Esio Water & Beverage Development Corp. – ‘10KSB’ for 6/30/97

As of:  Tuesday, 10/14/97   ·   For:  6/30/97   ·   Accession #:  950147-97-696   ·   File #:  33-58694

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Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report - Form 10-Ksb                           27    128K 
 2: EX-27       Financial Data Schedule                                1      7K 

10KSB   —   Annual Report – Form 10-Ksb
Document Table of Contents

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 FORM 10-KSB

(Mark One)                                                                      
[  X  ]   ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF THE  SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]                         

For the fiscal year ended         June 30, 1997                                 
  ------------------------------

[     ]   TRANSITION  REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]                      

For the transition period from _____________________ to ________________________

Commission file number 33-58694                                                 
----------                          

 FBR CAPITAL CORPORATION
 -----------------------
(Name of small business issuer in its charter)

Nevada                                        13-3465289    
-------------------------------             ------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
incorporation or organization)                                                

14988 N. 78th Way, Suite 203, Scottsdale, Arizona                     85260     
-------------------------------------------------                  ----------   
  (Address of principal executive offices)                      (Zip Code)

Issuer's telephone number:  (602) 483-1466                                      
------------------          

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

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

Title of each class                                               
-------------------                                               

Common Stock, par value $.005 per share                           

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

Check if there is no  disclosure of  delinquent  filers  pursuant to Item 405 of
Regulation  S-B  contained  herein,  and will not be  contained,  to the best of
issuer's knowledge,  in definitive proxy or information statements  incorporated
by  reference  in Part III of this  Form  10-KSB or any  amendment  to this Form
10-KSB. [_]                                                                     

State issuer's revenues for its most recent fiscal year:   $ 0                

As of September 29, 1997, the aggregate market value of the Registrant's  Common
Stock (based on the reported last sale price on the OTC Bulletin  Board) held by
non-affiliates of the Registrant was $1,740,789.                                

Transitional Small Business Disclosure Format:  Yes [_]    No [X]               

As of September 29, 1997, 4,648,205  shares  of  Registrant's  Common Stock were
outstanding.                                                                    

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PART I

ITEM 1.   BUSINESS.                                                             

Historical Overview                                                             

The Company was  incorporated  under the laws of Nevada in 1988.  Until June 28,
1996,  it was engaged in the business of developing  and  marketing  fragrances,
cosmetics,  skin  treatment and personal  care  products.  On July 1, 1996,  the
Company filed a  Certificate  of Amendment to its Articles of  Incorporation  to
change  its  name  from  "Richard  Barrie  Fragrances,  Inc."  to  "FBR  Capital
Corporation."                                                                   

Sale of Assets. On June 28, 1996,  effective for accounting  purposes as of June
30, 1996, the Company sold to Parlux Fragrances,  Inc.  ("Parlux"),  pursuant to
the Asset  Purchase  Agreement  dated  January 31, 1996  between the Company and
Parlux, virtually all of the assets,  properties and rights owned by the Company
in connection with its business ("Asset Sale") for consideration of (i) $750,000
in cash, (ii) 370,000 shares of the Common Stock of Parlux ("Parlux Stock"), and
(iii) the  assumption  by Parlux of (a)  liabilities  under  certain  leases for
periods  from and after the closing  date,  (b)  liabilities  of the Company set
forth on the  Company's  balance sheet dated  September 30, 1995 (but  expressly
excluding  any  liability   with  respect  to  the  Company's  10%   Convertible
Subordinated Promissory Notes due January 15, 1996 ("Notes")) to the extent such
liabilities  existed on the closing  date,  (c)  additional  liabilities  of the
Company of the types  reflected  on the  balance  sheet as the same arose in the
ordinary course of the business between  September 30, 1995 and the closing date
and which are reflected on the Company's closing date balance sheet, and (d) all
obligations  under  contracts,  customer  orders,  purchase  orders,  and  other
agreements and commitments  that were included in the assets acquired by Parlux.
Parlux did not assume the following  liabilities of the Company: (i) liabilities
and  obligations to the Company's  employees,  (ii) legal,  accounting and other
fees,  taxes and other expenses  incurred in connection with the sale of assets,
(iii) taxes (other than income  taxes) for periods prior to the closing date and
income taxes for all periods,  (iv)  liabilities and obligations with respect to
assets not acquired and (v) liabilities and obligations  arising from pending or
threatened  litigation  or claims  against  the  Company.  Pursuant to the Asset
Purchase  Agreement,  the Company agreed to indemnify Parlux with respect to any
claims caused by or arising from (i) any  misrepresentation,  breach of warranty
or  breach  of any term or  provision  of the Asset  Purchase  Agreement  by the
Company to a maximum amount of $3,700,000  (which amount,  at June 30, 1997, was
in excess of the value of the Company's assets),  provided such claim is made in
writing within two years after the closing,  (ii) any liabilities not assumed by
Parlux or (iii) liabilities  (other than assumed  liabilities)  arising from the
operation of the Company's  business  prior to the closing.  Conversely,  Parlux
agreed to indemnify the Company with respect to claims caused by or arising from
(i) any misrepresentation, breach of warranty or breach of any term or provision
of the Asset  Purchase  Agreement  by  Parlux,  provided  such  claim is made in
writing  within two years after the  closing,  (ii) any  liabilities  assumed by
Parlux, or (iii) any liability arising from the operation of the business of the
Company by Parlux after the closing.  No indemnification  rights are enforceable
until the aggregate amounts of claims subject to such rights in favor of a party
exceeds $10,000.                                                                

In connection with the  transaction,  Parlux entered into a Registration  Rights
Agreement  in favor of the Company  pursuant to which  Parlux  agreed to use its
best efforts to register the Parlux Stock under the  Securities  Act of 1933, as
amended, on demand and at any time Parlux proposed to register any of its equity
securities  under the Securities  Act,  without cost to the Company.  On July 1,
1996,  the Company  made a demand on Parlux to register  the Parlux Stock and it
was registered in August 1996.                                                  

On June 28,  1996,  the market  value of the Parlux Stock was $10.125 per share,
and the  aggregate  value  would  have  been  sufficient  to pay  the  aggregate
Redemption Price of $2,895,200.  At that time, however, the Parlux Stock had not
been  registered for resale under the  Securities Act of 1933 and,  accordingly,
transfer                                                                        
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thereof was  restricted.  The Parlux Stock was registered on August 12, 1996, on
which date the last sale price had  declined to $7.625 per share.  On  September
29, 1997, the last sale price was $2.06 per share.                              

Completion of Exchange Offer.  Simultaneously with the closing of the Asset Sale
on June 28, 1996,  the Company  completed an exchange  offer with the holders of
the Company's  Notes ("1996 Exchange  Offer"),  pursuant to which the holders of
$5,040,750   aggregate   principal   amount  (97.7%  of  the  principal   amount
outstanding) tendered their Notes in exchange for an aggregate of 594,550 shares
of the Company's  Common Stock, par value $.005 per share, and 517 shares of the
Company's  newly-authorized  Series A Preferred Stock ("Preferred Stock"), at an
exchange  ratio of 2,300 shares of the Company's  Common Stock and two shares of
Series A Preferred  Stock for each  $19,500  principal  amount  Note.  The total
amount of debt (including  principal and unpaid but accrued interest) discharged
pursuant to the exchange amounted to $5,970,472.                                

Change in  Management.  In connection  with the  completion of the 1996 Exchange
Offer,  all of the officers and directors of the Company resigned and Charles D.
Snead,  Jr. and Stephen T. Meadow  assumed  their  positions as directors of the
Company,  to which they had been elected at the Special  Meeting of Stockholders
of the Company held on May 31, 1996. Simultaneously with the closing of the 1996
Exchange Offer,  Mr. Snead was appointed  President and Treasurer (and principal
executive,  accounting  and  financial  officer)  and Mr.  Meadow was  appointed
Secretary of the Company.                                                       

Further  Disposition of Assets. On June 18, 1997, the Company disposed of assets
in the  completion  of an exchange  offer  commenced on February 25, 1997 ("1997
Exchange  Offer") with the holders of the  Company's  Series A Preferred  Shares
("Preferred  Stock"),  pursuant  to which the  holders  tendered  515  shares of
Preferred  Stock (99.6% of the Preferred  Stock  outstanding) in exchange for an
aggregate of 341,445  shares of Parlux  Fragrances,  Inc.  common stock ("Parlux
Stock") owned by the Company, at an exchange ratio of 663 shares of Parlux Stock
for each share of  Preferred  Stock.  The Company  offered to  exchange  342,771
shares of Parlux stock for all 517 shares of Preferred Stock outstanding,  while
retaining 27,229 Parlux shares.                                                 

The Company made the 1997 Exchange Offer because it was required under the terms
of the Preferred Stock to redeem those shares by June 27, 1997, for an aggregate
redemption price of $2,895,200  ($5,600 per share).  The holders of the majority
of the  Preferred  Stock had the right to require that the Company be liquidated
after that date and could  require that the proceeds of the  disposition  of its
assets be applied to payment of the redemption  price. As previously  noted, the
market price of the Parlux Stock  declined substantially before being registered
for resale and has been insufficient,  even when added to the amount of cash the
Company had on hand to provide sufficient funds to pay the redemption price.    

In the judgment of the Company's  Board of Directors,  the possibility of such a
liquidation  made the Company a significantly  less attractive  merger candidate
than it would  otherwise  be and hindered  the Company in  negotiating  any such
transaction.  Accordingly,  the Board of Directors  determined  to undertake the
1997 Exchange Offer, which has been completed,  thereby  eliminating all but two
(2) shares of Preferred  Stock and the  possibility of such a liquidation.  With
the completion of this  transaction,  in the judgment of the Board of Directors,
the Company has become a more attractive acquisition vehicle.  However, there is
no  assurance  that the  Company  will  ever  enter  into a  favorable  business
combination,  that such a transaction  will have a favorable effect on the value
of the Company's  common stock or that any such transaction will yield a benefit
to preferred  shareholders equal or greater than the amount of value surrendered
as a result of participating in the 1997 Exchange Offer.                        
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The effect of the consummation of the 1997 Exchange Offer is that the holders of
the tendered  Preferred  Stock who have  received  their Parlux Shares no longer
have any claim on the assets of the Company or any right to cause liquidation of
the  Company or to acquire  any of its assets,  which  consist of the  Company's
remaining  27,229  shares  of  Parlux  Stock,  its cash  and its  U.S.  Treasury
securities.  The Company  eliminated  potential  redemption  price  claims in an
aggregate  amount of $2,884,000  by  exchanging  Parlux Shares with an aggregate
value of  $768,251  based on the  closing  price of  Parlux  Shares  at June 18,
1997.Tender of the Preferred Stock also  constituted a grant of a release to the
officers, directors, employees and agents of the Company with respect to any and
all claims which the tendering holder had or thereafter may have with respect to
the  Preferred  Stock,  the rights of the holders  thereof and the 1997 Exchange
Offer.                                                                          

Description of Present Business.                                                

Since the Asset Sale in June 1996, the Company's operations have been limited to
the conduct of administrative  activities such as paying indebtedness  remaining
after the Asset Sale,  acquiring  outstanding Notes,  settling a claim for prior
services,  preparing and filing  federal and state tax returns and quarterly SEC
filings,  undertaking  and  completing the 1997 Exchange Offer and other general
corporate  activities.  Also.  the Company has been  identifying  and conducting
discussions  with respect to a possible  business  combination  with one or more
entities  interested in acquiring or being acquired by the Company.  The Company
is free to investigate  businesses of essentially any kind or nature,  including
but not limited to, finance,  technology,  manufacturing,  service, research and
development, healthcare, communications,  insurance or transportation. While the
company has not chosen any  particular  area of business in which it may propose
to engage and has not conducted any market studies with respect to any business,
property or industry, the directors of the Company have considered the strengths
and weaknesses of the Company and established  certain initial  criteria for its
search. The Company will first seek a business combination with a company having
a business  or line of  products  with good  prospects  for future  profits  and
growth.  In view of the  Company's  small size and book value,  the  appropriate
candidate is expected to be an emerging or developing  company.  Other  priority
candidates may be those desiring to become a public company and those which have
an  interest  in  acquiring  the  Company's  cash and net  operating  loss carry
forwards.                                                                       

A number of companies have been identified which in the judgment of the Board of
Directors meet the criteria set forth above and discussions  have been held with
several of them. There is no assurance of the availability, viability or success
of any  acquisition  or the results of  operations  of the Company in connection
with any  acquisition or business  venture.  Even if a suitable  candidate for a
business combination is found and negotiations are successfully completed, there
is no assurance of successful operations after the combination has been effected
or that  existing  stockholders  of the  Company  will  not  suffer  substantial
dilution of their equity position,  either upon the business  combination itself
or upon the completion of any additional financing which may be necessary.      

The Company continues to hold 27,229 shares of Parlux Stock and on September 29,
1997, had approximately  $26,500 in cash in banks and approximately  $355,000 in
U.S. Government Treasury Bills maturing in November, 1997.                      
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Employees                                                                       

In connection with the Asset Sale on June 28, 1996, all employees of the Company
were  terminated  and the Company has no employees.  The Company's two executive
officers  provide  certain  services to the  Company on a part-time  consultancy
basis.                                                                          

ITEM 2.   PROPERTIES                                                            

Since  July 1,  1996,  the  Company's  activities  have  been  conducted  by its
directors  at  offices  maintained  or made  available  to them for  other  work
unrelated to the Company.  The Company's  current executive office is located in
an office made  available to Mr.  Snead at no expense.  Although the Company has
not been  required  to pay any rent for this  office to date,  in the future the
Company may be required to pay fair market rent for its  executive  office.  The
Company  believes  that this office  arrangement  is adequate for the  Company's
needs.                                                                          

ITEM 3.   LEGAL PROCEEDINGS.                                                    

None.                                                                 

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

No matter was submitted  during the fourth quarter of the fiscal year covered by
this report to a vote of security  holders,  through  solicitation of proxies or
otherwise.                                                                      

 PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.             

The Company's  Common Stock was traded on the Pacific Stock  Exchange  under the
symbol "RBF" until April 3, 1996, when trading was suspended  pending  delisting
of the Common  Stock  because  of the  Company's  failure to meet the  financial
requirements for continued listing.  After delisting,  the Common Stock has been
traded on the NASD's OTC  Bulletin  Board,  where it is quoted  under the symbol
"FBRR."                                                                         

Set forth below are the high and low sales prices of the Company's  Common Stock
for the periods indicated as reported by the Pacific Stock Exchange (for periods
prior to the fourth quarter of fiscal 1996), and as reported by the OTC Bulletin
Board (for the fourth quarter of fiscal 1996 and all of fiscal 1997):           

Period                                  High($)           Low($)                
------                                  -------           ------                

Fiscal 1997                                                                     

Fourth Quarter                0.625            0.26       

Third Quarter                 0.375            0.20       

Second Quarter                0.47             0.15       

First Quarter                 0.53             0.36       

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Fiscal 1996                                                                     

Fourth Quarter                0.5625           0.2525     

Third Quarter                 0.25             0.15625    

Second Quarter                0.50             0.125      

First Quarter                 1.125            0.3125     

As of  September  29,  1997,  there were 298 holders of record of the  Company's
Common Stock.                                                                   

The  Company  has never  paid any cash  dividends.  Because of the status of the
Company's  business  described  in Item 1, it is highly  unlikely  that any cash
dividends will be paid on the Common Stock in the foreseeable future.           

Recent Sales of Unregistered securities                                         

During the fiscal year ended June 30, 1997, the Company made the following sales
of unregistered securities:                                                     

                                                        [Enlarge/Download Table]

                                             Consideration Received and       Exemption    If option, warrant or   
 Date of Sale                              Description of underwriting or       from       convertible security,   
      or                           Number  other discounts to market price  registration    terms of exercise or   
Date of Option  Title of Security   Sold       afforded to purchasers          claimed           conversion        
--------------  -----------------   ----       ----------------------          -------           ----------        

                                                                                                                   
10/21/96          Common Stock     11,500    Extinguished principal and        3(a)(9)              N/A            
                        +                    interest in the amount of                                             
                   Warrants to     12,500  $57,525 on five (5) convertible     3(a)(9)      warrants exercisable   
                     purchase               subordinated promissory notes                       on or before       
                   common stock                                                            October 15, 1999 at an  
                                                                                           exercise price of $2.00 
                                                                                                 per share         

1/22/97             Option to      30,000        option granted - no            4(2)       exercisable for 5 years 
                    purchase                  consideration received by                    from the date of grant  
                  common stock                  Company until exercise                    at exercise price of $.31
                   granted to                                                                     per share        
                  director and                                                                                     
                   consultant                                                                                      

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

Plan of Operations                                                              

The Company has not  conducted  any  operations  in the normal  course since the
Asset Sale on June 28, 1996. Accordingly, the results of its previous operations
are not material.  The reasons for the Asset Sale and the  discontinuance of the
Company's  business were previously  reported in the Company's Proxy  Statement,
dated April 22, 1996, with respect to the Special  Meeting of Stockholders  held
on May 31, 1996,  for the purpose of approving,  among other  things,  the Asset
Sale.                                                                           
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Upon the  consummation  of the Asset Sale and 1996 Exchange Offer and payment of
certain  previously  billed  related  expenses,  the Company  had  approximately
$680,000 in cash. Of that amount, approximately $56,000 was applied to discharge
certain accounts payable,  including legal fees for June 1996 and accounting and
consulting fees previously incurred.  Corporate and administrative  expenses for
the fiscal year ended June 30, 1997 totaled  approximately  $165,000,  including
$81,750 in fees and expense reimbursement to Officers and Directors, $10,400 for
accounting fees for audit and tax returns,  $22,500 for legal fees,  $17,000 for
liability insurance and $8,900 for stock transfer fees and printing expense. The
Company earned $21,459 of interest income during the 1997 fiscal year.          

Corporate and  administrative  expenses for the current fiscal year are expected
to  be   approximately   $115,000,   including   $70,000  in  fees  and  expense
reimbursement  to the directors,  $10,000 for accounting  fees for audit and tax
returns,   $6,000  for  legal  fees,   $12,000  for   liability   insurance  and
approximately $4,000 for miscellaneous  expense. Funds to pay those expenses are
expected to be derived from interest  income earned during the year and from the
Company's  cash on hand.  The Company  expects  that it will earn  approximately
$16,000 from interest during the 1998 fiscal year.                              

Pursuant to the 1996 Exchange Offer,  the Company settled its obligations  under
all outstanding Notes,  excluding obligations to three holders not participating
in the 1996 Exchange Offer, who held Notes in the aggregate  principal amount of
$117,000. After threatening litigation,  two of the three holders, with Notes in
the aggregate principal amount of $97,500, agreed to settle,  collectively,  for
$62,000 in cash,  11,500  shares of the  Company's  Common Stock and  three-year
warrants to purchase  12,500 shares of the Company's  Common Stock for $2.00 per
share.  The Company  believes that the remaining holder of the last Note, in the
principal  amount of $19,500,  will also accept a  settlement  of the  Company's
obligations  on terms not  requiring  the full cash payment of the amount due on
the Note.  Funds for that settlement are expected to be taken from the Company's
cash on hand.                                                                   

Pursuant to the 1997 Exchange Offer,  the Company settled its obligations  under
all outstanding shares of Preferred Stock,  excluding  obligations to one holder
not  participating in the 1997 Exchange Offer, who holds two shares of Preferred
Stock. The Preferred Stock has a liquidation  preference of $5,600 per share, or
$11,200 in the aggregate.  The 1997 Exchange Offer was communicated to the above
holder at his last known address.  The Company has confirmed that the address to
which the offer was sent is a proper address for the holder, but all attempts by
the   Company  and  its   representatives   to  contact  the  holder  have  been
unsuccessful.  No demand has been made by the holder for  liquidation or payment
in the amount of the liquidation  preference.  Holders of the Series A Preferred
Stock have no voting  rights except the right to vote as a class with respect to
(i) any sale of Company  assets  having a fair market value of $250,000 or more,
alone or in the aggregate with all of the sales of the Company's assets,  unless
all of the  net  proceeds  of  such  sale  are  applied  to the  payment  of the
redemption  price of the Series A Preferred  Stock;  (ii) any  amendments to the
Company's Articles of Incorporation; and (iii) the issuance of any shares of the
Company's capital stock (other than any issuance pursuant to outstanding  rights
or options)  unless the Series A Preferred  Stock will be redeemed in connection
with the  transaction  pursuant to which such  shares are to be issued.  For all
matters on which the  holders of the Series A  Preferred  Stock are  entitled to
vote as a class,  the  affirmative  vote of holders  holding a  majority  of the
Series A Preferred  Stock  outstanding  is required for approval of such matter.
The Series A Preferred Stock has no right to dividends.                         
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ITEM 7.   FINANCIAL STATEMENTS.                                                 

Index to Financial Statements:                                        

    Report of Independent Public Accountants...............................F-1
    Balance Sheet at June 30, 1997 and 1996................................F-2
    Statements of Operations -- Years ended June 30, 1997 and 1996.........F-3
Statements of Stockholders' Equity --                                 
      Years ended June 30, 1997 and 1996...................................F-4
    Statements of Cash Flows -- Years ended June 30, 1997 and 1996...F-5 & F-6
     Notes to Financial Statements...................................F-6 to F-13
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To FBR Capital Corporation:                                                     

We have  audited  the  accompanying  balance  sheet of FBR  Capital  Corporation
(formerly Richard Barrie  Fragrances,  Inc.), (a Nevada  corporation) as of June
30, 1997,  and the related  statements of operations,  stockholders'  equity and
cash flows for each of the two years in the  period  ended  June 30,  1997.  The
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.                                                                      

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of FBR Capital  Corporation as of
June 30, 1997,  and the results of its operations and its cash flows for each of
the two years in the period ended June 30, 1997,  in conformity  with  generally
accepted accounting principles.                                                 

                   ARTHUR ANDERSEN LLP

Phoenix, Arizona,                                                               
September 10, 1997.                                                             
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

 BALANCE SHEET
 JUNE 30, 1997

ASSETS                                                                          

CURRENT ASSETS:                                                                 
  Cash and cash equivalents                                        $    10,238
  Investment in U.S. Government Treasury Bills (Note 3)                388,089
  Investment in common stock of Parlux Fragrances, Inc. (Note 3)        62,967
  Other current assets                                                   5,818
                                                                   -----------

TOTAL ASSETS                                                        $   467,112 
                                                                   ===========

LIABILITIES AND STOCKHOLDERS' EQUITY                                            

CURRENT LIABILITIES:                                                            
  Accounts payable                                                 $     9,694
  Accrued expenses                                                       6,524
  Convertible notes payable (Note 4)                                    19,500
                                                                   -----------

             Total current liabilities                                  35,718

Series A Redeemable preferred Stock:                                            
$0.01 par value, 529 share authorized,                                    
2 shares issued and outstanding at                                      
   liquidation value of $5,600 per share (Note 6)                       11,200
                                                                   -----------

STOCKHOLDERS' EQUITY:                                                           
Preferred stock, $.01 par value;                                          
10,000,000 shares authorized;                                       
   no shares outstanding                                                --
Common stock, $.005 par value;                                            
16,777,667 shares authorized;                                       
     4,648,198 shares issued and outstanding                            23,241
  Additional paid-in capital                                         9,337,192
   Accumulated deficit                                               (8,727,512)
   Unrealized loss on investment (Note 6)                              (212,727)
                                                                   -----------

             Total stockholders' equity                                420,194
                                                                   -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                          $   467,112 
                                                                   ===========

The accompanying notes are an integral part of this balance sheet.
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 and 1996

                                                        [Enlarge/Download Table]

                                                                   1997          1996    
                                                                                         
Operating expenses                                             $  (160,228)  $      --   
                                                               -----------   ----------- 

Other income (expense):                                                                  
   Other income                                                     57,468          --   
   Realized loss on disposal of Parlux common stock             (2,677,898)         --   
   Interest income                                                  21,459          --   
   Interest expense                                                 (7,453)         --   
                                                               -----------   ----------- 

              Other income (expense), net                       (2,606,424)         --   
                                                               -----------   ----------- 

Loss before discontinued operations and extraordinary item      (2,766,652)         --   
   Loss from operations of discontinued operations                    --      (4,828,165)
   Gain on disposal of net assets of discontinued operations          --       2,280,836 
                                                               -----------   ----------- 

              Loss from discontinued operations                       --      (2,547,329)
                                                               -----------   ----------- 

Loss before extraordinary item                                  (2,766,652)   (2,547,329)
Extraordinary gain on extinguishment of debt (Note 4)               53,385     2,815,156 
                                                               -----------   ----------- 

Net income (loss)                                              $(2,713,267)  $   267,827 
                                                               ===========   =========== 

Income (loss) per common and common share equivalent:                                    
   Loss before discontinued operations and extraordinary item         (.59)         --   
   Loss from discontinued operations                                  --            (.58)
   Extraordinary item                                                  .01           .64 
                                                               -----------   ----------- 

Net income (loss) per share                                    $      (.58)  $       .06 
                                                               ===========   =========== 

Weighted average common share and common share                                           
 equivalents outstanding                                         4,648,198     4,420,738 
                                                               ===========   =========== 

The accompanying notes are an integral part of these financial statements.
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996

                                                        [Enlarge/Download Table]

                                                   Common Stock           Additional                 Unrealized               
                                                   ------------            Paid-In     Accumulated    Loss on                 
                                               Shares         Amount       Capital       Deficit     Investment       Total   
                                               ------         ------       -------       -------     ----------       -----   
                                                                                                                              
Balance at June 30, 1995                      4,419,548    $    22,097   $ 6,982,738  $(6,282,072)  $      --     $   722,763 

Contributions of common stock (Note 4)         (377,400)        (1,887)        1,887         --            --            --   

Issuance of common stock to convertible                                                                                       
 note holders (Note 4)                          594,550          2,973       257,143         --            --         260,116 

Net income                                         --             --            --        267,827          --         267,827 
                                            -----------    -----------   -----------  -----------   -----------   ----------- 

Balance at June 30, 1996                      4,636,698         23,183     7,241,768   (6,014,245)         --       1,250,706 

Issuance of common stock to convertible                                                                                       
 note holders (Note 4)                           11,500             58         4,082         --            --           4,140 

Unrealized loss on investment in common                                                                                       
 stock of Parlux Fragrances, Inc. (Note 6)         --             --            --           --        (212,727)     (212,727)

Realized gain on disposition of Series A                                                                                      
 Preferred Stock (Note 6)                          --             --       2,091,342         --            --       2,091,342 

Net loss                                           --             --            --     (2,713,267)         --      (2,713,267)
                                            -----------    -----------   -----------  -----------   -----------   ----------- 

Balance at June 30, 1997                      4,648,198    $    23,241   $ 9,337,192  $(8,727,512)  $  (212,727)  $   420,194 
                                            ===========    ===========   ===========  ===========   ===========   =========== 

The accompanying notes are an integral part of these financial statements.
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, 1997

                                                        [Enlarge/Download Table]

                                                                          1997          1996    
                                                                                                
CASH FLOWS FROM OPERATING ACTIVITIES:                                                           
   Net income (loss)                                                  $(2,713,267)  $   267,827 
                                                                      -----------   ----------- 
   Adjustments to reconcile net income (loss) to net cash used                                  
    in operating activities:                                                                    
      Gain on disposal of assets of discontinued operations (Note 1)         --      (2,280,836)
      Gain on extinguishment of debt                                         --      (2,815,156)
      Realized loss on disposal of Parlux common stock                  2,677,898               
      Write-off of other assets                                              --       1,025,404 
      Extraordinary gain on extinguishment of debt                        (53,385)         --   
      Depreciation and amortization                                          --         428,065 
      Changes in operating assets and liabilities:                                              
        Decrease in accounts receivable                                      --       1,394,232 
        Decrease in inventory and promotional merchandise                    --         856,247 
        Decrease in other current assets                                     --         326,380 
        Decrease (increase) in other assets                                (1,173)      800,000 
        Decrease in accounts payable and accrued expenses                (261,117)      (32,806)
                                                                      -----------   ----------- 

              Total adjustments                                         2,362,223      (298,470)
                                                                      -----------   ----------- 

              Net cash used in operating activities                      (351,044)      (30,643)
                                                                      -----------   ----------- 

CASH FLOWS FROM INVESTING ACTIVITIES:                                                           
   Payments in connection with sale of assets (Note 1)                       --        (178,511)
   Purchase of property, plant and equipment                                 --         (68,690)
   Receipt of amount due from acquiror of discontinued operations         750,000          --   
   Investment in U.S. Government Treasury Bills, net                     (388,089)         --   
                                                                      -----------   ----------- 

              Net cash provided by (used in) investing activities         361,911      (247,201)
                                                                      -----------   ----------- 

CASH FLOWS FROM FINANCING ACTIVITIES:                                                           
   Repayment of convertible notes payable                                 (62,500)         --   
                                                                      -----------   ----------- 

DECREASE IN CASH AND CASH EQUIVALENTS                                     (51,633)     (277,844)

CASH AND CASH EQUIVALENTS, beginning of year                               61,871       339,715 
                                                                      -----------   ----------- 

CASH AND CASH EQUIVALENTS, end of year                                $    10,238   $    61,871 
                                                                      ===========   =========== 

The accompanying notes are an integral part of these financial statements.
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED JUNE 30, 1997

                                                        [Enlarge/Download Table]

                                                                        1997        1996   
                                                                                           
Non-cash investing and financing activities:                                               

   Acquisition of common stock in sale of discontinued operation     $     --    $3,746,250
   Amount receivable from sale of discontinued operation                   --       750,000
   Issuance of Series A Preferred Stock in exchange for outstanding                        
    debt                                                                   --     2,895,200
   Issuance of common stock in exchange for outstanding debt             35,000     260,116
   Contribution of common stock in exchange for outstanding debt           --         1,887
   Extinguishment of convertible notes payable and accrued interest   2,884,000   5,970,472

   On October 21, 1996, the Company  completed the  extinguishment of $97,500 of
   Convertible  Notes in exchange for an  aggregate  of $62,500 in cash,  11,500
   shares of the  Company's  Common  Stock,  and five  three-year  Warrants (the
   Warrants)  each to purchase up to 2,500 shares of the Company's  Common Stock
   at $2 per share.  The total amount of debt  (including  principal and accrued
   but  unpaid  interest  of  $22,525)  extinguished  pursuant  to the  exchange
   aggregated  $120,025.  This amount,  less the cash paid,  value of the Common
   Stock  and  the  Warrants  issued  in  the  exchange  offer,  resulted  in an
extraordinary gain on the extinguishment of debt in the amount of $53,385.

   In 1997, the Company completed an exchange offer to the holders of its Series
   A Preferred Stock to exchange for each share of Series A Preferred Stock, 663
   shares of the common stock of Parlux Fragrances, Inc. ("Parlux Shares") owned
   by the Company.  Tenders  were  received for 515 shares of Series A Preferred
   Stock outstanding and the exchange was completed.  The Company  transferred a
   total  of  341,445  Parlux  Shares  in  exchange  for the  tendered  Series A
Preferred Stock.                                                          

The accompanying notes are an integral part of these financial statements.
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 1997

1. ORGANIZATION AND BUSINESS                                                    

FBR Capital Corporation (formerly Richard Barrie Fragrances, Inc.) (the Company)
was  incorporated  in the  State of  Nevada on June 6,  1988,  for the  original
purpose of developing,  manufacturing and marketing fragrances,  cosmetics, skin
treatment  and personal  care products sold  primarily  through  department  and
specialty  stores and  drugstores.  On July 1, 1996,  following the  transaction
described below, the Company filed a Certificate of Amendment to its Articles of
Incorporation to change its name from "Richard Barrie Fragrances,  Inc." to "FBR
Capital Corporation" as authorized by the stockholders of the Company.          

Effective June 30, 1996, the Company sold virtually all of the assets (the Asset
Sale),  properties  and  rights  owned by the  Company  in  connection  with its
business to Parlux  Fragrances,  Inc. (Parlux) for consideration of (i) $750,000
in cash,  (ii)  370,000  shares of the  common  stock of  Parlux,  and (iii) the
assumption  by Parlux of  certain  liabilities,  excluding  any  liability  with
respect to the  Company's  10%  Convertible  Subordinated  Promissory  Notes due
January 15, 1996.  The cash received from the sale  transaction  was remitted to
the Company on July 1, 1996.  The common stock of Parlux  received from the sale
transaction  is classified as an  investment  (see Note 2), in the  accompanying
balance sheet as of June 30, 1997.                                              

The Company has been seeking to identify a possible  business  combination  with
one or more entities  interested in acquiring or being  acquired by the Company.
While the Company has not chosen any particular area of business in which it may
propose to engage and has not conducted  any market  studies with respect to any
business, property or industry, the directors of the Company have considered the
strengths and weaknesses of the Company and established certain initial criteria
for its  search.  The  Company  will first seek a  business  combination  with a
company having a business or line of products which in the business  judgment of
the Board of Directors has good prospects for future profits and growth. In view
of the  Company's  small  size and book  value,  the  appropriate  candidate  is
expected to be an emerging or developing company.                               

A number of companies have been identified which in the judgment of the Board of
Directors could meet the criteria set forth above and discussions have been held
with several of them.  There is no assurance of the  availability,  viability or
success of any  acquisition  or the  results  of  operations  of the  Company in
connection  with  any  acquisition  or  business  venture.  Even  if a  suitable
candidate for a business  combination is found and negotiations are successfully
completed,  there is no assurance of successful operations after the combination
has been effected or that existing  stockholders  of the Company will not suffer
substantial  dilution  of  their  equity  position,  either  upon  the  business
combination itself or upon the completion of any additional  financing which may
be necessary.                                                                   

The  Company  does not  believe  that it is an  investment  company  required to
register as such under the  Investment  Company Act of 1940, as amended.  If the
Company has not concluded a business  combination before June 28, 1997, that is,
one year after the Asset Sale, and if, because of its continued ownership of the
Parlux common stock or other securities, it would be required to register       
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 1997

or seek an exemption from such  registration,  the Company  anticipates  that it
will sell, transfer or otherwise divest itself of its ownership thereof,  redeem
any outstanding  Series A Preferred Stock and make a determination as to whether
to  liquidate  and  distribute  its  assets or to  continue  to seek out  viable
business combinations.                                                          

Management believes that the Company's cash reserves are adequate to support its
current  operations  for the year ending June 30, 1998.  However,  if management
decides to merge with or acquire a business this may require additional capital.
There can be no assurance,  however, that the Company will be able to raise such
a capital when and if it is needed.                                             

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                   

Cash and Cash Equivalents and Investments                                       
-----------------------------------------                                       

Cash and cash  equivalents  consist of cash in banks,  as well as certain highly
liquid investments with original maturities of less than three months.          

Investments                                                                     
-----------                                                                     

The Company's  investments  are accounted  for in accordance  with  Statement of
Financial   Accounting   Standards  (SFAS)  No.  115,   Accounting  for  Certain
Investments in Debt and Equity Securities, which requires that marketable equity
securities, other than equity securities accounting for by the equity method, be
reported at fair value.  Unrealized gains and losses from those securities which
are  classified as  available-for-sale  are reported as a separate  component of
stockholders'  equity.  The  Company's  investment  in  Parlux  common  stock is
classified as available-for-sale (see Note 3).                                  

Accrued Expenses                                                                
----------------                                                                

Included in accrued  expenses as of June 30, 1997, is $6,524 of accrued interest
due on the Convertible Note Payable (see Note 4).                               

Income (Loss) Per Share                                                         
-----------------------                                                         

Income (Loss) per share was computed by dividing the Company's net income (loss)
by the weighted  average  number of common  shares and common share  equivalents
assumed  outstanding  during the period.  For the year ended June 30,  1997,  no
common share  equivalents were considered in the calculation as their effect was
antidilutive.                                                                   

Effective July 1, 1998, the Company will adopt SFAS No. 128, Earnings Per Share.
At that time,  the Company will be required to change the method  currently used
to calculate earnings (loss) per share and to restate all prior periods. The new
requirements  will include a calculation of basic earnings per share, from which
the dilutive  effect of stock  options and warrants  will be excluded.  Earnings
(loss) per share for the years ended June 30, 1997 and 1996 reported pursuant to
SFAS  No.  128  would  have  been  the  same  as  the  amounts  reported  on the
accompanying statements of operations.                                          
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 1997

Use of Estimates                                                                
----------------                                                                

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

Recently Issued Accounting Standard                                             
-----------------------------------                                             

During  1995,  the  Financial  Accounting  Standards  Board issued SFAS No. 123,
Accounting for Stock- Based Compensation which defines a fair value based method
of accounting  for an employee  stock option or similar  equity  instrument  and
encourages  all  entities  to adopt that method of  accounting  for all of their
employee stock compensation plans. However, it also allows an entity to continue
to measure  compensation cost related to stock options issued to employees under
these plans using the method of accounting  prescribed by Accounting  Principles
Board  Opinion No. 25 (APB No. 25),  Accounting  for Stock Issued to  Employees.
Entities electing to continue  accounting for stock-based  compensation under in
APB No. 25 must make pro forma  disclosures  of net income  (loss) and  earnings
(loss) per share,  as if the fair value based  method of  accounting  defined in
SFAS No. 123 has been applied.                                                  

The Company has elected to account for its stock-based  compensation plans under
APB No. 25;  therefore,  no compensation  cost is recognized in the accompanying
financial statement for stock-based employee awards.                            

Due to the small number of stock options or similar equity instruments issued or
outstanding  during the last two fiscal  years,  net income  (loss) and earnings
(loss) per share for the years  ended June 30,  1997 and 1996 is not  materially
different if calculated pursuant to SFAS No. 123.                               

3. INVESTMENTS                                                                  

Investments,  which  are  classified  as  available  for  sale,  consist  of the
following at June 30, 1997:                                                     

                                                                    Unrealized
                                          Market Value     Cost     Holding Loss

 U.S. Government Treasury Bills           $388,089     $388,089     $      0
Investment in common stock of                                             
  Parlux Fragrances, Inc.                   62,967      275,694      212,727
                                          --------     --------     --------

                                          $451,056     $663,783     $212,727
                                          ========     ========     ========
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 1997

4.  CONVERTIBLE NOTES PAYABLE                                                   

On January  13,  1994,  the  Company  entered  into a series of 10%  convertible
subordinated  promissory  notes due January 15,  1996 (the  Convertible  Notes),
totalling  $5,157,750.  On June 30, 1996,  simultaneous  with the closing of the
Asset Sale, the Company  completed an exchange offer  (Exchange  Offer),  in the
aggregate principal amount of $5,040,750 with certain holders of the Convertible
Notes.                                                                          

On October 21, 1996,  the Company  completed  the  extinguishment  of $97,500 of
Convertible Notes in exchange for an aggregate of $62,500 in cash, 11,500 shares
of the  Company's  Common  Stock  (market  value  of $.36 per  share),  and five
three-year  Warrants (the  Warrants)  each to purchase up to 2,500 shares of the
Company's  Common  Stock at $2 per share.  The total  amount of debt  (including
principal and accrued but unpaid interest of $22,525)  extinguished  pursuant to
the exchange aggregated $120,025.  This amount, less the cash paid, value of the
Common  Stock and the  Warrants  issued in the  exchange  offer,  resulted in an
extraordinary gain on the extinguishment of debt in the amount of $53,385.      

The Company believes that the remaining holder of the Convertible  Notes, in the
principal  amount of $19,500,  will also accept a  settlement  of the  Company's
obligations  on terms not  requiring  the full cash payment of the amount due on
the  Convertible  Note.  Funds for this settlement are expected to come from the
Company's cash on hand.                                                         

5. STOCK OPTION PLANS                                                           

1988 Stock Option Plan                                                          
----------------------                                                          

In November  1988,  the Company  adopted the 1988 Stock Option Plan ("1988 Stock
Option  Plan").  The 1988 Stock Option Plan provides for the granting of options
to  purchase up to 66,667  shares of Common  Stock to the  Company's  employees,
directors  and  consultants.  Options  under the 1988 Stock  Option  Plan may be
incentive  options,  which are  intended to qualify  under  Section  422A of the
Internal Revenue Code of 1986, as amended, or non-qualified  stock options.  The
1988  Stock  Option  Plan is  administered  by the  Board  of  Directors,  which
determines the persons to whom options will be granted, the number to be granted
and the specific terms of each option,  including the vesting and exercisability
thereof.                                                                        

Options granted may not have terms exceeding ten years (five years for incentive
stock  options  granted to a holder of 10% or more of the total  voting power of
common stock) and may not provide for an option exercise price of less than 100%
of the fair market  value (110% of the fair market value for  incentive  options
granted to a holder of 10% or more of the total voting power of common stock) of
the Company's common stock on the date of grant.  Options are neither assignable
nor transferable.  The 1988 Stock Option Plan terminates in November 1998 unless
terminated earlier by the Company's Board of Directors.                         
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(Formerly Richard Barrie Fragrances, Inc.)

 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 1997

In  connection  with the change in  management  described  in Note 1, all of the
outstanding options issued pursuant to this plan expired in July 1996.          

Director Compensation Plan                                                      
--------------------------                                                      

In June 1996, the Company  granted,  to its two directors and officers  ten-year
options to purchase,  respectively,  30,000 and 10,000 shares of common stock at
an exercise  price of $.4375.  These options are  immediately  exercisable,  and
"piggy-back" registration rights were granted to the option holders with respect
to the common stock underlying such options.                                    

In January 1997, the Company granted to one of its directors options to purchase
30,000  shares of  common  stock at an  exercise  price of $.31 per  share.  The
options are immediately exercisable and have a contractual life of five years.  

The  following  assumptions  apply to the  Company's  valuation of stock options
issued:                                                                         

Risk free interest rate                        6.73%                            
Expected dividend yield                        None                             
Expected lives                                 10 years                         
Expected volatility                            82.25%                           

Due to the small number of stock options or similar equity instruments issued or
outstanding  during the last two fiscal  years,  net income (loss) per share for
the years ended June 30, 1997 and 1996 is not materially different if calculated
pursuant to SFAS No. 123.                                                       

A summary of the activity  under the  Company's  stock option plans is presented
below:                                                                          

                                                        [Enlarge/Download Table]

                                                   Year ended June 30,                
                                  ----------------------------------------------------
                                            1997                       1996           
                                  -------------------------  -------------------------
                                   Number  Weighted Average  Number   Weighted Average
                                     of      Option Price      of       Option Price  
                                   Shares     Per Share      Shares       Per Share   
                                                                                      
Options outstanding, beginning                                                        
 of year                          134,333     $   1.16       159,333      $    1.45   
Granted                            30,000          .31        40,000           .438   
Cancelled/expired                 (94,333)        1.46       (65,000)          1.44   
Exercised                            --            --           --              --    

Options outstanding, end of year   70,000     $    .38       134,333      $    1.16   
                                   ======          ===       =======           ====   

Options exercisable, end of year   70,000     $    .38       134,333      $    1.16   
                                   ======          ===       =======           ====   

The weighted average remaining contractual life at June 30, 1997 was 7.0 years. 
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(Formerly Richard Barrie Fragrances, Inc.)

 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 1997

6. PREFERRED STOCK EXCHANGE                                                     

On February 25,  1997,  the Company made an offer to the holders of its Series A
Preferred  Stock  ("Series A  Preferred  Stock") to  exchange  for each share of
Series A Preferred Stock,  663 shares of The common stock of Parlux  Fragrances,
Inc. ("Parlux Shares"),  valued at $792,658,  owned by the Company. The exchange
offer was  subject to  acceptance  by the holders of not less than 506 shares of
Series A Preferred Stock (97.87% of the outstanding shares) prior to termination
of the exchange offer, as extended, on April 30, 1997. Tenders were received for
all 515 shares of Series A Preferred  Stock.  Consummation of the exchange offer
eliminates  the  possibility  that the holders of Series A  Preferred  Stock can
cause  liquidation  of the  Company to secure  partial  payment of an  aggregate
redemption  price of  $2,895,200  with  respect  to the 517  shares  of Series A
Preferred  Stock  outstanding.  This  transaction  resulted  in a  gain  on  the
redemption  of the  Series A  Preferred  Stock  of  $2,091,342,  which  has been
recorded as a component of additional paid-in capital.                          

7. OUTSTANDING WARRANTS                                                         

At June 30, 1997, the Company had outstanding warrants to purchase 12,500 shares
of the Company's common stock,  respectively,  at $2 per share. The warrants are
currently exercisable and expire October 15, 1999.                              

8. INCOME TAXES                                                                 

The Company  accounts  for income  taxes under the  provisions  of  Statement of
Financial Accounting Standards No. 109 (SFAS 109),  Accounting for Income Taxes.
SFAS 109 requires the use of an asset and liability  approach in accounting  for
income  taxes.  Deferred tax assets and  liabilities  are recorded  based on the
differences  between  the  financial  statement  and tax  bases  of  assets  and
liabilities  and the tax rates in effect when these  differences are expected to
reverse.  These differences  include  unrealized loss on investments at June 30,
1997.                                                                           

The Company is in an acculmulated loss position for tax purposes.  Historically,
no tax benefit has been recorded due to the uncertainty of the Company's ability
to realize such benefits by generating taxable income in the future. The Company
has a net operating loss carryforward of approximately  $6.4 million at June 30,
1997. These  carryforwards  expire through 2012. Due to the change in control of
the Company  resulting from the Company's various equity  transactions,  certain
limitations  exist  as to the use of the net  operating  loss  carryforwards  to
offset future taxable income.                                                   

Although the Company has significant net operating loss carryforwards  available
to offset future  taxable  income,  due to the  uncertainty  as to the Company's
future  earnings  and  the  annual  restrictions  which  exist  relating  to the
utilization of the Company's net operating loss  carryforwards  a full valuation
allowance has been provided to offset the Company's net deferred tax asset.     
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 FBR CAPITAL CORPORATION
(Formerly Richard Barrie Fragrances, Inc.)

 NOTES TO FINANCIAL STATEMENTS
 JUNE 30, 1997

9. COMMITMENTS AND CONTINGENCIES                                                

Consulting Agreement                                                            
--------------------                                                            

The  Company has  entered  into  consulting  agreements  with its two  principal
officers, pursuant to which they will receive annual compensation,  ranging from
$36,000 to $60,000 per year and from $18,000 to $24,000 per year,  respectively,
depending  on  time  devoted  to the  affairs  of the  Company.  Both  of  these
consulting   agreements   are  in  effect  until  the  next  annual  meeting  of
shareholders and until their respective successors are elected and qualified.   

Contingencies                                                                   
-------------                                                                   

During  November  1996,  the  Company  received a request for payment of claimed
amounts totaling  approximately  $137,000  purported to be owed to Muelhens GMBH
with whom the Company had a  distribution  agreement  from December 1993 to June
30, 1995.  As set forth in the  Company's  Annual  Report on Form 10-KSB for the
fiscal year ended June 30, 1996,  distribution agreements with Muelhens GMBH and
affiliated  parties  were  terminated  effective  June 30,  1995 on a basis that
relieved the Company of  obligations  to  Muelhen's  affiliated  companies.  The
Company  believes  that  the  claimed  amounts  were  included  in the  numerous
transactions  resolved  in the  termination  arrangements  in June  1995  and so
advised the attorneys for the claimant by letter of March 11, 1997.  The Company
is not  presently  able to  determine  whether  this request for payment will be
pursued and what amount, if, any ultimately may be due and owing thereon.       
F-13

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

None.                                                                 

PART III

ITEM 9.   DIRECTORS  AND  EXECUTIVE  OFFICERS;  PROMOTERS  AND CONTROL  PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT           

Information Concerning Directors and Executive Officers                         

Name                          Age             Position      
          -------------------           ---             ------------------------

          Charles D. Snead Jr.          65              President (and principal
                                                        executive, financial and
                                                       accounting officer) and
                                        Director

        Stephen T. Meadow             70              Secretary and Director

       Stephen T.  Meadow  has,  since  1962,  been an  attorney  in the private
practice of law in Phoenix, Arizona, specializing in the fields of corporate and
securities law.                                                                 

       Charles D. Snead is an  attorney  and a business  and mining  consultant.
From  October  1991  through  June 1994,  Mr. Snead was Chairman of the Board of
Siskon Gold  Corporation and continued as a Director until March 1997.  Prior to
October,  1991,  he was  Chairman,  President  and Chief  Executive  Officer  of
Callahan Mining Corporation.                                                    

       Directors  hold  office  until the next annual  meeting of the  Company's
stockholders and until their successors are elected and qualified.  Officers are
elected  annually by the Board of Directors  and serve at the  discretion of the
Board.                                                                          

Compliance with Section 16(a) of the Exchange Act                               

       Section  16(a)  of the  Securities  Exchange  Act of  1934,  as  amended,
requires the Company's officers, directors and persons who beneficially own more
than ten percent of the Company's  Common Stock to file reports of ownership and
changes  in  ownership  with  the  Securities  and  Exchange  Commission.  These
reporting  persons  also are  required to furnish the Company with copies of all
Section 16(a) forms they file. To the Company's  knowledge,  based solely on its
review of the copies of such forms furnished to it and  representations  that no
other  reports  were  required,  the Company  believes  that all  Section  16(a)
reporting  requirements were complied with during the fiscal year ended June 30,
1997,  except that Charles D. Snead, Jr., Director and President of the Company,
filed one report  late that  reflected  the grant of an option to him on January
22, 1997 to purchase 30,000 shares of the Company's  common stock at an exercise
price of $.31 per share.                                                        
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ITEM 10.       EXECUTIVE COMPENSATION                                           

       The Company has no executive employees.  Its two directors,  who are also
its only  officers,  perform  their  duties on a  consulting  basis and are paid
consulting fees, in addition to reimbursement of reasonable expenses incurred in
the performance of duties for the Company. Messrs. Snead and Meadow each receive
consulting fees calculated at the rate of $75 per hour, with Mr. Snead receiving
a minimum  fee of $3,000 per month and a maximum  fee of $5,000  and Mr.  Meadow
receiving  a minimum  fee of $1,500  per month and a maximum  fee of $2,000  per
month.  Because of a substantial  increase in the time required to attend to the
affairs of the Company  during the pendancy of the 1997 Exchange Offer and other
matters,  the Board of Directors  increased Mr. Snead's consulting fee to $6,000
per month for the  months  of  February,  March  and  April  1997.  Mr.  Snead's
consultancy  arrangement  commenced in March 1996 in  connection  with the Asset
Sale and Mr. Meadow's consultancy  arrangement commenced in July 1996. Mr. Snead
received  consulting  fees of $7,575 in fiscal 1996 and $ 60,681 in fiscal 1997.
Mr. Meadow received consulting fees of $ 18,000 in fiscal 1997. In addition,  in
March 1996, Messrs. Snead and Meadow were granted, effective upon the closing of
the Asset Sale,  ten-year options to purchase,  respectively,  30,000 and 10,000
shares of Common  Stock at an exercise  price  equal to the market  price on the
closing date of the Asset Sale (or $.4375 per share).  In  addition,  on January
22,  1997,  The Board of  Directors  granted Mr. Snead an option for a period of
five  years  from that date to  purchase  up to 30,000  shares of the  Company's
common  stock at a price of $.31 per share,  the  closing  market  price on such
date. These options are immediately  exercisable and  "piggy-back"  registration
rights were granted to each of them with respect to the Common Stock  underlying
such options.                                                                   

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

       The following  table sets forth certain  information  as of September 30,
1997  with  respect  to (i)  those  person or  groups  known to the  Company  to
beneficially own more than 5% of the Company's Common Stock,  (ii) each director
and (iii) all current  directors  and officers as a group.  The  information  is
determined  in  accordance  with Rule  13d-3  promulgated  under the  Securities
Exchange Act of 1934 based upon  information  furnished by the persons listed or
contained  in  filings  made by them with the  Securities  Exchange  Commission.
Except as  indicated  below,  the  stockholders  listed  possess sole voting and
investment power with respect to their shares.                                  

                        Amount and
Beneficial Owner                               Nature of        Percent of Class
----------------                               Beneficial       ----------------
                        ----------
                       Ownership
                       ---------

Stephen T. Meadow..........................    16,100(1)              *         

Charles D. Snead, Jr.......................    60,000(2)             1.3%       

All Directors and Executive Officers                                            
as a Group (2 persons).....................    76,100(3)             1.6%       
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*Less than one percent.                                                         

(1)  Includes  1,500  shares  owned by Mr.  Meadow's  spouse and  10,000  shares
issuable upon exercise of presently exercisable options.              

(2)  Includes 60,000 shares issuable upon the exercise of presently  exercisable
options.                                                              

(3)  Includes an aggregate of 70,000 shares  issuable upon exercise of presently
exercisable options. See Notes (1) and (2).                           

 PART IV

ITEM 12.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                  

       In connection  with the  completion of the 1996 Exchange  Offer,  Richard
Barrie,  formerly  President and a director of the Company,  contributed  to the
capital of the Company  377,400  shares of the  Company's  Common Stock owned by
him.                                                                            

       In the 1996 Exchange Offer,  Stephen T. Meadow,  currently an officer and
director of the Company, and a pension trust of which Ronald Stein,  formerly an
officer  of the  Company  was  the  beneficiary,  each  tendered  for  exchange,
respectively,  Notes in the principal amount of $39,000 and $19,500. Pursuant to
the terms of the 1996 Exchange  Offer,  they received,  respectively,  4,600 and
2,300 shares of Common Stock and four and two shares of Preferred  Stock. In the
1997 Exchange  Offer,  Mr. Meadow and the aforesaid  pension trust each tendered
for  exchange,  respectively,  the four and two  shares of  Preferred  Stock and
received, respectively, 2652 and 1326 shares of Parlux Stock.                   

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

(a)     Exhibits Filed                            

               See Exhibit Index appearing later in this Report.

(b)     Reports on Form 8-K                       

                       The  Company  filed a Report on Form 8-K,  dated July 18,
                       1997, to report,  among other things,  an  Acquisition or
                       Disposition  of Assets under Item 2 thereof  occurring on
June 18, 1997.                    
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SIGNATURES

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

                                 FBR CAPITAL CORPORATION
                      (Registrant)

Dated:  October 9, 1997                      By: /s/ Charles D. Snead, Jr.      
                                                --------------------------------
                                                Charles D. Snead, Jr., President

       In accordance  with 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.                                      

Signatures                           Title                       Date           
----------                           -----                       ----           

/s/ Stephen T. Meadow                Director                    October 9, 1997
--------------------------------                                                
Stephen T. Meadow                                                               

/s/ Charles D. Snead, Jr.            President (Principal        October 9, 1997
--------------------------------     Executive Financial and                    
Charles D. Snead, Jr.                Accounting Officer) and                    
  Director
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 EXHIBIT INDEX
 -------------

Exhibit   Description                               By Reference      No. in    
Number    -----------                              from Document     Document   
------                                             -------------     --------   

3.1       Registrant's Article of Incorporation          A             3.1      

3.1.1     Registrant's Amendment to its                  A             3.1.1    
Articles of Incorporation, dated                            
November 7, 1988                                            

3.1.2     Registrant's Amendment to its x                B             3.1.2    
Articles of Incorporation, dated June                       
25, 1991                                                    

3.1.3     Registrant's Certificate of Reverse            C             3.1.3    
Stock Split, dated February 15, 1994                        

3.1.4     Registrant's Certificate of Designation        D             3.1.4    
of Series A Preferred Stock, dated                          
June 27, 1996                                               

3.1.5     Registrant's Amendment to Articles of          D             3.15     
Incorporation, dated June 25, 1996                          

3.2       Amended By-Laws of the Registrant              C             3.2      

4.1       Registrant's Form of Common Stock                                     
    Certificate                                    A             4.1

4.6       Registrant's Form of 10% Convertible           E             4.7      
Subordinated Promissory Note                                
issued  to purchasers of the                                
Registrant's securities in a private                        
placement of the Registrant's                               
securities which closed on December                         
14, 1993 and January 13, 1994.                              

4.7       Registrant's Form of Warrant to                E             4.8      
purchase shares of Registrant's                             
Common Stock at an exercise price                           
of $.90 per share dated February 3,                         
1994                                                        

4.7.1     Schedule of omitted documents in               E             4.8.1    
the form of Exhibit 4.7, including                          
material detail in which such                               
documents differ from Exhibit 4.7.                          

10.1      Registrant's 1988 Stock Option Plan            A             10.1     

10.2      Stock Option Agreement, dated                  E             10.17    
September 20, 1993, between                                 
Registrant and Patrick McEnany.                             
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Exhibit   Description                               By Reference      No. in    
Number    -----------                              from Document     Document   
------                                             -------------     --------   

10.2.1    Amendment to Stock Option                      G              --      
Agreement, dated February 21, 1995,                         
between Registrant and Patrick                              
McEnany                                                     

10.3      Asset Purchase Agreement between               F             10.17    
the Company and Parlux Fragrances,                          
Inc., dated January 31,                                     
1996                                                        

10.4      Registration Rights Agreement                  F             10.18    
between the Company and Parlux                              
Fragrances, Inc., dated June 28,                            
1996                                                        

27        Financial Data Schedule (6/30/97)           [filed            --      
                                   herewith]

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

A    Form S-18 Registration Statement No. 33-25704-NY.                          

B    Form 10-K Annual  Report of the  Registrant  for the fiscal year ended June
30, 1991.                                                             

C    Form 10-KSB Annual Report of the  Registrant for the fiscal year ended June
30, 1994.                                                             

D    Form 8-K Current  Report  reporting  event on June 28,  1996. E Form 10-QSB
     Quarterly  Report of the  Registrant  for the fiscal quarter ended December
     31, 1993. F Form 10-QSB  Quarterly  Report of the Registrant for the fiscal
quarter ended December 31, 1995.                                      

G    Form 10-KSB Annual Report of the  Registrant for the fiscal year ended June
30, 1996                                                              
14

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘10KSB’ Filing		Date		First		Last			Other Filings
		10/15/99		6		20
		7/1/98		16
		6/30/98		16					10KSB
Filed on:		10/14/97
		10/9/97		25					4
		9/30/97		23					10QSB
		9/29/97		1		6			NTN 10K
		9/10/97		9
		7/18/97		24					8-K
For Period End:		6/30/97		1		22
		6/28/97		15
		6/27/97		3
		6/18/97		3		24			8-K
		4/30/97		20
		3/11/97		21
		2/25/97		3		20
		1/22/97		22		23			4
		10/21/96		14		18
		8/12/96		3
		7/1/96		2		15
		6/30/96		2		27			10-K,  NT 10-K
		6/28/96		2		27			8-K
		6/27/96		26
		6/25/96		26
		5/31/96		3		6
		4/22/96		6					DEFM14A
		4/3/96		5
		1/31/96		2		27
		1/15/96		2		18
		12/31/95		27					10QSB
		9/30/95		2					10QSB
		6/30/95		21					10KSB/A
		2/21/95		27
		6/30/94		27
		2/15/94		26
		2/3/94		26
		1/13/94		18		26
		12/31/93		27
		12/14/93		26
		9/20/93		26
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