<PAGE>
 
================================================================================
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549

                                 FORM 10-QSB/A
                                AMENDMENT NO. 1

            [X]   QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
                                      OR
            [ ]   TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934

                        Commission File Number 1-11836

                             STYLES ON VIDEO, INC.
       (Exact Name of Small Business Issuer as Specified in Its Charter)


          DELAWARE                                          95-4389082
(State of Other Jurisdiction of                         (I.R.S. Employer
Incorporation or Organization)                          Identification No.)


                            667 RANCHO CONEJO BLVD.
                        NEWBURY PARK, CALIFORNIA 91320
                   (Address of Principal Executive Offices)

                                (805) 375-0996
               (Issuer's Telephone Number, Including Area Code)

                              101 HODENCAMP ROAD
                        THOUSAND OAKS, CALIFORNIA 91360
  (Former Name, Former Address and Fiscal Year, if Changed Since Last Report)


      Check whether the Issuer (1) 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 [ ]

         Concurrent with the filing of this Report on Form 10-QSB/A, 
      the registrant is filing all previously filed reports required to 
be filed under Section 13 or 15(d) of the Exchange Act as of February 28, 1997.

   State the number of shares outstanding of each of the issuer's classes of
               common equity as of the latest practicable date.

     COMMON STOCK, $0.001 PAR VALUE 8,852,759 SHARES AS OF MARCH 21, 1997

           Transitional Small Business Disclosure Format (Check One)

                               Yes [ ]   No [X]

================================================================================
<PAGE>
 
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

                             STYLES ON VIDEO, INC.
                RESTATED CONSOLIDATED BALANCE SHEETS(NOTE (1))
                                  (Unaudited)

                                     ASSETS
<TABLE>
<CAPTION>
                                                             June 30, 1995   December 31, 1994
                                                             -------------   -----------------
<S>                                                          <C>             <C>
Current assets:

   Cash and cash equivalents                                   $  2,370,000        $ 4,361,000

   Accounts receivable, less allowance of $431,000 and
       $510,000 at June 30, 1995 and December 31, 1994,
       respectively                                                 261,000            184,000

   Loan receivable from stockholder                                       -            450,000

   Income taxes receivable                                          327,000          1,256,000

   Inventories                                                    1,031,000          1,215,000

   Prepaid expenses and other current assets                        387,000            325,000
                                                               ------------        -----------

       Total current assets                                       4,376,000          7,791,000

Property and equipment, net                                         814,000            614,000

Long-term receivables, less allowance of $577,000
       at June 30, 1995 and December 31, 1994                        14,000             44,000

Goodwill, net of accumulated amortization of $388,000
     and $249,000 at June 30, 1995 and December 31,
     1994, respectively                                           5,166,000          5,305,000


Other assets                                                        120,000             49,000
                                                               ------------        -----------

       Total assets                                            $ 10,490,000        $13,803,000
                                                               ============        ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

   Accounts payable                                            $  1,446,000        $ 1,192,000

   Accrued expenses                                                 397,000            274,000

   Customer advances                                                868,000            868,000

   Advance from stockholder                                          48,000            200,000

   Current portion of long-term obligations                          40,000                  -
                                                               ------------        -----------

       Total current liabilities                                  2,799,000          2,534,000

                                                                    250,000            250,000
Note payable

Other long-term liabilities                                          83,000             94,000

Minority interests in consolidated subsidiaries                   1,325,000          1,471,000

Commitments and contingencies

Stockholders' equity:

   Preferred stock, par value $.001; 1,000,000 shares                     -                  -
       authorized; none issued

   Common stock, par value $.001; 10,000,000 shares
       authorized; 4,505,000 shares issued and outstanding
       at June 30, 1995 and December 31, 1994                         4,000              4,000

   Additional paid-in capital                                    16,137,000         16,137,000

   Accumulated deficit                                         $(10,108,000)        (6,687,000)
                                                               ------------        -----------

       Total stockholder's equity                                 6,033,000          9,454,000
                                                               ------------        -----------

       Total liabilities and stockholder's equity              $ 10,490,000        $13,803,000
                                                               ============        ===========

</TABLE>

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

                                       2
<PAGE>
 
                             STYLES ON VIDEO, INC.
           RESTATED CONSOLIDATED STATEMENTS OF OPERATIONS (NOTE (1))
       For the three and six month periods ended June 30, 1995 and 1994
                                  (Unaudited)
<TABLE>
<CAPTION>
                                        Three months ended June 30        Six months ended June 30
                                        --------------------------        ------------------------      
                                           1995           1994             1995            1994
                                       ------------   -------------   --------------   --------------
<S>                                    <C>            <C>             <C>              <C>
Revenues                                                                               
  Systems and related                  $   843,000      $1,077,000      $ 1,830,000      $ 2,129,000
   software sales                                                                      
  Camera sales                             402,000         178,000          807,000          512,000
  Other revenues                            84,000         282,000          131,000          535,000
                                       -----------      ----------      -----------      -----------
          Total revenues                 1,329,000       1,537,000        2,768,000        3,176,000
Cost of revenues, excluding
 depreciation and
 amortization
  Cost of systems and                      425,000         516,000        1,017,000        1,005,000
   software sold                                                                         
  Cost of camera sales                     216,000          90,000          563,000          247,000
  Other costs                               40,000               -           44,000           42,000
                                       -----------      ----------      -----------      -----------
          Total cost of                    681,000         606,000        1,624,000        1,294,000
           revenues                    -----------      ----------      -----------      -----------
          Gross profit                     648,000         931,000        1,144,000        1,882,000
Operating expenses                                                                       
  Selling, general and                   2,034,000       1,451,000        4,100,000        3,561,000
   administrative                                                                        
  Research and development                 259,000         129,000          463,000          235,000
  Depreciation and                          96,000          82,000          194,000          134,000
   amortization                        -----------      ----------      -----------      -----------
          Total operating                2,389,000       1,662,000        4,757,000        3,930,000
           expenses                    -----------      -----------     -----------      -----------
          Loss from                     (1,741,000)       (731,000)      (3,613,000)      (2,048,000)
           operations                                                                    
Interest income, net of                     64,000          21,000           61,000           41,000
 interest expense                                                                        
Other income (expense)                     (10,000)              -          (10,000)               -
Minority interests in net                                                                
 losses of   consolidated                  104,000          24,000          146,000           24,000
 subsidiaries                          -----------      ----------      -----------      -----------
                                                                                         
          Loss before income            (1,583,000)       (686,000)      (3,416,000)      (1,983,000)
           taxes                                                                         
Provision for income taxes                   5,000           3,000            5,000           72,000
                                       -----------      ----------      -----------      -----------
          Net loss                     $(1,588,000)     $ (689,000)     $(3,421,000)     $(2,055,000)
                                       ===========      ==========      ===========      ===========
Net loss per common share                    $(.35)          $(.16)           $(.76)           $(.53)
                                       ===========      ==========      ===========      ===========
Weighted average common                  4,505,000       4,224,000        4,505,000        3,874,000
 shares outstanding                    ===========      ==========      ===========      ===========
 
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       3
<PAGE>
 
                             STYLES ON VIDEO, INC.
      RESTATED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (NOTE (1))
                    For the six months ended June 30, 1995
                                  (Unaudited)
<TABLE>
<CAPTION>
 
 
                                         Common Stock                 
                                ------------------------------        Additional                                 
                                                                       Paid-in       Accumulated    Stockholders'
                                No. of Shares        Par Value          Capital        Deficit         Equity    
                                -------------        ---------        -----------   -------------   -------------              
<S>                             <C>                    <C>            <C>           <C>             <C> 
Balance, December 31, 1994         4,505,000           $4,000         $16,137,000   $ (6,687,000)     $ 9,454,000
Net loss                                   -                -                   -     (1,833,000)      (1,833,000)
                                   ---------           ------         -----------   ------------      -----------
Balance, March 31, 1995            4,505,000            4,000          16,137,000     (8,520,000)       7,621,000
Net loss                                   -                -                   -     (1,588,000)      (1,588,000)
                                   ---------           ------         -----------   ------------      -----------
Balance, June 30, 1995             4,505,000           $4,000         $16,137,000   $(10,108,000)     $ 6,033,000
                                   =========           ======         ===========   ============      ===========
 
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       4
<PAGE>
 
                             STYLES ON VIDEO, INC.
           RESTATED CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE (1))
                                  (Unaudited)
<TABLE>
<CAPTION>
 
                                                                       Six months ended
                                                                       -----------------
                                                               June 30, 1995      June 30, 1994
                                                               --------------   -----------------
<S>                                                            <C>              <C>
Cash flows from operating activities:
 
 Net loss                                                        $(3,421,000)        $(2,055,000)
 
 Adjustments to reconcile net loss to net cash
   used in operating activities:
   Depreciation and amortization                                     194,000             134,000
   Provision for bad debts                                                 -             833,000
   Minority interest in consolidated subsidiaries                   (146,000)            (24,000)
   Changes in operating assets and liabilities:
     Accounts receivable                                             (77,000)             52,000
     Income taxes receivable                                         929,000            (176,000)
     Inventories                                                     184,000            (350,000)
     Prepaid expenses and other current assets                       (62,000)           (181,000)
     Long-term receivables and other assets                          (41,000)             49,000
     Accounts payable and accrued expenses                           377,000             197,000
     Customer advances                                                     -             243,000
     Income taxes payable                                                  -              65,000
                                                                 -----------         -----------
 
   Net cash used in operating activities                          (2,063,000)         (1,213,000)
 
 
Cash flows from investing activities:
   Purchase of property and equipment                               (213,000)           (333,000)
   Increase in intangibles                                                 -             (36,000)
   Minority interest investment in subsidiary                              -               1,000
   Acquisition of business, net of cash acquired                           -             165,000
                                                                 -----------         -----------
 
     Net cash used in investing activities                          (213,000)           (203,000)
 
 
Cash flows from financing activities:
   Rights offering costs incurred by subsidiary                            -            (262,000)
   Proceeds from issuance of common stock by subsidiary                    -             137,000
   Repayment of loan receivable from stockholder                     450,000             214,000
   Repayment of advance from stockholder                            (152,000)            (50,000)
   Repayment on capital lease obligations                            (13,000)                  -
   Net proceeds received from common stock issuances upon
     exercise of stock options                                             -           1,368,000
                                                                 -----------         -----------
 
     Net cash provided by financing activities                       285,000           1,407,000
                                                                 -----------         -----------
 
     Net increase in cash and cash equivalents                    (1,991,000)             (9,000)
 
Cash and cash equivalents, beginning                               4,361,000           2,107,000
                                                                 -----------         -----------
 
Cash and cash equivalents, ending                                $ 2,370,000         $ 2,098,000
                                                                 ===========         ===========
 
Supplemental disclosure of cash flow information:
------------------------------------------------ 

Cash paid during the year for:
   Income taxes                                                  $         -         $   182,000
   Interest                                                      $    10,000         $         -
</TABLE>

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

                                       5
<PAGE>
 
                             STYLES ON VIDEO, INC.
             NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS 
                                 June 30, 1995
                                  (Unaudited)


(1) General

    (a) THIS AMENDMENT IS REQUIRED TO CORRECT AN ACCOUNTING ERROR CONTAINED IN
PREVIOUSLY REPORTED OPERATING RESULTS FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1995.  THE ACCOMPANYING UNAUDITED RESTATED CONSOLIDATED FINANCIAL
STATEMENTS OF STYLES ON VIDEO, INC. ("SOV") AND SUBSIDIARIES, (COLLECTIVELY,
"THE COMPANY") FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995, WHICH
CORRECT THIS ERROR, HAVE BEEN PREPARED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("GAAP") FOR INTERIM FINANCIAL INFORMATION AND IN
ACCORDANCE WITH THE INSTRUCTIONS TO FORM 10-QSB.  ACCORDINGLY, THESE RESTATED
CONSOLIDATED FINANCIAL STATEMENTS DO NOT INCLUDE ALL OF THE INFORMATION AND
FOOTNOTES REQUIRED BY GAAP FOR COMPLETE FINANCIAL STATEMENTS.  IN THE OPINION OF
MANAGEMENT, ALL ADJUSTMENTS CONSIDERED NECESSARY FOR A FAIR PRESENTATION OF THE
FINANCIAL RESULTS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 1995 HAVE
BEEN INCLUDED.  THE RESTATEMENT ADJUSTMENT WAS MADE TO REVERSE THE ALLOCATION OF
A SUBSIDIARY'S LOSSES TO THE MINORITY INTEREST IN THE CASE IN WHICH THE LOSSES
APPLICABLE TO THE MINORITY INTEREST IN THE SUBSIDIARY EXCEEDED THE MINORITY
INTEREST IN THE EQUITY CAPITAL OF THE SUBSIDIARY.  THE CONSOLIDATED RESULTS OF
OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995 ARE NOT NECESSARILY
INDICATIVE OF THE RESULTS TO BE EXPECTED FOR THE FULL YEAR.  IN FEBRUARY 1995,
THERE WAS A COMPLETE CHANGE IN THE SENIOR MANAGEMENT AND KEY ACCOUNTING
PERSONNEL OF THE COMPANY.  AS A CONSEQUENCE OF THIS CHANGE IN PERSONNEL, CERTAIN
INDIVIDUALS ARE NO LONGER AVAILABLE TO PROVIDE INFORMATION WHICH THE COMPANY'S
CURRENT MANAGEMENT BELIEVES MAY BE NECESSARY TO CONFIRM THE ACCURACY OF THE
COMPANY'S 1994 FINANCIAL POSITION AND RESULTS OF OPERATIONS.  THE COMPANY'S
FINANCIAL POSITION AND RESULTS OF OPERATIONS AS OF JUNE 30, 1994, AND FOR THE
THREE AND SIX MONTHS THEN ENDED, ARE BASED UPON THE BEST INFORMATION WHICH WAS
REASONABLY AVAILABLE TO THE COMPANY'S CURRENT MANAGEMENT.  FOR MORE COMPLETE
INFORMATION, INCLUDING A DISCUSSION OF VARIOUS FACTORS THAT MAY AFFECT THE
FUTURE FINANCIAL POSITION AND RESULTS OF OPERATIONS OF THE COMPANY, REFER TO THE
COMPANY'S REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1994, AS FILED
WITH THE COMMISSION ON MARCH 29, 1996; AND THE COMPANY'S REPORTS ON FORM 10-
QSB/A FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1995 AND SEPTEMBER 30, 1995, THE
COMPANY'S REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE
COMPANY'S REPORTS ON FORM 10-QSB FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1996,
JUNE 30, 1996 AND SEPTEMBER 30, 1996, WHICH WERE FILED WITH THE U.S. SECURITIES
AND EXCHANGE COMMISSION ON MARCH 24, 1997.

    (b) The June 30, 1995 quarterly operating results have been restated for the
following item:
<TABLE>
<S>                                                                            <C>
Net loss for the three months ended June 30, 1995, as previously reported
                                                                               $(1,442,000)
Restatement adjustment:
Adjust minority interest                                                          (146,000)
                                                                               -----------
Net loss for the three months ended June 30, 1995, as restated
                                                                               $(1,588,000)
                                                                               ===========
</TABLE>

                                       6
<PAGE>
 
                             STYLES ON VIDEO, INC.
             NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS 
                                 June 30, 1995
                                  (Unaudited)



(2) Related Party Transactions

    (a) Loan receivable from stockholder - In 1994 the Company loaned to H.J.
Meyers & Co. ("Meyers & Co."), the underwriter for the Company's initial public
offering (and of which Harold J. Meyers, a former SOV board member, was
chairman), $648,000 (the "Warrant Loan") so that Meyers & Co. might exercise
certain common stock purchase warrants which it was issued in connection with
the Company's initial public offering.  At December 31, 1994, Meyers & Co. owed
the Company $450,000 on the Warrant Loan, including accrued interest at the rate
of six percent per annum, net of a discount of $123,000.  The Warrant Loan was
collateralized by 62,000 shares of SOV common stock held by Meyers & Co.  Meyers
& Co. repaid the Warrant Loan, which was originally due March 31, 1995, in April
1995.

    (b) Advance from stockholder - In December 1994, the Company received a
$200,000 advance from Mr. de Vreese, its former Chief Executive Officer.
Approximately $150,000 was repaid during the three months ended March 31, 1995,
and approximately $50,000 continued to remain outstanding as of December 31,
1995.

(3) Subsequent Events

    (a) Financing Transactions - During 1995, the Company entered into a series
of transactions with Multinational Trading Corp., a Florida corporation ("MTC")
and International Digital Investors, L.P., a Delaware limited partnership
("IDI"), for the purpose of raising capital to fund the Company's continued
operations.  MTC and IDI are companies with overlapping yet not identical
management.  The Chief Executive Officer of IDI's corporate general partner was
appointed CEO of the Company after the series of transactions described below
which gave IDI a majority of seats on the Company's Board of Directors.  Upon
exercise of warrants and conversion of Series A Preferred Stock, IDI will own
approximately 40 percent of the Company's outstanding common stock on a fully
diluted basis.

    In September 1995, SOV and FYI received short-term bridge financing of
$300,000 from MTC.  In October 1995, MTC made additional advances of $75,000 to
the Company.  The Company repaid the $375,000, plus interest accrued thereon and
transaction fees, with a portion of the $3,000,000 it received from IDI in the
transaction described immediately below.

    In November 1995, pursuant to the Note and Preferred Stock Purchase
Agreement (the "Agreement") SOV and FYI (the "Companies") issued to IDI
$2,950,000 in 10% Senior Notes due June 30, 1998 (the "Notes").  Additionally,
SOV issued to IDI 500 shares of 10% Senior Series A Convertible Preferred Stock
(the "Preferred Stock") for $50,000.   Pursuant to the Agreement, SOV also
issued to IDI common stock purchase warrants entitling IDI to purchase shares of
SOV's common stock equivalent to 40 percent of the fully diluted common shares
outstanding on November 20, 1995.  The exercise price of the warrants is $1.12
per warrant, which represents the estimated consolidated per share book value
per issued and outstanding share of the Company on the date of the Agreement.
The warrants may be exercised at any time prior to November 20, 2005.

                                       7
<PAGE>
 
                             STYLES ON VIDEO, INC.
             NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS 
                                 June 30, 1995
                                  (Unaudited)


    The Notes bear interest at the rate of ten percent per annum, payable
monthly, and provide for principal payments of $500,000 on March 31, June 30,
September 30 and December 31, 1997 and March 31, 1998.  The remaining $450,000
in principal is due and payable on June 30, 1998.  The Notes are subject to
mandatory redemption (in whole or in part) by the Companies, at par, in certain
circumstances:  (a) should the Companies recover any monies pursuant to their
claims against Kellogg & Andelson (see "Legal Proceedings") the Companies are
obligated to use up to 75 percent of the proceeds from any such recovery for
redemption of the Notes; and (b) should the Companies issue any equity or sell
or otherwise dispose of certain assets, the Companies are obligated to use 100
percent of the proceeds from such transactions for redemption of the Notes.
Holders of the Notes have a put right enabling them to cause the Companies to
repurchase the Notes, at par, in the event of a sale, merger, change of control
or the public offering of securities involving SOV or FYI.

    Substantially all of the assets of the Companies are pledged as collateral
on the Notes, except for the 1,916,667 shares of common stock of Dycam owned by
SOV which collateralize the $1,000,000 note payable to Dycam, and the holder of
the Notes has the right to foreclose on such assets or take other protective
measures upon the occurrence of an event of default under the Agreement which is
not timely cured or waived.  Pursuant to the Agreement, the Companies are
subject to various restrictive covenants, including limitations on the
incurrence of additional indebtedness, capital expenditures, investments,
transactions with affiliates, and consolidation, merger and sale of assets.  The
Companies also must satisfy certain financial tests during the term of the
Agreement, including the maintenance of certain mandatory net worth and earnings
levels.  Compliance with the terms of the Agreement is determined at the end of
each calendar quarter.  The failure to comply with the restrictive covenants or
pass the financial tests will constitute an event of default under the
Agreement.  At December 31, 1995, the Companies were not in compliance with
certain financial covenants of the Agreement, however, a waiver of these
violations was obtained from IDI.

    Use of the funds under the Agreement is limited to the repayment of the MTC
bridge financing obtained in 1995 and related accrued interest, transaction
costs relating to the Agreement, and the furtherance of the Company's business
plans, specifically the expansion of FYI's business.  Pursuant to the Agreement,
up to $500,000 of the funds are available to SOV.  The Agreement was amended in
March 1996 to increase the funds available to SOV from $500,000 to $750,000.

    Pursuant to the Agreement, the Company issued 500 shares of Preferred Stock
to IDI at $100 per share.  The holders of shares of Preferred Stock are entitled
to receive dividends of $10 per share prior to the distribution of any dividends
to the holders of SOV common stock.  Dividends on the Series A Preferred Stock
will accrue whether or not declared by the Board of Directors of the Company.
The Preferred Stock is subject to optional redemption by SOV, at a redemption
price of $100 per share plus any accrued dividends.  In the event of a change of
control (as defined in the Agreement) SOV must offer to redeem the Preferred
Stock.  The Preferred Stock is convertible at any time, in whole or in part,
into shares of SOV's common stock, at a per share conversion price equal to the
higher of the current market or book value of the common stock at the date of
conversion.  As long as none of the common stock warrants issued pursuant to the
Agreement have been exercised, the holders of the Preferred Stock, voting as a
class, are entitled to elect four of the Company's seven directors.

                                       8
<PAGE>
 
                             STYLES ON VIDEO, INC.
             NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS 
                                 June 30, 1995
                                  (Unaudited)


    Pursuant to the Agreement, IDI also received certain registration rights
with respect to the warrants, the shares of common stock issuable upon
conversion of the Preferred Stock and the shares of common stock issuable upon
exercise of the warrants.  FYI and SOV have guaranteed each other's obligations
under the Agreement.

    (b) Wind-down of Certain Operations - In January 1996 the Company's Board of
Directors, together with the Company's current management, determined that it
was in the best interest of the Company and its stockholders to eliminate the
Company's hairstyle and beauty imaging and franchising operations.  The Company
has commenced the wind-down of SOV's hairstyle and beauty imaging operations and
SSI.  In connection with the wind-down of SOV's hairstyle and beauty imaging
operations, SOV has ceased the marketing and sales of its hairstyle and beauty
imaging systems, and has terminated the employment of all employees involved in
the marketing and sales of such systems.  SOV continues to sell access disks
(software required to continue operating certain SOV hairstyle and beauty
imaging systems, which permits the user to conduct a specific number of imaging
sessions).  SOV intends to continue to sell access disks for the foreseeable
future as it winds down and attempts to sell its hairstyle and beauty imaging
operations.  In March 1996, SOV reduced its total number of employees to three.

    All SSI employees have been terminated and the Company has entered into
discussions with SSI's eighteen Area Developers regarding the cancellation of
their Area Development Agreements in exchange for consideration primarily
consisting of canceling the Area Developers' notes payable to SSI and of the
issuance of access disks to the Area Developers by SSI.

    Although there can be no assurances, management does not expect to incur
substantial liability with respect to the wind-down or sale of SOV's hairstyle
and beauty imaging operations or the wind  down of SSI.  After eliminating all
of SOV's current operations, the Company expects to retain SOV as a holding
Company for the Company's remaining operating subsidiaries, Dycam and FYI.

(4) Contingencies

    (a) Stockholder class action and derivative lawsuits - The Company has
entered into a settlement of a class action lawsuit which was filed against the
Company and certain of its officers and directors in December 1994 as well as a
shareholders' derivative lawsuit which named the directors and certain of the
officers of the Company.  Pursuant to the terms of the settlement, the Company
has agreed to deliver to the plaintiff class warrants to purchase 750,000 shares
of the Company's common stock and has recorded a promissory note in the
principal amount of $250,000 at December 31, 1994, payable in three equal
installments on July 1, 1996, January 1, 1997 and July 1, 1997 at 9% interest.
The exercise price of the warrants will be determined by the trading price of
the Company's common stock nine months following the date on which trading in
the stock resumes (the price will be the average closing price of the last
twenty trading days in that nine-month period).  The warrants will have a five-
year life and are redeemable by the Company at any time for $5 per warrant.
Also as part of the settlement, the Company's director and officer liability
insurance carriers agreed to pay $2,250,000.  In the derivative case, Guy de
Vreese, the former Chairman and Chief Executive Officer of the Company, agreed
to

                                       9
<PAGE>
 
                             STYLES ON VIDEO, INC.
             NOTES TO RESTATED CONSOLIDATED FINANCIAL STATEMENTS 
                                 June 30, 1995
                                  (Unaudited)


surrender 250,000 shares of the Company's common stock held by him and to the
cancellation of options for 150,000 shares of the Company's common stock held by
him.  The shares surrendered by Mr. de Vreese will be distributed to the class
plaintiffs and the options will be cancelled.  The settlement is subject to
notice to the class members and final approval by the District Court.

    (b) Durian - On October 20, 1995, Durian Technologies, Inc. and Durian
Finance (collectively, "Durian") filed a complaint against Styles on Video, Inc.
for breach of contract, fraud and negligent representation in connection with
financing arrangements with Durian for the benefit of Styles on Video, Inc. and
seeks an accounting and declaratory relief.  Durian also seeks an unspecified
amount of damages.  Styles on Video, Inc. responded to the complaint in January
1996.  Styles on Video, Inc. intends to vigorously defend the lawsuit and assert
appropriate counterclaims.

    (c) Leaper - On February 10, 1995, Thomas D. Leaper ("Leaper") the Company's
former Chief Operating Officer and Chief Financial Officer, filed a complaint
against SOV for breach of contract, emotional distress and wrongful termination.
Leaper seeks an unspecified amount of general and special damages.  The Company
responded to the complaint by moving to compel arbitration of all of Leaper's
claims.  The motion was granted in September of 1995.  Leaper has not yet
initiated arbitration.

    (d) Lawsuit against the Company's former independent accountants - On
January 22, 1996, the Company filed a lawsuit against its former independent
accountants, the accounting firm of Kellogg & Andelson, along with individual
accountants James Walters, William Wall, Frederick Flax, and Thomas Leaper, who
also served as the Company's former Chief Operating Officer and Chief Financial
Officer (collectively, "K&A").  The lawsuit asserts claims for professional
negligence, breach of contract and breach of fiduciary duty against these
defendants arising out of the services rendered by K&A in connection with the
Company's 1993 year-end audit and 1994 quarterly reports.  The Company seeks
compensatory damages in excess of $54 million, as well as punitive damages.

    (e) Lawsuit against FYI competitor - On March 8, 1996, FYI filed a lawsuit
against its major competitor, Inc.  The lawsuit asserts, among other things,
claims for unreasonable restraint of trade, monopolistic practices, unfair
competition, trade libel, and false and misleading advertising.  FYI seeks
compensatory damages in excess of $10 million, as well as punitive damages and
injunctive relief.

                                       10
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

    THIS DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S REPORT ON
FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1994 WHICH WAS FILED WITH THE
COMMISSION ON MARCH 29, 1996; AND THE COMPANY'S REPORTS ON FORM 10QSB/A FOR THE
QUARTERLY PERIODS ENDED MARCH 31, 1995 AND SEPTEMBER 30, 1995, AND THE COMPANY'S
REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1995, AND THE COMPANY'S
REPORTS ON FORM 10-QSB FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1996, JUNE 30,
1996 AND SEPTEMBER 30, 1996, WHICH WERE FILED WITH THE COMMISSION ON MARCH 24,
1997.  THE INFORMATION CONTAINED IN THE COMPANY'S REPORTS ON FORM 10-KSB FOR THE
YEARS ENDED DECEMBER 31, 1994 AND 1995, THE COMPANY'S REPORTS ON FORM 10-QSB/A
FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1995 AND SEPTEMBER 30, 1995, AND THE
COMPANY'S REPORTS ON FORM 10-QSB FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1996,
JUNE 30, 1996 AND SEPTEMBER 30, 1996, PROVIDES ADDITIONAL DISCUSSION OF THE
COMPANY'S CURRENT FINANCIAL POSITION AND RESULTS OF OPERATIONS, INCLUDING A
DISCUSSION OF VARIOUS FACTORS THAT MAY AFFECT THE FUTURE FINANCIAL POSITION AND
RESULTS OF OPERATIONS OF THE COMPANY.  REFERENCE SHOULD ALSO BE MADE TO THE
DISCLOSURE RELATING TO CERTAIN LIMITATIONS ON AVAILABLE INFORMATION SET FORTH ON
NOTE (1) TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTAINED IN THIS REPORT.
RESULTS OF OPERATIONS INCLUDE DYCAM'S OPERATING RESULTS FROM JANUARY 1, 1994, AS
DYCAM'S OPERATING RESULTS FROM JANUARY 1, 1994 TO THE DATE OF ACQUISITION ON
FEBRUARY 7, 1994 ARE NOT SIGNIFICANT.

    EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS ARE FORWARD LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES AND ARE BASED UPON JUDGMENTS
CONCERNING VARIOUS FACTORS THAT ARE BEYOND THE COMPANY'S CONTROL.  FOR
INFORMATION REGARDING POTENTIAL FACTORS THAT COULD AFFECT THE COMPANY'S FUTURE
RESULTS AND FINANCIAL CONDITION, REFER TO THE SECTION ENTITLED "FACTORS THAT MAY
AFFECT FUTURE RESULTS AND FINANCIAL CONDITION" CONTAINED IN ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OF THE COMPANY'S
REPORT ON FORM 10-KSB FOR THE FISCAL YEARS ENDED DECEMBER 31, 1994 AND 1995
WHICH WERE FILED WITH THE COMMISSION ON MARCH 29, 1996, AND MARCH 24, 1997,
RESPECTIVELY.

Three months ended June 30, 1995 compared to the three months ended June 30,
----------------------------------------------------------------------------
1994 Revenues
------------- 


    The following table summarizes the Company's revenues for the three months
ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
                                
                                
                                        Three Months Ended June 30, 1995                 Three Months Ended June 30, 1994 
                                        --------------------------------                 --------------------------------
                                                          Percentage of                                   Percentage of      
                                                             Company                                         Company         
                                         Revenues            Revenues            Revenues                    Revenues   
                                         --------         -------------          --------                 -------------
<S>                                     <C>               <C>                  <C>                        <C>
Consolidated                            $1,329,000            100%               $1,537,000                    100%
SOV                                        854,000             64                 1,077,000                     70
Dycam                                      421,000             32                   460,000                     30
FYI                                         44,000              3                         -                      -
SSI                                         10,000              1                         -                      -

</TABLE> 

                                       11
<PAGE>
 
 .   Consolidated Operations.  As detailed below, in January 1996, the Company
    elected to wind-down its hairstyle and beauty imaging and franchising
    operations.  The Company intends to focus its resources on its operating
    subsidiaries, FYI and Dycam. After the wind-down is completed, SOV intends
    to operate solely as a holding company.  The Company believes that its
    future revenue and growth will be derived from the operations of its
    subsidiaries.

 .   Styles on Video.  Revenues from sales of SOV's imaging systems ("Systems"),
    software, and related products for the three months ended June 30, 1995
    decreased $223,000, or 21 %, as compared to the three months ended June 30,
    1994.  The total number of Systems sold in the three months ended June 30,
    1995 increased approximately 2% compared to the three months ended June 30,
    1994, solely due to the sale of 22 Redken Systems in the three months ended
    June 30, 1995 based on orders received following an introductory trade show
    in the first quarter of 1995.  The number of SOV Video Maker Systems sold
    during the three months ended June 30, 1995 decreased approximately 49%
    compared to the three months ended June 30, 1994.  Additionally, total sales
    of software and support products such as blank video tape cassettes, print
    paper, peripherals and promotional materials decreased for the three months
    ended June 30, 1995 compared to the three months ended June 30, 1994.
    Throughout 1995, sales of Systems and software declined compared to their
    1994 levels.  The Company believes that the continued decline in sales is
    due to general lack of market interest in SOV's existing products at their
    current price point, the reduction of marketing efforts, and the damage done
    to the Company's reputation as a result of the halt in the trading of the
    Company's common stock and the class action lawsuit brought against the
    Company.  The Company has decided to eliminate its SOV line of business.  In
    January 1996, the Company commenced the wind-down of this line of business
    and is attempting to sell its hairstyle and beauty imaging operations.  The
    Company anticipates that the SOV line of business will generate only a
    minimal portion of the Company's revenues in 1996, and no revenues in later
    years.

 .   Dycam.  Dycam's revenues are derived from sales of digital cameras and
    supporting software and accessory products, technology licensing fees, and
    contract engineering work.  Dycam's total revenues for the three months
    ended June 30, 1995 decreased $39,000, or 8%, compared to the three months
    ended June 30, 1994.  The decrease in revenue was primarily associated with
    the reduction of contract engineering fees net of an increase in camera
    sales.  Revenues from contract engineering were $15,000 (4% of Dycam's
    revenues) for the three months ended June 30, 1995 compared to $275,000 for
    the three months ended June 30, 1994 (60% of Dycam's revenues).  The
    reduction in contract engineering revenues was due to the existence of
    certain projects in process during the three months ended June 30, 1994
    which were substantially completed by the end of 1994.  Dycam believes that
    the pursuit of this type of work presents a substantial opportunity for
    revenue growth in future periods and intends to devote a substantial portion
    of its resources to this area.  Revenues from camera sales were $402,000
    (95% of Dycam's revenue) for the three months ended June 30, 1995 compared
    to $178,000 (39% of Dycam's revenues) for the three months ended June 30,
    1994.  Dycam believes that the increase in camera revenues is attributed to
    the general emergence of the digital camera market as a whole.  Revenues
    from license fees decreased $3,000, or 43% compared to the three months
    ended June 30, 1994.  Dycam's arrangement with Logitech provided that
    Logitech would make a one-time royalty payment of approximately $1,000,000
    in 1993, and thereafter pay Dycam a .5% royalty fee on future sales of the
    licensed product.  Subsequent to December 31, 1994, Logitech informed the
    Company that it had ceased to manufacture the camera for which it held a
    license and as a consequence revenues from this license will cease as soon
    as Logitech exhausts its current supplies of the subject product.  The
    Company believes that, beginning the first quarter of 1996,

                                       12
<PAGE>
 
    a substantial portion of Dycam's revenues will be derived from the sales of
    cameras to, and licensing revenue from FYI.  The core element of the FYI
    camera system is a specialized digital camera subsystem engineered and
    produced by Dycam under an exclusive contract with FYI.  In addition to the
    sale of cameras to FYI, Dycam's arrangement with FYI provides that, in
    exchange for certain development and maintenance services, Dycam is entitled
    to a 7.5% royalty on all FYI sales.

 .   FYI.  FYI's revenues are derived from sales of newborn baby photographs and
    ancillary products.  Since its first sales in March 1995, revenues have
    consistently grown each month as the customer base has increased to over 50
    hospital accounts by December 31, 1995.  The Company has devoted significant
    marketing efforts and financial resources to the development and growth of
    the FYI business and intends to continue to devote substantial efforts and
    resources to FYI's growth.  Based on its growth in 1995, its competitively
    priced products and its emphasis on service, the Company believes that the
    FYI business will continue to grow in 1996 and provide a significant portion
    of the Company's future consolidated revenues.

 .   SSI.  SSI's revenues are primarily derived from the sale of franchises.  The
    first SSI franchises were sold during the last quarter of 1994.  SSI has not
    sold any franchises since January 1995 and its Uniform Franchise Operating
    Circular has not been updated.  The Company has decided to eliminate and has
    commenced the wind-down of the SSI line of business.  The Company
    anticipates that the SSI line of business will generate only a minimal
    portion of the Company's revenues in 1996, and no revenues in later years.

Gross Profit
------------

    Gross profit is comprised of revenues less direct costs and expenses.  The
following table summarizes the Company's gross profit for the three months ended
June 30, 1995 and 1994:
<TABLE>
<CAPTION>
                            Three Months Ended June 30, 1995       Three Months Ended June 30, 1994
                            --------------------------------       --------------------------------
                                            Gross Profit as                         Gross Profit as  
                                            Percentage of                           Percentage of    
                            Gross Profit       Revenues            Gross Profit        Revenues      
                            ------------    ---------------        ------------     ---------------  
<S>                         <C>             <C>                    <C>              <C>              
Consolidated                 $648,000            49%                $931,000              61%       
SOV                           429,000            50                  561,000              52        
Dycam                         205,000            49                  370,000              80        
FYI                             4,000             9                        -               -        
SSI                            10,000           100                        -               -         
</TABLE>

 .   Styles on Video.  Gross profit decreased in the three months ended June 30,
    1995 compared to the three months ended June 30, 1994 due to write-offs of
    obsolete inventory during the second quarter of 1995.  The Company believes
    that the remainder of the variance in gross profit is due to inaccuracies
    and inconsistent methodology in the cost accounting system and shrinkage
    which were present in 1994.  The Company did not detect these inaccuracies
    until after the end of its 1994 fiscal year.  During the three months ended
    March 31, 1995, the Company took steps to correct the inaccuracies by
    performing quarterly physical inventory counts, as opposed to

                                       13
<PAGE>
 
    previously performed annual counts, and standardizing its cost accounting
    methodology.  Additionally, improved purchasing, requisition and tracking
    procedures were implemented and standardized in the first quarter of 1995
    with the change in senior management and key accounting personnel.  In June
    1995 physical security over inventories was improved at the Company's new
    facilities.

 .   Dycam.  Gross profit for the three months ended June 30, 1995 decreased
    compared to the three months ended June 30, 1994, primarily as a result of
    the increase in the percentage of revenue from camera sales.  Such sales
    have a lower margin than sales of supporting software, licenses and custom
    contract engineering.  Moreover, Dycam lowered its average camera sales
    prices which adversely affected Dycam's gross profit.

 .   FYI.  FYI recognized its first sales in March 1995.  FYI's gross profit is
    expected to increase as FYI emerges from its start-up phase of operations.

 .   SSI.  There are no significant direct costs associated with the sale of
    franchises.

Selling, General and Administrative
-----------------------------------

    Selling, general and administrative expenses consist of administrative
expenses, the salaries of corporate officers, office staff and sales personnel,
advertising and promotion, accounting, legal and other professional fees, and
rent and occupancy costs.  They exclude depreciation and amortization, which are
stated separately.  The following table summarizes the Company's selling,
general and administrative expenses for the three months ended June 30, 1995 and
1994:
<TABLE>
<CAPTION>
 
                              Three Months Ended June 30, 1995            Three Months Ended June 30, 1994
                              --------------------------------            --------------------------------
                                                  Percentage of                           Percentage of              
                              Expenses               Revenues              Expenses          Revenues   
                              --------            -------------            --------       -------------
<S>                          <C>                  <C>                     <C>             <C>
Consolidated                 $2,034,000                 153%               $1,451,000           94%
SOV                           1,039,000                 122                 1,171,000          109
Dycam                           275,000                  65                   168,000           37
FYI                             658,000               1,495                   112,000            -
SSI                              62,000                 620                         -            -
</TABLE>

 .   Styles on Video.  Selling, general and administrative expenses of SOV for
    the three months ended June 30, 1995 decreased $132,000, or 11%, from the
    three months ended June 30, 1994, and represented 51 % of the Company's
    total selling, general and administrative expenses.  Salaries and benefits
    expenses decreased $47,000 for the three months ended June 30, 1995 compared
    to the three months ended June 30, 1994 due to layoffs which occurred in the
    first quarter of 1995, net of increases due to the allocation from FYI of a
    portion of the salaries of the new management group, including bonuses
    totaling $50,000.  Marketing and advertising decreased $189,000, or 101%,
    for the three months ended June 30, 1995 compared to the three months ended
    June 30, 1994 primarily due to steps taken to reduce costs by reducing the
    design and number of advertisements placed and limiting the number of trade
    shows attended.  Bad debt expense decreased $41,000, or 100%, in the three
    months ended June 30, 1995 compared to the

                                       14
<PAGE>
 
    three months ended June 30, 1994, due to reduced requirements for additional
    reserves.  Legal expenses increased $102,000, or 148%, in the three months
    ended June 30, 1995 compared to the three months ended June 30, 1994, and
    $114,000 or 200%, compared to the prior three months ended March 31, 1995,
    due to costs related to increased legal matters.  See "Legal Proceedings".
    SOV made efforts to reduce selling, general and administrative expenses
    throughout 1995.  The total personnel employed by SOV was reduced from 54
    employees on January 1, 1995 to 10 employees by December 31, 1995.  During
    1995, SOV moved from its facility in Canoga Park, California to a shared
    facility with FYI in Newbury Park, California.  Certain members of the
    Company's management team divided their time between SOV and FYI to reduce
    costs and maximize resources.  Additional reductions were made in SOV's
    advertising and marketing costs as a consequence of cut backs on the design
    and placement of advertisements and attendance at trade shows.  Despite the
    steps taken to reduce costs, SOV's selling, general and administrative costs
    continued to exceed its gross profits on a monthly basis throughout 1995.

    In January 1996, the Company decided to discontinue the SOV line of
    business.  During the wind down of the SOV line of business, selling,
    general and administrative expenses related to such operations will continue
    to exceed the gross profit derived therefrom.  The Company intends to reduce
    SOV's expenses to a minimal level consistent with those of a holding
    company.  In furtherance of this goal, in January 1996, SOV made significant
    additional reductions in its workforce, and ultimately plans to eliminate
    the majority of its employees.

 .   Dycam.  Selling, general and administrative expenses for the three months
    ended June 30, 1995 increased $107,000, or 64%, from the three months ended
    June 30, 1994, and represented 14% of the Company's total selling, general
    and administrative expenses.  The increase resulted primarily from increased
    sales and marketing expenditures incurred in connection with Dycam's attempt
    to penetrate new markets, and an increase in the employee base of Dycam.
    Other increased costs include insurance premiums upon the renewal of a D&O
    policy, and rent and occupancy expenses due to a move to a new facility.

 .   FYI.  Selling, general and administrative expenses for the three months
    ended June 30, 1995 represented 32% of the Company's total selling, general
    and administrative expenses.  FYI's general and administrative expenses for
    the three months ended June 30, 1994 reflect FYI's first 3 months of
    operations.  Salaries and benefits increased $306,000, or 450%, to $374,000
    for the three months ended June 30, 1995 as compared to $68,000 in the three
    months ended June 30, 1994 due to the addition of staff to accommodate
    growth.  FYI continued to add personnel during the last two quarters of 1995
    and had 39 full-time and 15 part-time employees at December 31, 1995.  FYI
    intends to continue to add personnel in 1996 based on projected growth.
    Marketing and travel costs were $149,000 for the three months ended June 30,
    1995.  High levels of marketing and travel costs are expected to continue
    for the foreseeable future as FYI introduces itself to the marketplace and
    builds and operates its business.  Together salaries and benefits and
    marketing and travel costs accounted for approximately 77% of total general
    and administrative expenses incurred by FYI during the three months ended
    June 30, 1995.

 .   SSI.  Selling, general and administrative expenses for the three months
    ended June 30, 1995 represented 3% of the Company's total selling, general
    and administrative expenses.  Costs were primarily comprised of salaries and
    residual advertising and marketing expenses.  The Company took steps towards
    the reduction of SSI's expenditures in 1995.  As of December 31, 1995, there
    were no direct employees at SSI and marketing costs were reduced to zero.
    In January 1996, the Company decided to eliminate and commenced the wind-
    down of the SSI line of business.

                                       15
<PAGE>
 
Research and Development
------------------------

    Consolidated research and development expenses for the three months ended
June 30, 1995 were $259,000 (19% of consolidated revenues), an increase of
$130,000, or 100%, compared to $129,000 (8% of consolidated revenues) for the
three months ended June 30, 1994.

 .   Styles on Video.  Research and development expenses for the three months
    ended June 30, 1995 were $7,000, a decrease of $12,000, or 63% as compared
    to the three months ended June 30, 1994 and represented 3% of the Company's
    research and development expenses.  Costs in the second quarter of 1995
    related primarily to the development of the Electric Hair System, a
    hairstyle and beauty imaging system combined with a decline in relations
    with Redken.  SOV incurred total research and development expenses of
    $56,000 in 1995.  SOV's product development activities ceased in January
    1996 with the Company's decision to eliminate the SOV line of business.

 .   Dycam.  Research and development expenses for the three months ended June
    30, 1995 were $190,000 (45% of Dycam's revenues), an increase of $88,000, or
    86%, from $102,000 (22% of Dycam's revenues) for the three months ended June
    30, 1994, and represented 73% of the  Company's total research and
    development expenses.  Dycam's research and development expenses were
    attributable to the addition of new employees dedicated to product
    development activities.  Dycam believes that continuing research and
    development is essential to maintaining its competitive position, and
    expects to continue to expend similar levels of funds in this area.

 .   FYI.  Research and development expenses for the three months ended June 30,
    1995 were $62,000 compared to $8,000 for the three months ended June 30,
    1994, and represented 24% of the Company's total research and development
    expenses.  FYI's research and development activities were carried out in
    conjunction with relate 1 activities at Dycam.  Research and development
    expenses represent FYI 's share of new product development activities
    associated with the design and manufacture of the prototype digital camera
    and system for the photography of newborn babies at hospitals.  FYI believes
    that continuing research and development is essential to maintaining its
    long-term competitive position and expects to continue to expend significant
    funds in this area.

 .   SSI.  There were no research and development expenses associated with SSI's
    operations.

                                       16
<PAGE>
 
Six months ended June 30, 1995 compared to the six months ended June 30, 1994
-----------------------------------------------------------------------------

Revenues
--------

    The following table summarizes the Company's revenues for the six months
ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
 
                           Six Months Ended June 30, 1995               Six Months Ended June 30, 1994
                           ------------------------------               ------------------------------
                                            Percentage of                                Percentage of
                                               Company                                      Company
                             Revenues          Revenues                  Revenues           Revenues
                            ---------        ------------               ---------       --------------
<S>                        <C>               <C>                       <C>              <C>
Consolidated               $2,768,000                 100%              $3,176,000            100%
SOV                         1,858,000                  67                2,156,000             68
Dycam                         829,000                  30                1,020,000             32
FYI                            48,000                   2                        -              -
SSI                            33,000                   1                        -              -
</TABLE>

 .   Consolidated Operations.  As detailed below, in January 1996, the Company
    elected to wind down its hairstyle and beauty imaging and franchising
    operations.  The Company intends to focus its resources on its operating
    subsidiaries, FYI and Dycam.  After the wind-down is completed, SOV intends
    to operate solely as a holding company.  The Company believes that its
    future revenues and growth will be derived from the operations of its
    subsidiaries.

 .   Styles on Video.  Revenues from SOV's sales for the six months ended June
    30, 1995 decreased 14% compared to the six months ended June 30, 1994.  This
    decrease was primarily the result of a reduction in sales of software and
    support products such as blank videotape cassettes, print paper, peripherals
    and promotional materials.  During this period, system sales increased
    solely due to the sale of 51 Redken Systems introduced in the first two
    quarters of 1995.  Only 4 mom Redken Systems were sold during the last two
    quarters of 1995, partially due to the introduction of SOV's Electric Hair
    hairstyle and beauty imaging system in September 1995, which competes in
    certain markets with the Redken System combined with a decline in relations
    with Redken.  Sales of SOV Systems declined in 1995 compared to their 1994
    levels.  The Company believes that the continued decline in sales is due to
    the general lack of market interest in SOV's existing products at their
    current price point, the reduction of marketing efforts, the damage done to
    the Company's reputation as a result of the halt in the trading of the
    Company's common stock and the class action lawsuit brought against the
    Company.  The Company has decided to eliminate its SOV line of business.  In
    January 1996, the Company commenced the wind-down of this line of business
    and is attempting to sell its hairstyle and beauty imaging system
    operations.  The Company anticipates that the SOV line of business will
    generate only a minimal portion of the Company's revenues in 1996, and no
    revenues in later years.

 .   Dycam.  Dycam's revenues for the six months ended June 30, 1995 decreased
    $191,000, or 19% compared to the six months ended June 30, 1994.  The
    decrease in revenue was primarily associated with the reduction of license
    fees from Logitech, and the reduction in contract engineering fees, net of
    an increase camera sales.  Revenues from camera sales were $807,000

                                       17
<PAGE>
 
    (97% of Dycam's revenue) in the six months ended June 30, 1995 compared to
    $512,000 in 1994 (50% of Dycam's Systems we Dycam believes that the increase
    in camera revenues is attributable to the general emergence of the digital
    camera market as a whole.  Revenues from contract engineering were $15,000
    (2% of Dycam's revenues) in the six months ended June 30, 1995 compared to
    $302,000 in the six months ended June 30, 1994 (30% of Dycam's revenues).
    The reduction in contract engineering revenues was due to the existence of
    certain projects during the six months ended June 30, 1994 which were
    substantially completed by the end of 1994.  Dycam believes that the pursuit
    of contract engineering work presents a substantial opportunity for future
    revenue growth and intends to devote a substantial portion of its resources
    to this area.  Licensee fees under the agreement with Logitech accounted for
    $7,000 in revenue in the six months ended June 30, 1995 and $199,000 in the
    six months ended June 30, 1994.  Dycam's arrangement with Logitech provided
    that Logitech would make a one-time royalty payment of approximately
    $1,000,000 in 1993, and thereafter pay Dycam a .5% royalty fee on future
    sales of the licensed product.  Subsequent to December 31, 1994, Logitech
    informed the Company that it had ceased to manufacture the camera for which
    it held a license and as a consequence revenues from this license will cease
    as soon as Logitech exhausts its current supplies of the subject product.
    The Company believes that, beginning in the first quarter of 1996, a
    substantial portion of Dycam's revenues will be from revenues derived from
    the sale of cameras to, and licensing revenue from, FYI.  The CON element of
    the FYI digital imaging system is a specialized digital camera subsystem
    engineered and produced by Dycam under an exclusive contract with FYI.  In
    addition to the sale of cameras to FYI, Dycam's arrangement with FYI
    provides that, in exchange for certain development and maintenance services,
    Dycam is entitled to a 7.5% royalty on all FYI sales.

 .   FYI.  FYI's revenues were $48,000 for the six months ended June 30, 1995 and
    represent of the Company's total revenues.  Since its first revenues in
    March 1995, revenues have consistently grown each month as the customer base
    has increased to over 50 hospital accounts by December 31, 1995.  The
    Company has devoted significant marketing efforts and financial resources to
    the development and growth of the FYI business and intends to continue to
    devote substantial efforts and resources to FYI's growth.  Based on its
    growth in 1995, its competitively priced products, and its emphasis on
    service, the Company believes that the FYI business will continue to grow in
    1996 and provide a significant portion of the Company's future consolidated
    revenues.

 .   SSI.  SSI's revenues are primarily derived from the sale of franchises.  The
    first SOV franchises  were sold during the last quarter of 1994.  SSI's
    total sales for the six months ended June 30, 1995 were approximately
    $33,000.  SSI has not sold any franchises since January 1995 and its Uniform
    Franchise Operating Circular has not been updated.  The Company has decided
    to eliminate and has commenced the wind-down of the SSI line of business.
    The Company anticipates that the SSI line of business will generate a
    minimal portion of the Company's revenues in 1996, and no revenues in later
    years.

                                       18
<PAGE>
 
Gross Profit
------------

    The following table summarizes the Company's gross profit for the six months
ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
                            Six Months Ended June 30, 1995            Six Months Ended June 30, 1994
                           -------------------------------            -------------------------------
                                           Gross Profit as                            Gross Profit as
                                           Percentage of                               Percentage of
                           Gross Profit       Revenues                Gross Profit        Revenues
                           ------------    ---------------            ------------    ----------------
<S>                        <C>            <C>                         <C>              <C>
Consolidated                 $1,144,000       41%                       $1,882,000          59%
SOV                             841,000       45                         1,151,000          53
Dycam                           266,000       32                           731,000          72
FYI                               4,000        8                                 -           -
SSI                              33,000      100                                 -           -
</TABLE>

 .   Styles on Video.  The reduction in SOV's gross profit was primarily due to
    write-offs of inventory in 1995.  The Company believes that the remainder of
    the change in gross profit is due to inaccuracies and inconsistent
    methodology in the cost accounting system and shrinkage in 1994.  The
    Company did not detect these inaccuracies until after the end of its 1994
    fiscal year.  The Company took steps to correct the inaccuracies by
    performing quarterly physical inventory counts, as opposed to previously
    performed annual counts, and standardizing its cost accounting methodology
    in the first quarter of 1995.  Improved purchasing, requisition and tracking
    procedures were implemented and standardized in the first quarter of 1995
    with the change in senior management and key accounting personnel.  In
    addition, in June 1995 physical security over inventories was improved at
    the Company's new facilities.

 .   Dycam.  Gross profit decreased during the six month period ended June 30,
    1995 compared to the six month period ended June 30, 1994 primarily as a
    result of the increase in the percentage of revenue derived from camera
    sales that have a lower margin, a decrease in custom contract engineering
    fees which have higher margins, the lower average sales prices for the
    cameras being sold, and high start-up costs in material and labor associated
    with initial shipments of new products.

 .   FYI.  FYI recognized its first sales in March 1995.  FYI's gross profit is
    projected to increase as its business grows.

 .   SSI.  There are no significant, direct costs associated with the sale of
    franchises.

                                       19
<PAGE>
 
Selling, General and Administrative
-----------------------------------

    The following table summarizes the Company's selling, general and
administrative expenses for the six months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
 
                             Six Months Ended June 30, 1995           Six Months Ended June 30, 1994
                             ------------------------------           ------------------------------
                                              Percentage of                            Percentage of 
                             Expenses           Revenues              Expenses           Revenues    
                             ----------       -------------           -----------      -------------
<S>                       <C>                 <C>                      <C>             <C>
Consolidated                 $4,100,000              148%              $3,561,000             112%
SOV                           1,945,000              105                3,196,000             148
Dycam                           605,000               73                  253,000              25
FYI                           1,192,000            2,483                  112,000               -
SSI                             358,000            1,085                        -               -
</TABLE>

 .   Styles on Video.  Selling, general and administrative expenses for the six
    months ended June 30, 1995 decreased $1,251,000, or 39%, from the six months
    ended June 30, 1994, and represented 47% of the Company's total selling,
    general and administrative expenses.  Salaries and benefits increased
    $44,000, or 5%, to $869,000 for the six months ended June 30, 1995 compared
    to $825,000 for the six months ended June 30, 1994.  Marketing and
    advertising decreased $230,000, or 69%, to $102,000 in the six months ended
    June 30, 1995 compared to $332,000 for the six months ended June 30, 1994
    due to cost reduction efforts.  Bad debt expense decreased $833,000 to zero
    in the six months ended June 30, 1995 compared to the six months ended June
    30, 1994 as the result of large reserves required in the six months ended
    June 30, 1994 that did not recur in the six months ended June 30, 1995.
    Legal expenses increased $87,000, or 62%, to $228,000 for the six months
    ended June 30, 1995 as compared to $141,000 for the six months ended June
    30, 1994 due to costs related to increased legal matters.

         In January 1996, the Company decided to discontinue the SOV line of
    business.  During the wind-down of the SOV line of business, selling,
    general and administrative expenses related to such operations will continue
    to exceed the gross profit derived therefrom.  The Company intends to reduce
    SOV's expenses to a minimal level consistent with those of a holding
    company.  In furtherance of this goal, in January 1996 SOV made significant
    additional reductions in its workforce, and ultimately plans to eliminate
    the majority of its employees associated with the SOV line of business.

 .   Dycam.  Selling, general and administrative expenses for the six months
    ended June 30, 1995 increased $352,000, or 139%, from the six months ended
    June 30, 1994, and represented 15% of the Company's total selling, general
    and administrative expenses.  The increase resulted from increased sales and
    marketing expenditures incurred in connection with Dycam's attempt to
    penetrate new markets, and an increase in Dycam's employee base.  Selling,
    general and administrative salaries and benefits increased for the six
    months ended June 30, 1995 as compared to the six months ended June 30,
    1994.  Other increases include increased insurance premiums upon renewal of
    a D&O policy, and rent and occupancy expenses due to the move to a new
    building.

                                       20
<PAGE>
 
 .   FYI.  Selling, general and administrative expenses for the six months ended
    June 30, 1995 increased $1,080,000, or 964%, from the six months ended June
    30, 1994 and represented 29% of the Company's total selling, general and
    administrative expenses.  Salaries and benefits for the six months ended
    June 30, 1995 were $719,000 compared to $68,000 for the six months ended
    June 30, 1994.  Salaries and benefits increased due to the addition of staff
    to accommodate growth.  FYI continued to add personnel in 1995 and had 39
    full-time and 15 part-time employees at December 31, 1995.  FYI intends to
    continue to add personnel in 1996 based on projected growth.  Marketing and
    travel costs were $225,000 for the six months ended June 30, 1995 compared
    to $4,000 for the six months ended June 30, 1994.  High levels of marketing
    and travel costs are expected to continue for the foreseeable future as FYI
    introduces itself to the marketplace and builds and operates its business.

 .   SSI.  Selling, general and administrative expenses of SSI for the six months
    ended June 30, 1995 increased $358,000 and represented 9% of the Company's
    total selling, general and administrative expenses.  Costs primarily
    included salaries of $115,000, legal and professional expenses of $47,000,
    advertising and marketing expenses of $98,000, and travel of $78,000
    associated with the franchising effort.  As of December 31, 1995, direct
    employees at SSI and marketing costs were reduced to zero.  In January 1996,
    the Company decided to eliminate and commenced the wind-down of the SSI line
    of business.

Research and Development
------------------------

    Consolidated research and development expenses for the six months ended June
30, 1995 were $463,000 (17% of consolidated revenues), an increase of $228,000,
or 97%, compared to $235,000 (7% of consolidated revenues) for the six months
ended June 30, 1994.

 .   Styles on Video.  Research and development expenses for the six months ended
    June 30, 1995 were $7,000 (less than 1% of SOV's revenues), a decrease of
    $16,000, or 70%, compared to $23,000 (1% of SOV's revenues) for the six
    months ended June 30, 1994, and represented 2% of the Company's research and
    development expenses.  Costs in 1995 related primarily to the development of
    the Electric Hair Systems, a beauty and haircare imaging system.  SOV's
    product development activities ceased in January 1996 with the Company's
    decision to eliminate the SOV line of business.

 .   Dycam.  Research and development expenses for Dycam for the six months ended
    June 30, 1995 were $389,000 (47% of Dycam's revenues), an increase of
    $185,000, or 91%, compared to $204,000 (20% of Dycam's revenues) for the six
    months ended June 30, 1994, and represented 84% of the Company's total
    research and development expenses.  This increase is attributable to the
    increase in new employees dedicated to new product development activities.
    Dycam believes that continuing research and development is essential to
    maintaining its competitive position, and expects to continue to expend
    similar levels of funds in this area.

 .   FYI.  Research and development expenses for the six months ended June 30,
    1995 were $67,000 (99% of FYI's revenues), an increase of $59,000, or 738%,
    compared to $8,000 for the six months ended June 30, 1994, and represented
    14% of the Company's total research and development expenses.  FYI's
    research and development activities were carried out in conjunction with
    related activities at Dycam.  FYI's costs were attributable to FYI's share
    of new product development activities associated with the design and
    manufacture of the prototype digital camera and system for the photography
    of newborn babies at hospitals.  FYI believes that continuing

                                       21
<PAGE>
 
    research and development is essential to maintaining its long-term
    competitive position, and expects to continue to expend significant funds in
    this area.

Depreciation and Amortization
-----------------------------

    The Company's depreciation and amortization expenses consist primarily of
the amortization of goodwill which resulted from the Company's acquisition of
Dycam.  Such goodwill is being amortized over a twenty year term at the rate of
$23,000 per month.  Depreciation and amortization expense for the six months
ended June 30, 1995 was $194,000, an increase of $60,000 from $134,000 for the
six months ended June 30, 1994.  The increase primarily resulted from increased
goodwill amortization costs, and the depreciation of fixed assets acquired by
SOV, Dycam and FYI during the six months ended June 30, 1995.

Liquidity and Capital Resources
-------------------------------

    During the six months ended June 30, 1995, the Company relied primarily upon
cash on hand, including intercompany advances, cash received from sales, and the
receipt of an income tax refund of $929,000, net of partial repayment of loans
from stockholders, to finance its cash operating losses and the expansion of
FYI.  FYI's capital expenditures were also financed in part by capital leases.

    At June 30, 1995, the Company had consolidated cash and cash equivalents of
$2,370,000, a decrease of $1,991,000 from $4,361,000 at December 31, 1994.  The
Company's working capital at June 30, 1995 was $1,577,000, a decrease of
$3,680,000 when compared to $5,257,000 at December 31, 1994.  Working capital
reduction was primarily the result of a reduction in cash used in operations.
The current ratio at June 30, 1995 was 1.6 to 1 compared to 3.1 to 1 at December
31, 1994.

 .   Styles on Video.  SOV's cash and cash equivalents at June 30, 1995 were
$360,000, down $219,000 from $579,000 at December 31, 1994.  Accounts receivable
decreased $118,000, primarily due to reserves established for potentially
uncollectible balances.  Income taxes receivable decreased $929,000 due to SOV's
receipt of income tax refunds.  Inventories decreased $385,000 due to reductions
of product on hand to improve cash flow, sales of product, and write-offs and
disposals of obsolete inventory.  Loan receivable from stockholder decreased
$450,000 due to repayment.  Prepaid expenses increased $189,000 primarily due to
prepayments and recording of the annual D&O premium with a corresponding offset
of the unpaid balance to accrued expenses.  Accounts payable increased $223,000
due to measures taken to preserve limited cash.  Accrued expenses increased
$98,000 primarily due to the recording of the annual D&O premium.  Advance from
stockholder decreased $152,000 due to repayment.  SOV's working capital at June
30, 1995 was $(917,000) compared to $1,164,000 at December 31, 1994.  The
current ratio was .6:1 at June 30, 1995 compared to 1.6:1 at December 31, 1994.
The working capital reduction was primarily the result of a decrease in cash
which was used in operations to fund losses, net of intercompany advances, the
receipt of income tax refunds, and net stockholder advances.  SOV continued to
use cash to fund cash operating losses throughout 1995.

    In January 1995, Dycam made an additional secured loan of $500,000 to SOV.
This advance, together with an earlier advance of $500,000, was made pursuant to
a secured promissory note which was originally due in September 1995 and later
extended until December 1998.  The purpose of the loan was to enable SOV to
continue funding FYI, and thus the development and manufacture of the FYI
digital camera by FYI and Dycam.  During the six months ended June 30, 1995, SOV
used cash to fund continued losses and advances to SSI and FYI.  In November
1995, total advances to FYI outstanding of $2,700,000 were contributed by the
Company to FYI capital.

                                       22
<PAGE>
 
    In September 1995, SOV and FYI received bridge financing of $300,000 from
MTC, pursuant to a short-term financing agreement (the "Bridge Financing").
Additional advances of $75,000 were made pursuant to the Bridge Financing in
October 1995.  In November 1995, SOV, FYI and IDI entered into the Agreement.
Pursuant to the Agreement, IDI invested $3,000,000 in SOV and FYI.  In
consideration for such investment, SOV and FYI issued 10% secured notes in the
original principal amount of $2,950,000 with interest payable monthly, and
quarterly principal payments of $500,000 commencing March 31, 1997.  In
addition, SOV issued $50,000 worth of 10% Senior Series A Convertible Preferred
Stock, $100 par value.  Moreover, the Agreement requires the Company to issue
sufficient warrants so that when they are exercised, IDI would control 40% of
the Company's common stock on a fully diluted basis.  FYI received net proceeds
of $2,307,000 from the $3,000,000 financing, after repayment of the Bridge
Financing, its associated interest, and transaction fees.  Pursuant to the
Agreement, as amended in March 1996, funds totaling $750,000 are available to
SOV, of which approximately $550,000 had been advanced to SOV by FYI as of March
15, 1996.  The remaining funds are to be used for the furtherance of FYI's
expansion.  At December 31, 1995, the Company was not in compliance with certain
of the Agreement's financial covenants, however, the Company has obtained a
waiver of these violations from IDI.  The Company may require additional
covenant relief in the future.  There can be no assurance that IDI will grant a
waiver for any future noncompliance.  If defaults occur in future periods, and
necessary waivers are not obtained, and the Company's assets securing the
Agreement are taken in satisfaction of the amounts due pursuant to the
Agreement, and no excess remains, funds will not be available to meet SOV's
obligations, including, without limitation, the repayment of a $1,000,000 note
owed to Dycam.  For additional information, see "Notes to Consolidated Financial
Statements --Subsequent Events."

    In 1995, SOV entered into a settlement of Class Action and Derivative
lawsuits, whereby SOV agreed to deliver to the plaintiff class warrants to
purchase 750,000 shares of the Company's Common Stock and a $250,000 promissory
note payable in three equal semi-annual installments commencing July 1996.  In
addition, SOV anticipates receiving refunds of previously paid income taxes of
approximately $340,000 in 1996.

    On April 5, 1994, SOV purchased 80% of the outstanding stock of FYI, a newly
formed corporation which engages in the newborn baby photography business, for
cash consideration of $100,000.  The 20% of FYI stock not purchased by SOV is
currently held by FYI's President.  In November 1995, FYI's President entered
into negotiations with SOV relating to the Exchange of his entire interest in
FYI for consideration consisting of shares of the SOV's Common Stock.  No
assurance can be made, however, that such negotiations will be successfully
concluded.

    In January 1996, the Company decided to discontinue SOV's hairstyle and
beauty imaging operations.  During the wind-down of these operations, the
Company anticipates that SOV's operating activities will continue to use cash
and that its minimal cash balance will continue to decline.  Since the last
quarter of 1995, the Company has successfully negotiated significant discounts
of certain of its accounts payable balances, and intends to negotiate a
reduction in its remaining accounts payable.  No guarantee, however, can be made
that the Company will be able to successfully negotiate reductions on its
remaining outstanding accounts payable.

    In March 1996 the Company entered into negotiations with IDI for additional
financing.  No assurances can be given that the financing will occur or will be
sufficient to cover the Company's operating shortfalls.  In addition, the
Company believes that the net cash impact of a settlement of the K&A gain
contingency and the Durian loss contingency, more fully described in the Notes
to Consolidated Financial Statements, will be positive.  No assurance, however,
can be given that a net

                                       23
<PAGE>
 
positive result will be achieved.  If (a) a net negative result is achieved with
respect to the K&A and Durian matters, (b) management cannot achieve its
operating plan because of sales shortfalls or other unfavorable events, or (c)
the financing under negotiation is not consummated or proves insufficient to
cover the shortfalls, SOV may find it necessary to further reduce its levels of
expenditures or undertake other such actions as may be appropriate, and may be
otherwise unable to achieve its goals or continue its operations.

 .   Dycam.  At June 30, 1995, Dycam had cash and short-term investments on hand
of $1,986,000, down $1,729,000 from $3,715,000 at December 31, 1994.  The
decrease was primarily a result of cash losses, an increase in notes receivable
from SOV of $500,000, an increase in inventories to support the FYI digital
camera project, increases in accounts receivable and fixed assets, and a
$129,000 decrease in an intercompany payable that was repaid to SOV.

    Current liabilities at June 30, 1995 decreased by $187,000 from December 31,
1994 to $285,000, primarily as a result of a $58,000 decrease in accounts
payable, and a $129,000 decrease of an intercompany payable that was repaid to
SOV.  Intercompany payables are eliminated from the Consolidated Balance Sheets
upon consolidation.  Dycam's working capital at June 30, 1995 was $3,641,000, a
decrease of $799,000 when compared to $4,440,000 at December 31, 1994.  The
working capital reduction was primarily the result of cash operating losses, the
repayment of current liabilities, and advances to SOV of $500,000.  The current
ratio at June 30, 1995 was 13.8 to 1 compared to 10.4 to 1 at December 31, 1994.

    Since the closing of its rights offering in 1994, Dycam has expended a
substantial portion of the $4,976,000 raised in that offering, including
advancing $1,000,000 to SOV pursuant to a secured loan originally due in
September 1995 and later extended to December 1998.  The purpose of the advance
was to provide funds for the operation and expansion of FYI.  All interest
payments pursuant to the note have been made in a timely fashion by SOV.  If the
Company defaults on the Agreement, and IDI exercises its rights, Dycam may not
be repaid and will be entitled to receive back the 1,916,667 shares of Dycam's
common stock owned by SOV.

    Dycam believes that its existing cash balances and cash flow from operations
will be sufficient to meet its cash requirements through at least twelve months
following March 29, 1996.  In addition, to the extent Dycam experiences growth
in the future, or its cash flow from operations is less than anticipated, Dycam
may be required to obtain additional sources of cash, or scale back its
operating and research and development expenses to a level sustainable under
such situations.

 .   FYI.  At June 30, 1995, FYI had cash and short-term investments on hand of
$23,000.  During the six months ended June 30, 1995, FYI relied primarily upon
advances of $1,174,000 from SOV (which were contributed to FYI's capital in
November 1995) and revenues from sales of $48,000 to finance its operations and
expansion.  Additionally, certain capital expenditures have been financed by
capital leases which have a three year term and provide for the purchase of the
equipment at the end of the lease terms.  FYI's revenues commenced in March 1995
and are expected to contribute an increasing amount of cash to fund future
operations.

    Capital expenditures relate primarily to the acquisition of equipment for
FYI's production facility and office.  FYI financed non related-party equipment
purchases from non-related parties of $96,000, $40,000 and $43,000 in December
1994, June 1995, and October 1995, respectively, with capital lease obligations.
FYI's working capital at June 30, 1995 was $(140,000).  FYI's current ratio at
June 30,

                                       24
<PAGE>
 
1995 was .5 to 1, compared to 1.98 to 1 at December 31, 1994.  FYI's current
ratio is a result of the planned timing of requests for advances from SOV on an
as-needed basis.

    As described above, in September 1995, SOV and FYI received financing of
$300,000 from MTC, pursuant to the Bridge Financing.  Additional advances of
$75,000 were made pursuant to the Bridge Financing in October 1995.  In November
1995, SOV, FYI and IDI entered into the Agreement.  FYI received net proceeds of
$2,307,000 from the $3,000,000 financing, after repayment of the Bridge
Financing, its associated interest, and transaction fees.  Pursuant to the
transaction, as amended in March 1996, up to $750,000 of the funds are available
to SOV, of which approximately $550,000 had been advanced to SOV as of March 31,
1996. As discussed above, the Company was not in compliance with certain of 
the Agreement's financial covenants at December 31, 1995, however, the Company
has obtained a waiver of these violations from IDI.


    FYI expects that working capital requirements and capital additions in
fiscal 1996 will continue to be funded through a combination of cash on hand,
cash receipts from product sales, and capital leases, and additional financing
from IDI which is currently being negotiated.  FYI no longer relies on or
receives advances from SOV or Dycam to fund operations.  FYI anticipates that
its operating and research and development activities in fiscal 1996 will
continue to use cash.  FYI believes that it will reduce its cash shortfalls each
month as revenues increase with anticipated growth.  It is not possible to
predict the actual growth rate.  To the extent FYI experiences unplanned levels
of growth in the future, or if cash flow from operations is less than
anticipated, or if the financing under negotiation is not consummated or proves
insufficient to cover the shortfalls, FYI may be required to obtain additional
financing, scale back its marketing and research and development activities to a
level sustainable under such circumstances, or undertake other such actions as
may be appropriate, and may be otherwise unable to achieve its goals or continue
its operations.

 .   SSI.  At June 30, 1995, SSI had cash and short term investments on hand of
$1,000, its only current asset.  From April 1994 (inception) to December 31,
1994, SSI relied primarily upon advances from SOV to finance its operations and
roll out, although SSI had some limited cash receipts from the sale of
franchises.

    SSI's working capital at June 30, 1995 was $(8,000).  The current ratio at
June 30, 1995 was .1 to 1, compared to 2.83 to 1 at December 31, 1994.  For the
six months ended June 30, 1995, SSI primarily relied on advances of
approximately $289,000 from SOV and franchise fee income of $33,000 to fund cash
operating losses.

    SSI continued to use cash in operations during the last two quarters of
1995, primarily as a result of continued cash operating losses.  SSI stopped the
sale of franchises in January 1995 and SSI is no longer marketing the sale of
franchises or updating its Uniform Franchising Offering Circular.  SSI no longer
has any employees, and any corporate administrative matters are handled by SOV
on behalf of SSI.  In January 1996, the Company decided to eliminate and
commenced the wind-down of the SSI line of business and expects cash provided
and used by SSI to comprise only a minimal portion of the Company's cash flow in
1996, and none in later years.

                                       25
<PAGE>
 
PART II. OTHER INFORMATION

Item 1 Legal Proceedings - (1)

Item 2 Changes in Securities - None

Item 3 Defaults Upon Senior Securities - None

Item 4 Submission of Matters to a Vote of Security Holders - None

Item 5 Other Information - None

Item 6 Exhibits and Reports on Form 8-K 

Exhibit No.       Document
-----------       --------
  27.1            Financial Data Schedule

(1)  Incorporated by reference from Styles on Video, Inc.'s Reports Form 10-KSB
     for the Fiscal Years ended December 31, 1995 and 1994 filed with the
     Commission on March 24, 1997, and March 29, 1996, respectively.

                                       26
<PAGE>
 
                                   SIGNATURES

    In accordance with the requirements of the Exchange Act, the registrant,
Styles on Video, Inc., caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

<TABLE>
<CAPTION>
 
     Signature                     Title                     Date
--------------------   ------------------------------   --------------
<S>                    <C>                              <C> 

/s/K. Eugene Shutler     Chairman of the Board and
--------------------     Chief Executive Officer        March 21, 1997
 K. Eugene Shutler      (Principal Executive Officer)                  
                        
 
 
/s/Nancy H. Galgas       Chief Financial Officer
--------------------    (Principal Accounting Officer   March 21, 1997
 Nancy H. Galgas              and Secretary)
 
</TABLE> 

                                       27