-cash investing and financing activities:

<TABLE>
<CAPTION>
                                                                        FISCAL YEAR
                                                          ------------------------------------------
              NON-CASH TRANSACTIONS                          2005            2004            2003
----------------------------------------------------      ----------      ----------      ----------
<S>                                                       <C>             <C>             <C>
Equipment and building acquired under capital leases      $  259,430      $  463,525      $  414,630
Unrealized gain (loss) on investments                             --              --         140,404
Subordinated debt issued to affiliate                             --              --       5,000,000
Subordinated debt exchanged for
  subordinated convertible note payable, affiliate                --       5,000,000              --
Compensation cost for President
  and Chief Executive Officer contributed
  to capital                                                 406,000              --              --
</TABLE>


                                       33
<PAGE>

NOTE 4 - PROPERTY AND EQUIPMENT

       Property and equipment consisted of:

<TABLE>
<CAPTION>
                                                       FISCAL YEAR ENDED
                                               -----------------------------------          Estimated Useful Lives
                                               January 28, 2006   January 29, 2005                (In Years)
                                                 ------------       ------------                 ------------
<S>                                              <C>                <C>                <C>
Furniture, fixtures and equipment                $ 27,595,254       $ 24,945,705                      5-7
Leasehold improvements                             30,307,293         27,055,275       shorter of 10 years or lease term
Equipment under capital leases                        330,293            521,161       shorter of 5 years or lease term
Building under capital lease                        8,188,945          8,188,945                      15
                                                 ------------       ------------
                                                   66,421,785         60,711,086
Less:
  Accumulated depreciation and amortization       (41,112,886)       (37,640,363)
                                                 ------------       ------------
                                                 $ 25,308,899       $ 23,070,723
                                                 ============       ============
</TABLE>

       See Note 11 for further discussion of capital leases.

      Approximately $4,164,000 of point of sale registers were reclassified from
equipment  under capital  leases to furniture,  fixtures and equipment in fiscal
year 2004 as the leases matured and the Company exercised its option to purchase
the  registers.  In addition,  the Company  disposed of equipment  under capital
leases with an original cost of approximately $2,090,000 in fiscal year 2004, on
equipment  that was fully  depreciated.  There  was no  effect in the  Company's
consolidated statement of operations.

      Depreciation  and  amortization  expense for fiscal years 2005,  2004, and
2003 was  $5,155,645,  $5,874,591,  and  $6,102,823,  respectively.  Accumulated
depreciation  for building and equipment under capital leases was $1,475,817 and
$1,238,231 as of January 28, 2006 and January 29, 2005, respectively.

NOTE 5 - RELATED PARTY TRANSACTIONS

      Effective  January 30, 2004,  Ilia Lekach,  the Company's then Chairman of
the Board and Chief Executive  Officer,  IZJD Corp. and Pacific Investment Group
Inc.,  each of which are  wholly-owned  by Mr.  Lekach and Deborah  Lekach,  Mr.
Lekach's  wife  (collectively,  "Lekach"),  entered  into  the  Nussdorf  Option
Agreement, with Stephen Nussdorf and Glenn Nussdorf (the "Nussdorfs"),  pursuant
to which the  Nussdorfs  were  granted  options to  acquire  up to an  aggregate
720,954 shares of the Company's common stock beneficially owned by Lekach, for a
purchase price of $12.70 per share exercisable in specified installments.

      Effective February 10, 2004, Mr. Lekach's  employment with the Company was
terminated  and Mr.  Lekach  ceased  serving as an  employee  and officer of the
Company.  In addition,  on February 10, 2004, Mr. Lekach resigned from the Board
of Directors and Stephen L. Nussdorf was appointed the Company's Chairman of the
Board and  Michael  W. Katz was  appointed  the  Company's  President  and Chief
Executive Officer.

      As of April 26,  2004,  Mr.  Lekach  exercised  stock  options  to acquire
318,750  common  shares  resulting  in proceeds to the Company of  approximately
$851,000 and the Nussdorfs  acquired  595,954 shares from Mr. Lekach pursuant to
the Nussdorf Option Agreement.  Mr. Lekach had stock options for another 125,000
shares,  which were required to be issued to Mr. Lekach by the Company  pursuant
to the terms of his  employment  agreement  as a  consequence  of the  change of
control.  These  125,000  options  were only to be issued by the  Company to Mr.
Lekach upon  approval of an amendment to the  Company's  2000 Stock Option Plan.
Such  an  amendment  was  approved  at  a  special   meeting  of  the  Company's
shareholders  on April 29, 2004.  Proceeds to the Company were $500,000 when Mr.
Lekach  exercised the 125,000 options.  The Nussdorfs  exercised their option to
acquire the remaining  125,000 shares subject to the Nussdorf  Option  Agreement
and the Nussdorfs own an aggregate  1,113,144 shares or approximately 38% of the
total  number of shares of the  Company's  common  stock as of January 28, 2006,
excluding  shares  issuable upon  conversion of the  Convertible  Note discussed
below in Note 6. Lekach owns 300,000  shares or  approximately  10% of the total
number of shares of the Company's common stock as of January 28, 2006.


                                       34
<PAGE>

      As a  consequence  of the  change in control  provisions  set forth in the
employment   agreements  of  Mr.  Lekach,   various  executive  officers  and  a
consultant,  the Company  issued a total of 244,252  options  for the  Company's
common stock in January 2004,  which included the 125,000 options required to be
issued to Mr.  Lekach.  Since the exercise  prices of the options were less than
the market price of the  Company's  common stock on the grant date,  the Company
incurred  a  non-cash  stock  based   compensation   expense  of   approximately
$2,286,000.  In addition,  pursuant to the change of control  provisions  in the
same employment and consulting  agreements,  the Company  accrued  approximately
$2,645,000 in January 2004, representing amounts subsequently paid to these same
individuals  as a result  of the  change  of  control.  These  charges  totaling
approximately  $4,931,000 are included in "Expenses  incurred in connection with
change of control" on the accompanying  consolidated statement of operations for
the year ended January 31, 2004.

      The  Nussdorfs are officers and  principals of Quality King  Distributors,
Inc.  ("Quality  King").  Quality King distributes  pharmaceuticals,  health and
beauty care products and fragrances. The Company's President and Chief Executive
Officer,  Michael  Katz is an  executive  of  Quality  King  and  the  Company's
principal shareholders, Stephen Nussdorf, the Chairman of the Company's Board of
Directors and Glenn Nussdorf,  his brother,  are  shareholders and executives of
Quality  King.  During  fiscal year 2005,  the Company  purchased  approximately
$30,547,000 of merchandise  from Quality King and its  affiliates,  representing
approximately  23% of the  Company's  total  purchases,  and sold  approximately
$17,853,000 of different  merchandise to Quality King, which represented 100% of
the  Company's  wholesale  sales.  There  were  approximately   $39,317,000  and
$5,960,000  of purchases  from Quality King and  approximately  $23,570,000  and
$11,366,000  of  merchandise  sold to Quality King during  fiscal years 2004 and
2003  respectively.  The  wholesale  sales made to Quality  King result from the
Company's supplier  relationships and its ability to obtain certain  merchandise
at better prices and  quantities  than Quality King.  The amounts due to Quality
King at January 28, 2006 and January 29, 2005,  were  approximately  $17,240,000
and  $13,234,000  respectively.   Accounts  payable  due  to  Quality  King  are
non-interest  bearing and are included in the accounts payable  affiliate in the
Company's consolidated balance sheets.

      Parlux  Fragrances,  Inc.  ("Parlux"),  whose  Chairman  of the  Board  of
Directors and Chief Executive Officer is Ilia Lekach,  owns approximately 13% of
the  Company's  outstanding  common  stock.  Purchases  of products  from Parlux
amounted to approximately  $23,004,000,  $38,360,000,  and $27,701,000 in fiscal
years  2005,  2004  and  2003,  representing  approximately  18%,  20% and  23%,
respectively,  of the  Company's  total  purchases.  The amount due to Parlux on
January  28,  2006 and  January  29,  2005,  was  approximately  $9,666,000  and
$9,994,000,  respectively.  Accounts  payable  due to  Parlux  are  non-interest
bearing.  The  amounts  due to  Parlux  are  included  in the  accounts  payable
affiliates in the accompanying consolidated balance sheets.

NOTE 6 - BANK LINE OF CREDIT AND NOTES PAYABLE

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

<TABLE>
<CAPTION>
                                                               January 28, 2006 January 29, 2005
                                                                 ------------     ------------
<S>                                                              <C>              <C>
Bank line of credit, interest payable
  monthly,  secured by a pledge of substantially all
  of Perfumania's assets                                         $ 20,147,978     $ 31,528,212
                                                                 ============     ============

Subordinated convertible note payable affiliate - long term      $  5,000,000     $  5,000,000
                                                                 ============     ============
</TABLE>

      In May 2004,  Perfumania  entered into a three-year  senior secured credit
facility with GMAC Commercial Finance LLC and Wachovia Capital Finance. The line
of  credit  provides  for  borrowings  of up to  $60  million  depending  on the
Company's levels of eligible inventories.  As of January 28, 2006, $20.1 million
was  outstanding  under the line of credit and $19.3  million was  available  to
support  normal  working  capital   requirements  and  other  general  corporate
purposes.  Advances  under the line of credit are based on a formula of eligible
inventories  and bears  interest at a floating  rate  ranging  from (a) prime to
prime plus 1.25% or (b) LIBOR plus 2.5% to 3.75%  depending on a financial ratio
test.  The  effective  interest rate on the line of credit was between 6.88% and
7.25% as of January 28, 2006. Advances are secured by a first lien on all assets
of  Perfumania.   The  credit  facility   contains   limitations  on  additional
borrowings, capital expenditures and other items, and contains various covenants
including  a  fixed  charge   coverage  ratio,  a  leverage  ratio  and  capital
expenditure  limits as defined.  The credit facility  expires in May 2007. As of
January 28, 2006,  Perfumania was in compliance with its covenant  requirements.
Company's  management  is  currently  negotiating  an  extension  to this credit
facility.

      In March 2004, the Nussdorfs  provided a $5,000,000  subordinated  secured
demand loan to Perfumania.  The demand loan required quarterly interest payments
at the prime rate plus 1%. There were no  prepayment  penalties and the loan was
subordinate to all bank related  indebtedness.  On December 9, 2004, the Company
issued a Subordinated  Convertible Note (the "Convertible Note") in exchange for
the $5,000,000  subordinated  secured demand loan.  The  Convertible  Note bears
interest at the prime rate plus 1%, requires  quarterly interest payments and is
secured by a security  interest in the Company's  assets  pursuant to a Security
Agreement,  by and among the Company and the Nussdorfs.  There are no prepayment
penalties  and  the  Convertible   Note  is  subordinate  to  all  bank  related
indebtedness.  The  Convertible  Note was payable in January 2007 and allows the
Nussdorfs to convert the  Convertible  Note into shares of the Company's  common
stock at a conversion price of $11.25,  which equals the closing market price of
the  Company's  common stock on the date of the  exchange.  The  Nussdorfs  have
agreed to extend the due date of the Convertible Note to January 2009.


                                       35
<PAGE>

NOTE 7 - IMPAIRMENT OF ASSETS

      Based on a review of the Company's  retail store  locations  with negative
cash flows, the Company recognized  non-cash  impairment charges relating to its
retail operations of approximately  $0.2 million,  $0.3 million and $0.6 million
during  fiscal  years 2005,  2004 and 2003,  respectively.  These  charges  were
determined  based on the difference  between the carrying amounts of the assets,
representing primarily fixtures and leasehold improvements,  at particular store
locations  and the fair  values of the  assets on a  store-by-store  basis.  The
estimated fair values are based on anticipated future cash flows discounted at a
rate commensurate  with the risk involved.  These impairment losses are included
in provision  for  impairment of assets and store  closings in the  accompanying
consolidated statements of operations.


NOTE 8 - INCOME TAXES (AS RESTATED)

      Subsequent  to  the  issuance  of  the  Company's  consolidated  financial
statements for fiscal year 2004, the Company  determined that it had incorrectly
excluded  the  after tax  effects  of  temporary  differences  in the  amount of
approximately  $3.0 million related to capital lease obligations of property and
equipment and $2.4 million of Puerto Rican net operating loss  carryforwards  in
the computation of its deferred income tax accounts.  The error  understated the
related  components  of deferred  tax  assets,  with an  offsetting  understated
valuation allowance, as of January 29, 2005 of approximately $5.4 million. Since
the Company had recorded a full valuation  allowance related to its deferred tax
assets as of January 29,  2005 and prior to fiscal  year 2003,  the error had no
impact on the net  deferred  tax assets  reflected  in the  balance  sheet as of
January  29,  2005 or on the  provision  for  income  taxes in the  accompanying
consolidated  statements of operations  for the years ended January 29, 2005 and
January 31, 2004.  However,  the below disclosures give effect to the correction
of the error from disclosures previously reported.

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

                                        FISCAL YEAR ENDED
                         ----------------------------------------------------
                         January 28, 2006  January 29, 2005  January 31, 2004
                           ------------      ------------      ------------
Current:
  Federal                  $   (200,000)     $    (75,000)     $         --
  State                        (200,000)          (75,000)               --
                           ------------      ------------      ------------
                               (400,000)         (150,000)               --
                           ------------      ------------      ------------

Deferred:
  Federal                     7,199,000                --                --
  State                         838,000                --                --
                           ------------      ------------      ------------
                              8,037,000                --                --
                           ------------      ------------      ------------

Income tax
  benefit (provision)      $  7,637,000      $   (150,000)     $         --
                           ------------      ------------      ------------


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

<TABLE>
<CAPTION>
                                                                 FISCAL YEAR ENDED
                                                ---------------------------------------------------
                                                January 28, 2006  January 29, 2005  January 31, 2004
                                                  ------------      ------------      ------------
<S>                                               <C>               <C>               <C>
Benefit (expense) at federal statutory rates      $ (2,253,609)     $ (1,122,436)     $  4,376,378
Non-deductible expenses                                (18,000)          (33,152)         (906,512)
Change in valuation allowance                        9,675,699           210,556        (2,607,176)
Other                                                  232,910           795,032          (862,690)
                                                  ------------      ------------      ------------
Income tax benefit (provision)                    $  7,637,000      $   (150,000)     $         --
                                                  ------------      ------------      ------------
</TABLE>

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


                                       36
<PAGE>

<TABLE>
<CAPTION>
                                                            FISCAL YEAR ENDED
                                                   ----------------------------------
                                                   January 28, 2006   January 29, 2005
                                                     ------------       ------------
<S>                                                  <C>                <C>
Assets:
  Net operating loss & tax credit carryforwards      $  3,755,471       $  6,482,224
  Puerto Rican net operating loss carryforwards         2,730,392          2,352,642
  Capital loss carryforward                             1,571,773          1,571,773
  Inventories                                           1,008,025          1,257,747
  Property and equipment                                4,688,345          3,723,148
  Goodwill                                                246,816            296,382
  Self insured reserves and other                         580,343            535,948
                                                     ------------       ------------
Total deferred tax assets                              14,581,165         16,219,864
Valuation allowance                                    (4,302,165)       (16,219,864)
                                                     ------------       ------------
Net deferred tax assets                              $ 10,279,000       $         --
                                                     ============       ============
</TABLE>

      The Company previously  recorded a full valuation allowance related to its
deferred tax assets as realization of these assets was not more likely than not.
Management  has now  determined  that it is more likely than not that certain of
the Company's deferred tax assets will be realized. As a result, the reversal of
the valuation  allowance of  approximately  $9.7 million has been reflected as a
benefit in the tax provision for fiscal year 2005. In addition,  the reversal of
approximately  $2.2  million of valuation  allowance  related to the exercise of
stock  options has been  recorded in the  consolidated  statements of changes in
shareholders'  equity. The remaining  valuation  allowance of approximately $4.3
million  relates to capital loss  carryforwards  and Puerto Rican net  operating
loss  carryforwards  where  management has determined  that the benefit of those
deferred  tax assets are not more likely than not to be  realized.  Puerto Rican
net operating loss carryforwards begin expiring in fiscal year 2007.

      In evaluating the  reasonableness of the valuation  allowance,  management
assesses  whether it is more likely than not that some  portion,  or all, of the
deferred  tax  assets  will not be  realized.  Ultimately,  the  realization  of
deferred tax assets is dependant upon generation of future taxable income during
those periods in which temporary  differences  become  deductible and/or credits
can be  utilized.  To this end,  management  considers  the level of  historical
taxable  income,  the  scheduled  reversal of deferred tax assets and  projected
future taxable  income.  Based on these  considerations,  and the  carry-forward
availability of the deferred tax assets,  management  believes it is more likely
than not that the Company  will  realize the benefit of the  deferred tax asset,
net of the January 28, 2006  valuation  allowance.  The  Company's net operating
loss carryforwards begin to expire in 2019.

NOTE 9 - SHAREHOLDERS' EQUITY

PREFERRED STOCK

      The Company's  Articles of  Incorporation  authorize the issuance of up to
1,000,000 shares of preferred stock. The preferred stock may be issued from time
to time at the  discretion  of the  Board  of  Directors  without  shareholders'
approval.  The  Board of  Directors  is  authorized  to issue  these  shares  in
different  series and,  with respect to each series,  to determine  the dividend
rate, and provisions regarding redemption,  conversion,  liquidation  preference
and other rights and privileges.  As of January 28, 2006, no preferred stock had
been issued.

TREASURY STOCK

      From  time to time the  Company's  Board of  Directors  has  approved  the
repurchase of the Company's  common stock.  As of January 28, 2006,  the Company
had repurchased  approximately  898,000 shares of common stock for approximately
$8.6 million. There were no repurchases during fiscal years 2005 or 2004.


                                       37
<PAGE>

STOCK OPTION PLANS

      The Company currently has two plans which provide for equity-based  awards
to its  employees  and  directors.  Pursuant to the 2000 Stock  Option Plan (the
"Stock Option Plan") and 2000 Directors Stock Option Plan (the "Directors Plan")
(collectively,  the "Plans"),  375,000 shares and 30,000 shares of common stock,
respectively,  were  initially  reserved for issuance  upon  exercise of options
under the Stock Option Plan and the Directors Plan. Additionally,  the number of
shares available under the Stock Option Plan  automatically  increases each year
by an  amount  equal  to 3% of  the  shares  of  common  stock  of  the  Company
outstanding at the end of the immediate  preceding  year. The Company's Board of
Directors,  or a committee thereof,  administers and interprets the Stock Option
Plan. The Stock Option Plan provides for the granting of both  "incentive  stock
options"  (as  defined  in  Section  422A  of the  Internal  Revenue  Code)  and
non-statutory stock options.  Options can be granted under the Stock Option Plan
on such terms and at such prices as determined by the Board, except that the per
share  exercise  price of options will not be less than the fair market value of
the common stock on the date of grant. Only non-employee  directors are eligible
to receive  options under the Directors Plan. The Directors Plan provides for an
automatic  grant of an option to  purchase  500  shares  of  common  stock  upon
election as a director of the Company and an automatic  grant of 1,000 shares of
common stock upon such  person's  re-election  as a director of the Company,  in
both  instances at an exercise price equal to the fair value of the common stock
on the date of grant.

      As a result of the change in control  described in Note 5, 244,252 options
were issued in fiscal year 2003 which were immediately exercisable.  The Company
incurred a charge of approximately  $2,286,000 in non-cash  compensation expense
as a result of the issuance of these options which  represented  the  difference
between the market  price and  exercise  price,  on the  issuance  date of these
options.

      Options  granted  under the Stock  Option Plan are  exercisable  after the
period or periods specified in the option  agreement,  and options granted under
the Directors Plan are exercisable immediately.  Options granted under the Plans
are not exercisable after the expiration of 10 years from the date of grant.

      A summary of the Company's  option activity,  and related  information for
each of the three fiscal years ended January 28, 2006 is as follows:

<TABLE>
<CAPTION>
                                                 2005                       2004                         2003
                                      ------------------------     ------------------------     ------------------------
                                                      Weighted                    Weighted                      Weighted
                                                       Average                     Average                      Average
                                                      Exercise                     Exercise                     Exercise
                                        Shares          Price        Shares          Price        Shares         Price
                                      ----------     ----------    ----------     ----------    ----------     ---------
<S>                                      <C>         <C>           <C>            <C>           <C>            <C>
Outstanding at beginning of year         212,032     $     9.46       809,238     $     4.99       666,501     $    5.32
Granted                                  110,666          12.42         5,334          11.12       254,252          4.79
Exercised                                (22,531)          3.71      (548,926)          3.08       (69,997)         3.38
Cancelled                                (60,379)         13.82       (53,614)          7.65       (41,518)        11.93
                                      ----------                   ----------                   ----------
Outstanding at end of year               239,788     $    10.27       212,032     $     9.46       809,238     $    4.99
                                      ==========                   ==========                    =========

Options exercisable at end of year       239,788     $    10.27       212,032     $     9.46       696,436     $    5.10
</TABLE>

      The following table summarizes information about stock options outstanding
at January 28, 2006:

<TABLE>
<CAPTION>
                                        OPTIONS OUTSTANDING          OPTIONS EXERCISABLE
                                                      Weighted                     Weighted
                                       Weighted       Average                       Average
                                       Average        Remaining                    Remaining
   RANGE OF             NUMBER         Exercise      Contractual     NUMBER        Exercise
EXERCISE PRICES        OUTSTANDING      Price       Life in Years  EXERCISABLE      Price
---------------        -----------    ----------    -------------  -----------     ---------
<S>                    <C>            <C>           <C>            <C>             <C>
  $2.00 - $7.76             72,344     $    4.87           5.99         72,344     $   4.87
 $8.24 - $12.52             42,188         10.93           4.77         42,188        10.93
    $12.99                 100,000         12.99           9.42        100,000        12.99
 $13.00 - $21.52            25,256         13.89           6.83         25,256        13.89
                        ----------                                 -----------
                           239,788     $   10.27           7.29        239,788     $  10.27
                        ==========                                 ===========
</TABLE>


                                       38
<PAGE>

NOTE 10- EMPLOYEE BENEFIT PLANS

      The  Company  has a 401(k)  Savings  and  Investment  Plan  ("the  Plan").
Pursuant to such Plan,  participants may make  contributions to the Plan up to a
maximum of 20% of total  compensation  or $13,000,  whichever  is less,  and the
Company, at its discretion, may match such contributions to the extent of 25% of
the  first  6%  of  a  participant's   contribution.   The  Company's   matching
contributions vest over a 4-year period. In addition to matching  contributions,
the Company may make additional  contributions on a discretionary basis in order
to  comply  with  certain   Internal   Revenue  Code   regulations   prohibiting
discrimination  in favor of highly  compensated  employees.  The Company did not
match contributions during fiscal year 2005 and 2004 and matching  contributions
during fiscal year 2003 were not significant.



NOTE 11 - COMMITMENTS AND CONTINGENCIES

      The  Company is  self-insured  for  employee  medical  benefits  under the
Company's  group  health  plan.  The Company  maintains  stop loss  coverage for
individual  medical claims in excess of $80,000 and for annual  Company  medical
claims  which exceed  approximately  $2.1  million in the  aggregate.  While the
ultimate  amount of claims  incurred are  dependent on future  developments,  in
management's opinion, recorded reserves are adequate to cover the future payment
of claims incurred as of January 28, 2006. However, it is possible that recorded
reserves may not be adequate to cover the future payment of claims. Adjustments,
if any, to estimates  recorded  resulting  from ultimate  claim payments will be
reflected in operations in the periods in which such adjustments are determined.
The  self-insurance  reserve  at  January  28,  2006 and  January  29,  2005 was
approximately $229,000 and $426,000,  respectively, which is included in accrued
expenses and other liabilities in the accompanying consolidated balance sheets.

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

      Rent expense is as follows:

                                      FISCAL YEAR
                      ----------------------------------------------
                          2005             2004             2003
                      ------------     ------------     ------------
Minimum rentals       $ 14,635,031     $ 14,067,187     $ 14,297,451
Contingent rentals       1,449,216        1,349,318        1,261,577
                      ------------     ------------     ------------
Total                 $ 16,084,247     $ 15,416,505     $ 15,559,028
                      ------------     ------------     ------------


      Future minimum lease commitments under non-cancelable  operating leases at
January 28, 2006 are as follows:

             FISCAL YEAR
-----------------------------------
2006                                           $ 14,228,433
2007                                             11,972,759
2008                                              8,982,443
2009                                              7,442,825
2010                                              5,815,649
Thereafter                                       12,330,830
                                               ------------
Total future minimum lease payments            $ 60,772,939
                                               ============


                                       39
<PAGE>

      The  Company's  capitalized  leases  consist  of a  corporate  office  and
distribution  facility in Sunrise,  Florida,  as well as computer  hardware  and
software.  The lease for the corporate office and  distribution  facility is for
approximately 14 years with monthly rent ranging from  approximately  $81,000 to
$104,000.  The lease terms for the computer  hardware and software vary from one
to three years.  The following is a schedule of future  minimum  lease  payments
under  capital  leases  together with the present value of the net minimum lease
payments, at January 28, 2006:

             FISCAL YEAR
-----------------------------------
2006                                           $  1,249,082
2007                                              1,237,775
2008                                              1,217,482
2009                                              1,231,779
2010                                              1,239,766
Thereafter                                        9,175,867
                                               ------------
Total future minimum lease payments              15,351,751
Less: Amount representing interest               (7,131,113)
                                               ------------
Present value of minimum lease payments           8,220,638
Less: Current portion                              (322,284)
                                               ------------
                                               $  7,898,354
                                               ============

      The  depreciation  expense  relating  to  capital  leases is  included  in
depreciation   and  amortization   expense  in  the  accompanying   consolidated
statements of operations.

      The Company is  involved  in various  legal  proceedings  in the  ordinary
course of business.  Management  cannot  presently  predict the outcome of these
matters,  although  management  believes  that the ultimate  resolution of these
matters will not have a materially  adverse  effect on the  Company's  financial
position.

NOTE 12 - SEGMENT INFORMATION

      Segment  information  is  prepared  on the same basis  that the  Company's
management reviews financial  information.  The Company operates in two industry
segments,  specialty  retail sales and wholesale  distribution of fragrances and
related  products.  Retail  sales  include  sales  through  our  Internet  site,
perfumania.com.  The  accounting  policies of the segments are the same as those
described  in the  summary of  significant  accounting  policies  in Note 2. The
Company  does  not  allocate  operating  and  other  expenses  to its  segments.
Financial information for these segments is summarized in the following table.

                                       FISCAL YEAR
                   --------------------------------------------------
                        2005              2004              2003
                   --------------    --------------    --------------
Net sales:
  Retail           $  215,841,101    $  201,424,708    $  198,478,506
  Wholesale            17,852,980        23,578,493        14,089,063
                   --------------    --------------    --------------
                   $  233,694,081    $  225,003,201    $  212,567,569
                   ==============    ==============    ==============
Gross profit:
  Retail           $   95,353,919    $   90,048,875    $   81,923,375
  Wholesale             1,147,240         1,287,721         1,453,645
                   --------------    --------------    --------------
                   $   96,501,159    $   91,336,596    $   83,377,020
                   ==============    ==============    ==============


                                       40
<PAGE>

NOTE 13- QUARTERLY FINANCIAL DATA (UNAUDITED)

      Unaudited  summarized  financial  results  for fiscal  years 2005 and 2004
follows (in thousands, except for per share data):

<TABLE>
<CAPTION>
2005 QUARTER                              FIRST          SECOND         THIRD          FOURTH
                                         --------       --------       --------       --------
<S>                                      <C>            <C>            <C>            <C>
Net sales                                $ 43,278       $ 54,199       $ 43,657       $ 87,560
Gross profit                               17,863         21,521         20,529         36,587
Net income (loss)                          (2,066)          (222)        (1,114)        17,667
Net income (loss) per basic share           (0.70)         (0.08)         (0.38)          5.98
Net income (loss) per diluted share         (0.70)         (0.08)         (0.38)          5.11

<CAPTION>

2004 QUARTER                              FIRST          SECOND         THIRD          FOURTH
                                         --------       --------       --------       --------
<S>                                      <C>            <C>            <C>            <C>
Net sales                                $ 43,571       $ 48,471       $ 50,803       $ 82,158
Gross profit                               17,505         20,868         19,740         33,224
Net income (loss)                          (2,638)          (529)        (1,103)         7,421
Net income (loss) per basic share           (1.00)         (0.18)         (0.38)          2.54
Net income (loss) per diluted share         (1.00)         (0.18)         (0.38)          2.30
</TABLE>

      The Company  realizes  higher  sales,  gross  profit and net income in the
fourth  fiscal  quarter  than the other three  fiscal  quarters due to increased
purchases of fragrances as gift items during the holiday season.

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

      None.

ITEM 9A. CONTROLS AND PROCEDURES

      Our Chief Executive  Officer and Chief  Financial  Officer have concluded,
based on their  evaluation as of January 28, 2006, that our disclosure  controls
and procedures are effective. During the preparation of the financial statements
for fiscal year 2005, and as a result of updates in projected  taxable income we
changed our assessment of the need for the valuation  allowances on deferred tax
assets and enhanced the operating effectiveness of our reconciliation procedures
surrounding financial reporting related to accounting for deferred income taxes.
There have been no  additional  changes in our internal  control over  financial
reporting  during  the  quarter  ended  January  28,  2006 that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.


ITEM 9B. OTHER INFORMATION

      None.



                                       41
<PAGE>

                                    PART III.


ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      Except as  disclosed  below,  the  information  called for by this item is
incorporated  by  reference  from  E  Com  Ventures,   Inc.  Annual  Meeting  of
Shareholders  - Notice  and  Proxy  Statement  - 2005 (to be filed  pursuant  to
Regulation  14A not later than 120 days  after the close of the fiscal  year) in
accordance with General Instruction 6 to the Annual Report on Form 10-K.

      The Company has adopted a Code of Business Conduct and Ethics that applies
to all of the Company's officers, directors and employees.

ITEM 11. EXECUTIVE COMPENSATION

      The information  called for by this item is incorporated by reference from
E Com Ventures, Inc. Annual Meeting of Shareholders - Notice and Proxy Statement
- 2005 (to be filed pursuant to Regulation 14A not later than 120 days after the
close of the fiscal year) in accordance with General Instruction G to the Annual
Report on Form 10-K.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

      The  information is required by Item 403 of Regulation S-K relating to the
ownership of our common stock by certain beneficial owners and management and is
incorporated  by  reference  from  E  Com  Ventures,   Inc.  Annual  Meeting  of
Shareholders  - Notice  and  Proxy  Statement  - 2005 (to be filed  pursuant  to
Regulation  14A not later than 120 days  after the close of the fiscal  year) in
accordance with General Instruction G to the Annual Report on Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The  information is  incorporated  by reference from E Com Ventures,  Inc.
Annual Meeting of  Shareholders - Notice and Proxy Statement - 2005 (to be filed
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year) in  accordance  with General  Instruction  G to the Annual  Report on Form
10-K.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      The  information is  incorporated  by reference from E Com Ventures,  Inc.
Annual Meeting of  Shareholders - Notice and Proxy Statement - 2005 (to be filed
pursuant to Regulation 14A not later than 120 days after the close of the fiscal
year) in  accordance  with General  Instruction  G to the Annual  Report on Form
10-K.



                                       42
<PAGE>

                                    PART IV.

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

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

            (1)   Financial  Statements

                        An index to  financial  statements  for the fiscal years
                        ended January 28, 2006, January 29, 2005 and January 31,
                        2004 appears on page 23.

            (2)   Financial Statement Schedules

                  None

            (3)   Exhibits

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


 3.1       Amended and Restated Articles of Incorporation               (1)

 3.2       Bylaws                                                       (2)

10.5       1991 Stock Option Plan, as amended*                          (3)

10.6       1992 Directors Stock Option Plan, as amended*                (3)

10.7        Series A Securities Purchase Agreement                      (4)

10.8       Series B Securities Purchase Agreement                       (5)

10.9       Series C Securities Purchase Agreement                       (6)

10.10      Series D Securities Purchase Agreement                       (6)

10.11      2000 Stock Option Plan*                                      (7)

10.12      2000 Directors Stock Option Plan*                            (7)

10.13      Amended and Restated Revolving Credit and Security
           Agreement with GMACCommercial Credit LLC, and
           Congress Financial Corporation (Florida), date
           May 12, 2004                                                (11)

10.14      Nussdorf Subordinated Secured Demand Note                   (11)

10.15      Lease agreement with Victory Investment Group, LLC,
           dated October 21, 2002                                       (8)

10.16      Waiver and  Amendment to the  Revolving Credit and
           Security Agreement with GMAC Commercial Credit LLC,
           dated April 29,2004                                         (11)

10.17      Amendment to the 2000 Stock Option Plan*                     (9)

10.18      Nussdorf Subordinated Secured Convertible Note              (10)

21.1       Subsidiaries of the Registrant                              (12)

23.1       Consent of Deloitte & Touche LLP                            (12)

31.1       Certification of the Chief Executive Officer
           pursuant to Section 302 ofthe Sarbanes-Oxley
           Act of 2002                                                 (12)

31.2       Certification of the Chief Financial Officer
           pursuant to Section 302 ofthe Sarbanes-Oxley
           Act of 2002                                                 (12)

32.1       Certification of the Chief Executive Officer
           pursuant to Section 906 of the Sarbanes-Oxley
           Act of 2002                                                 (12)

32.2       Certification of the Chief Financial Officer
           pursuant to Section 906 of  the Sarbanes-Oxley
           Act of 2002                                                 (12)


                                       43
<PAGE>

*     Management contract or compensatory plan or arrangement

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

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

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

(4)   Incorporated by reference to the exhibit of the same description filed
      with the Company's Registration Statement on Form S-1 filed June 11, 1999
      (No. 333-80525).

(5)   Incorporated by reference to the exhibit of the same description filed
      with the Company's Registration Statement on Form S-1/A, filed August 31,
      1999 (No. 333-80525).

(6)   Incorporated by reference to the exhibit of the same description filed
      with the Company's Registration Statement on Form S-3 filed April 25, 2000
      (No. 333-35580).

(7)   Incorporated by reference to the exhibit of the same description filed
      with the Company's Proxy Statement (filed October 6, 2000).

(8)   Incorporated by reference to the exhibit of the same description filed
      with the Company's 2002 Form 10-K (filed April 30, 2003).

(9)   Incorporated by reference to Appendix A to the Company's Proxy Statement
      (filed April 16, 2004).

(10)  Incorporated by reference to the exhibit of the same description filed
      with the Company's Form 8-K (filed in December 14, 2004).

(11)  Incorporated by reference to the exhibit of the same description filed
      with the Company's 2004 Form 10-K (filed April 29, 2005).

(12)  Filed Herewith.


                                       44
<PAGE>

SIGNATURES

       Pursuant  to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, April 28, 2006.


                              E Com Ventures, Inc.

                              By: /s/ MICHAEL W. KATZ
                              -------------------------------------
                              Michael W. Katz,
                              President and Chief Executive Officer
                              (Principal Executive Officer)


                              By: /s/ A. MARK YOUNG
                              -------------------------------------
                              A. Mark Young,
                              Chief Financial Officer
                              (Principal Accounting Officer)


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


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

/s/ MICHAEL W.  KATZ        President and Chief Executive         April 28, 2006
------------------------    Officer
Michael W. Katz             (Principal Executive Officer)

/s/ STEPHEN NUSSDORF        Chairman of the Board of Directors    April 28, 2006
------------------------
Stephen Nussdorf


/s/ A. MARK YOUNG           Chief Financial Officer,              April 28, 2006
------------------------    (Principal Accounting Officer)
A. Mark Young


/s/ DONOVAN CHIN            Chief Financial Officer               April 28, 2006
------------------------    Perfumania, Inc.,
Donovan Chin


/s/ CAROLE ANN TAYLOR       Director                              April 28, 2006
------------------------
Carole Ann Taylor


/s/ JOSEPH BOUHADANA        Director                              April 28, 2006
------------------------
Joseph Bouhadana


/s/ PAUL GARFINKLE          Director                              April 28, 2006
------------------------
Paul Garfinkle



                                       45