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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                    FORM 10-K

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

For the Fiscal Year Ended December 31, 1999       Commission File Number 0-21703


                         STYLING TECHNOLOGY CORPORATION
             (Exact Name of Registrant as Specified in the Charter)


        Delaware                                         75-2665378
(State of Incorporation)                    (I.R.S. Employer Identification No.)

                            7400 E. Tierra Buena Lane
                            Scottsdale, Arizona 85260
                                 (480) 609-6000
          (Address, Including Zip Code, and Telephone Number, Including
                   Area Code, of Principal Executive Offices)

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

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

                    Common Stock, Par Value $.0001 Per Share
                         Preferred Stock Purchase Rights

     Indicated  by check mark whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  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 [ ] No [X]

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

     The aggregate  market value of the voting stock held by  non-affiliates  of
the registrant,  computed by reference to the average bid and asked price of the
stock on October 16, 2000 was  $1,050,800.  Shares of Common  Stock held by each
officer and director have been excluded in that such persons may be deemed to be
affiliates. The determination of affiliate status is not necessarily conclusive.

     As of October 16, 2000, there were 4,068,170 shares of registrant's  Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

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<PAGE>
                         STYLING TECHNOLOGY CORPORATION
                           ANNUAL REPORT ON FORM 10-K
                       FISCAL YEAR ENDED DECEMBER 31, 1999

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----
                                     PART I

ITEM 1.  BUSINESS...........................................................
ITEM 2.  PROPERTIES.........................................................
ITEM 3.  LEGAL PROCEEDINGS..................................................
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................

                                PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
         RELATED STOCKHOLDER MATTERS........................................
ITEM 6.  SELECTED FINANCIAL DATA............................................
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS................................
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
         MARKET RISK........................................................
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
         ACCOUNTING AND FINANCIAL DISCLOSURE................................

                               PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................
ITEM 11. EXECUTIVE COMPENSATION.............................................
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT.....................................................
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................

                                PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
         ON FORM 8-K
SIGNATURES .................................................................
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................................

                                   ----------

                 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     CERTAIN  STATEMENTS  AND  INFORMATION  CONTAINED  IN THIS REPORT  UNDER THE
HEADINGS "BUSINESS," "SPECIAL  CONSIDERATIONS," AND "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF  FINANCIAL  CONDITION  AND  RESULTS OF  OPERATIONS"  CONCERNING  OUR
FUTURE, PROPOSED, AND ANTICIPATED ACTIVITIES, CERTAIN TRENDS WITH RESPECT TO OUR
REVENUE,  OPERATING RESULTS, CAPITAL RESOURCES, AND LIQUIDITY OR WITH RESPECT TO
THE  MARKETS IN WHICH WE COMPETE OR THE BEAUTY CARE  INDUSTRY  IN  GENERAL,  AND
OTHER  STATEMENTS  CONTAINED IN THIS PROSPECTUS  REGARDING  MATTERS THAT ARE NOT
HISTORICAL FACTS ARE FORWARD-LOOKING  STATEMENTS,  AS SUCH TERM IS DEFINED UNDER
THE SECURITIES LAWS.  FORWARD-LOOKING  STATEMENTS, BY THEIR VERY NATURE, INCLUDE
RISKS AND  UNCERTAINTIES,  MANY OF WHICH ARE  BEYOND OUR  CONTROL.  ACCORDINGLY,
ACTUAL  RESULTS MAY  DIFFER,  PERHAPS  MATERIALLY,  FROM THOSE  EXPRESSED  IN OR
IMPLIED BY SUCH  FORWARD-LOOKING  STATEMENTS.  FACTORS  THAT COULD CAUSE  ACTUAL
RESULTS  TO DIFFER  MATERIALLY  INCLUDE  THOSE  DISCUSSED  ELSEWHERE  IN ITEM 1,
"BUSINESS - SPECIAL CONSIDERATIONS."

                                   ----------

     "ABBA," "Alpha 9," "Biogenol," "Body Drench,"  "Cosmic,"  "European Touch,"
"Framesi,"  "Gena," "Kizmit,"  "Maiko," "Pro Finish,"  "Revivanail,"  "Roffler,"
"SRC," and "Suntopia" are our principal registered trademarks.
<PAGE>
                                     PART I
ITEM 1. BUSINESS

INTRODUCTION

     We are a leading  developer,  producer,  and  marketer  of a wide  array of
branded consumer products sold primarily through professional salon distribution
channels.  Our  products  include hair care,  skin and body care,  and nail care
products,  as well as salon appliances and sundries.  We believe we are the only
company that develops,  produces,  and markets  products in each category of the
estimated $40 billion U.S. market and substantially  larger worldwide market for
professional salon products and services.  We have  well-recognized,  long-lived
brand names,  a strong  distribution  network,  established  marketing and salon
industry   education   programs,   and   significant   production  and  sourcing
capabilities.   We  leverage  our  well-established   distribution  channels  by
providing  customers with a comprehensive array of professional salon brands and
products.

     We currently sell more than 1,000 products under 12 principal  brand names.
In the United  States,  we market our product lines through  professional  salon
industry  distribution  channels  to  more  than  5,300  customers,   consisting
primarily of salon  product and tanning  supply  distributors  (which  resell to
beauty  and  tanning   salons),   beauty  supply  outlets,   and  salon  chains.
Internationally,  we sell our products  primarily  through  international  salon
product  distributors.  We believe  our  ability to offer  customers a "one-stop
shop"  for  brand-name   professional   salon  products  creates  a  competitive
advantage.

     We commenced operations in November 1996, when we simultaneously  completed
our initial  public  offering  and acquired  four  professional  salon  products
businesses.  Since that time, we acquired seven  additional  professional  salon
product businesses.

     The  following  table  sets  forth   information   regarding  each  of  our
acquisitions:

<TABLE>
<CAPTION>
ACQUISITION                                 ACQUISITION DATE   BRAND NAME (PRODUCT DESCRIPTION)
-----------                                 ----------------   --------------------------------
<S>                                           <C>              <C>
Gena Laboratories, Inc. (Gena)                November 1996    Gena (professional natural nail care, pedicure,
                                                               skin care, and hair care products)

Body Drench Division (Body Drench)            November 1996    Body Drench (professional tanning and moisturizing
  of Designs by Norvell, Inc. (DBN)                            products and resort, spa, and health  and country
                                                               club personal care products)

J.D.S. Manufacturing Co., Inc. (JDS)          November 1996    Alpha 9 (acrylic and fiberglass nail enhancement
                                                               products)

Kotchammer Investments,  Inc. (doing          November 1996    SRC (salon appliances and salonwear)
business as Styling Research Company)

Suntopia  Division of Creative                  March 1997     Suntopia (tanning products)
Laboratories, Inc. (Suntopia)

U.K. ABBA Products, Inc. (ABBA)                 June 1997      ABBA Pure and Natural Hair Care (aromatherapy-based
                                                               professional hair care products)

One  Touch/Clean + Easy Division of           December 1997    One Touch/Clean + Easy hair removal products and
Inverness Corporation                                          appliances

Pro Finish USA, Ltd. (Pro Finish)                May 1998      Pro Finish, Kizmit, and Cosmic (nail care products)
</TABLE>

                                       1
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION                                 ACQUISITION DATE   BRAND NAME (PRODUCT DESCRIPTION)
-----------                                 ----------------   --------------------------------
<S>                                           <C>              <C>
European Touch Co., Incorporated, and           June 1998      European Touch  (professional nail enhancement and
  two related nail companies (European                         treatment products)
  Touch)

European Touch, Ltd. II (European Touch II)     June 1998      European Touch II (pedicure spa equipment)

Ft. Pitt Acquisition, Inc. and its 90%         August 1998     Framesi,  Roffler, and Biogenol (professional hair
  owned subsidiary Ft. Pitt - Framesi,                         care products)
  Ltd. (together, Framesi USA)
</TABLE>

     In January 2000, we sold our Clean + Easy/One  Touch hair removal  business
for approximately $26.5 million in cash.

     Our  principal  executive  offices are  located at 7400 East Tierra  Buena,
Scottsdale,  Arizona,  85260.  Our telephone  number is (480) 609-6000.  As used
herein, the terms "we," "us," and "Styling" mean Styling Technology  Corporation
and its subsidiaries.

SIGNIFICANT DEVELOPMENTS

RESTATEMENT OF FINANCIAL RESULTS

     In November  1999, we announced the discovery of errors and  irregularities
related to the recording of net sales and income relating  primarily to our Body
Drench  division.  We also  announced  at the  same  time  that  we  anticipated
restating our financial  statements,  and that the  adjustments,  while not then
quantified,  would be material.  The procedures we have  undertaken to determine
the extent of the restatement  have resulted in the restatement of our financial
statements for 1997 and 1998. Concurrent with the filing of this Report, we have
filed with the Securities and Exchange Commission ("SEC") the restatement of our
1997  and  1998  financial  results.  As part of  these  procedures,  the  audit
committee of our board of directors  engaged legal counsel,  which  subsequently
engaged   forensic   accountants,   to  further   investigate  such  errors  and
irregularities  in our  Body  Drench  division  as well as  other  areas  of our
operations.  The audit committee  further charged our legal counsel to determine
if our company or our officers  violated  federal  securities laws and to assist
our company in cooperating  fully with the  Securities  and Exchange  Commission
(SEC) regarding these matters.

REORGANIZATION

     Following  the  announcement  that we would need to restate  our  financial
statements,  weakness  in net sales  during  the third  quarter  of 1999,  and a
default  with  respect  to  obligations  under our  credit  agreement,  we began
negotiations  with an  informal  committee  comprised  of holders of over 80% in
aggregate dollar amount of our 10 7/8% Senior  Subordinated  Notes (the "Notes")
and in July  2000  reached  an  agreement  (the  Restructuring  Agreement).  The
Restructuring Agreement requires that all $100 million of the Notes be converted
into   equity  and   includes  a   provision   that  allows  us  to  effect  the
debt-for-equity exchange through a plan of reorganization that would be effected
through a voluntary  filing  under  Chapter 11 of the United  States  Bankruptcy
Code.  Under the  Restructuring  Agreement,  the Notes will be exchanged  for 90
percent  of our  equity  through a plan of  reorganization  in  bankruptcy.  The
current  stockholders  and  management  will each  receive  five  percent of our
post-bankruptcy  equity plus warrants to acquire an  additional  nine percent of
such equity over five years.

     On August 31, 2000, we filed a voluntary  petition  under Chapter 11 of the
Bankruptcy  Code in the  United  States  Bankruptcy  Court for the  District  of
Arizona.  The  bankruptcy  case was filed in order to  implement  the  financial
restructuring  pursuant  to  the  Restructuring   Agreement.  We  are  currently

                                       2
<PAGE>
operating our business as a debtor-in-possession, subject to the jurisdiction of
the Bankruptcy  Court. As a  debtor-in-possession,  we are authorized to operate
our business in the ordinary course, but may not engage in transactions  outside
our ordinary course of business without the approval of the Bankruptcy Court.

SECURITIES AND EXCHANGE COMMISSION INVESTIGATION

     The staff of the Division of  Enforcement of the SEC advised the Company in
a letter dated  September 15, 1999 that it was  conducting  an informal  inquiry
into the Company's accounting policies and procedures.  On October 29, 1999, the
SEC informed the Company that the SEC was commencing a formal  investigation  of
the  Company.  The order  indicates  that the SEC is  investigating  whether the
Company,  certain of its current or former  officers,  directors,  employees and
certain  other  persons and entities  violated the federal  securities  laws and
regulations by

     *    filing or causing to be filed inaccurate reports with the SEC,

     *    failing to maintain accurate books, records and accounts,

     *    failing to create or maintain adequate internal  accounting  controls,
          or

     *    making false or misleading statements in reports filed with the SEC or
          in other public statements.

     The SEC has requested various  documents from the Company.  The Company has
cooperated  fully  with the SEC and has  furnished  the SEC  with the  documents
requested.

OVERVIEW OF THE PROFESSIONAL SALON PRODUCTS MARKET

     Professional  salon products  consist of hair care, skin and body care, and
nail care  products as well as salon  appliances  and sundries  that are used by
salon  professionals  in  rendering  salon  services  to  their  clients.   Many
professional  salon products also are retailed to clients and other customers of
salons,  resorts,  spas,  health and country clubs,  and beauty supply  outlets,
typically upon the advice of a salon  professional  who  recommends  products to
address the client's individual needs.

     Professional hair care products include shampoo, conditioner,  styling gel,
glaze,  mousse, hair spray,  permanent,  hair relaxer,  and hair color products.
Skin and body care products include body lotions,  tanning products,  cosmetics,
skin moisturizers,  and other personal care products (such as shaving creams and
antiperspirants)  used by salon  professionals in rendering salon services (such
as  facials,  manicures,  pedicures,  leg and  body  waxing,  paraffin  therapy,
aromatherapy,  and  thermo-therapy)  or available  for use by patrons of tanning
salons,  spas,  resorts,  and health and country clubs.  Professional  nail care
products include  fiberglass and acrylic nail enhancement  solutions  applied by
the salon  professional when performing nail service and the accessories used by
the  professional  to apply  the  solutions;  natural  nail  care  and  pedicure
solutions and  accessories;  and polishes.  Professional  salon  appliances  and
sundries include hair dryers, curling irons, brushes,  pedicure spas, furniture,
and salonwear such as capes and aprons.

     Professional salon products have two end consumers:  the salon professional
who uses them in the  performance  of salon  services  and the salon  client who
purchases  them from  salons  for  personal  use.  We believe  salons  typically
generate  between 10% and 30% of their revenue from retail sales of professional
salon products.  As the users and "prescribers" of professional  salon products,
salon professionals typically select products on the basis of performance rather
than price.  As a result,  suppliers of  professional  salon  products  focus on
educating distributors and salon professionals on the uses and benefits of their
products and on industry  trends.  Because salon  professionals  prescribe these
products and sell them  primarily in connection  with rendering a salon service,
professional  salon products  typically  foster strong brand loyalty and exhibit
relative  price   insensitivity.   Consequently,   professional  salon  products
generally   command   substantially   higher   prices  and  gross  margins  than
mass-marketed beauty products.

                                       3
<PAGE>
PRODUCTS

     We offer products in all salon product categories.  We sell more than 1,000
professional  salon hair care,  skin and body care,  natural  nail care and nail
enhancement   products,   and  salon  accessories  and  sundries,   representing
approximately  4,000 stock keeping units,  or SKUs. We believe that the strength
of our brand names is based on the  reputation of our products for quality among
salon professionals, the performance of our products, and our focused commitment
to the needs of salon professionals and their clientele.  We believe these brand
names  are  widely   recognized   by  salon  product   distributors   and  salon
professionals  and  their  clients  as  high-quality,   effective  products.  In
addition,  we  believe  that the  strength  of the brand  names of our  existing
products and our  reputation  within the industry  will assist us to develop and
market product line extensions and new brands successfully.

     The table below sets forth a  description  of our principal  products,  the
brand names under which the products are sold,  and our estimate of  approximate
percentages  of such  products sold for  professional  salon use and retailed to
salon and customers.

<TABLE>
<CAPTION>
                                                                                     %       % RETAIL
                                                                                   SALON     SALES BY
PRODUCT CATEGORY       PRODUCT DESCRIPTION                     BRAND NAMES          USE       SALONS
----------------       -------------------                     -----------          ---       ------
<S>                    <C>                                     <C>                 <C>        <C>
Hair Care              Shampoo, conditioner, hair color,       ABBA,                40%        60%
                       and  styling and finishing aids         AquaTonic,
                                                               Biogenol, Body
                                                               Drench, Framesi,
                                                               Gena, Roffler

Skin and Body Care     Moisturizing lotion, indoor and         Body Drench,         35         65
                       outdoor  tanning products, personal     Gena, Suntopia
                       care  products, paraffin waxes,
                       thermo-therapy  treatments, and hair
                       removal systems and  depilatory
                       products

Nail Care              Natural nail care products, acrylic     Alpha 9,             70         30
                       and  fiberglass nail enhancement        Cosmic, European
                       products,  nail treatments, nail        Touch, Gena,
                       polish,  light-bonded nail systems,     Kizmit, Pro
                       and manicure  and pedicure solutions    Finish,
                       and accessories                         Revivanail

Salon Appliances       Hairdryers, curling irons, salon        European Touch      100         --
and Sundries           pedicure spas, salon furniture, and     II, Maiko, SRC
                       salonwear (capes/aprons)
</TABLE>

HAIR CARE PRODUCTS

     We offer a variety of hair care  products at various price points under the
ABBA, Framesi,  Biogenol,  Roffler, Body Drench, and Gena brands. The ABBA line,
which is marketed under the ABBA Pure and Natural trademark,  consists of highly
concentrated,  high-quality  products.  The ABBA line  consists  of 100%  vegan,
aromatherapy  inspired,  herbal hair care products using botanical  ingredients.
The ABBA line includes  shampoo,  conditioner,  gel, and hair spray made using a
blend of herbal  therapy  botanicals,  tri-molecular  proteins,  panthenol,  and
neutral henna designed to produce fuller, thicker, and shinier hair. Our Framesi
product line features premium quality hair color products  marketed  exclusively
for use in salons.  We also market under the Biogenol brand name a complementary
line of shampoos,  conditioners,  and styling aids  specifically  formulated for
color-treated  hair. The Roffler line includes  high-quality,  salon-distributed
shampoos,  conditioners, and styling aids designed primarily for men between the
ages of 18 and 40. ABBA, Biogenol, Framesi, and Roffler products are used widely
throughout the hair care industry and generate  significant  salon retail sales.
See "Special Considerations -- We depend on Framesi S.r.l."

     Under  the Gena  brand  name,  we offer a line of  tea-tree  oil hair  care
products with anesthetic  qualities  designed to relieve dry,  itching scalp. In
addition,  we market  hair care  products  as a part of our Body  Drench line of
personal  care  products,  primarily  to spas,  resorts,  and health and country
clubs.

                                       4
<PAGE>
SKIN AND BODY CARE PRODUCTS

     We sell a broad  range  of  professional  skin and  body  care and  tanning
products, including moisturizers and lotions, under our Body Drench and Suntopia
brands.

     Body Drench  professional skin care products include  moisturizing  lotions
and body baths  supplemented  with Vitamins A and E and  botanical  extracts for
moisture  retention  and skin  rejuvenation  and alpha hydroxy acids for natural
skin  exfoliation.  Body Drench indoor tanning  products  replace  moisture lost
during tanning and promote faster, darker tanning results. We also offer outdoor
tan care and sun protection products under the Body Drench name.

     The Suntopia line of exclusively distributed  professional tanning products
includes  various  tanning creams and lotions,  enriched shower gels, a moisture
replenishing lotion, and a tan enhancing product.  Suntopia products,  which are
made using an exotic blend of botanicals and forested extracts,  are designed to
promote and maintain a long-lasting  tan. The Suntopia line complements the Body
Drench line by targeting a younger market.

NAIL CARE PRODUCTS

     We  believe  that we have the most  complete  and  diverse  line of branded
products  for  salon  professionals  in the nail  care  category.  Our nail care
product  offerings  consist of products  designed  to support the various  salon
services performed by nail technicians,  including manicure,  pedicure,  acrylic
and fiberglass nail  enhancement,  natural nail  treatments,  and nail polishes.
Most nail care companies encourage distributors to purchase their entire product
line in order to buy any of their  nail  care  products.  We,  however,  offer a
number  of  top-selling  products  across  all  segments  of the nail  category,
permitting  our  customers  to select and  purchase  individual  SKUs from among
multiple brands,  including Alpha 9, European Touch,  Gena,  Kizmit, Pro Finish,
and Revivanail.  For example, we offer distributors and salon chains the ability
to purchase our Revivanail nail treatments and Alpha 9 acrylic nail  enhancement
products without having to purchase the full line of other Revivanail or Alpha 9
products.

     Our  Alpha  9,  European  Touch,  and  Kizmit  acrylic   professional  nail
enhancement products consist of complete lines of liquids, powders, tips, files,
and  other  implements  and  treatments  necessary  for  the  professional  nail
technician to complete the acrylic nail enhancement process.

     The Gena line of  natural  nail care  products  features  Warm-O-Lotion,  a
collagen-enriched  manicure  lotion  that  is  prominently  featured  in  salons
throughout the United States. The Gena line also includes  professional pedicure
products, such as Pedi Soft, a collagen-enriched  conditioning lotion; Pedi Care
dry skin lotion;  and Pedi Soak foot bath.  The Gena product line also  includes
paraffin therapy products, such as Paraffin Springs Therapy Spa, a paraffin bath
for  conditioning  heat  therapy  treatments;  the  Healthy  Hoof  nail and skin
treatment line to strengthen,  moisturize, and condition nails and cuticles; and
MRX antiseptics and lotions for use by salon professionals.

     We offer base coats,  top coats,  nail glues, and cuticle lotions under our
European Touch and Pro Finish brands.  The Pro Finish line of nail care products
also features a light bonded nail system that seals the nail  enhancement  under
ultraviolet lighting.

     Our  European  Touch  brand  features  nail  treatment  products,  such  as
Revivanail and  Theracreme.  We also offer  Momentum,  a three-step nail overlay
system that offers simplicity, speed, and strength.

SALON EQUIPMENT, APPLIANCES, AND SUNDRIES

     We sell salon equipment,  appliances, and sundries,  including pedicure spa
equipment,  hairstyling appliances,  and salonwear. We market under the European
Touch II name various  salon  equipment  products,  such as whirlpool  footspas,
salon chairs designed for clients and technicians,  manicure and pedicure tables
and footrests,  and portable salon accessory carts.  These products are intended
to  capitalize on the growing  trend among salons to offer  services  beyond the
basic salon  services.  The SRC product line of  professional  curling irons and
blow dryers are recognized within the salon industry as among the finest quality
in salon  appliances.  The appliances are designed for high usage and durability

                                       5
<PAGE>
and  feature  quick  startup and  recovery  capabilities.  All SRC  professional
curling irons are backed by the industry's only three-year  warranty.  Our Maiko
salonwear  line  features  capes and aprons for the  stylist  and the  stylist's
clientele.

PRODUCT DEVELOPMENT

     We seek to leverage the significant  brand-name recognition of our existing
product lines by introducing new products and formulations  under our core brand
names as well as under  newly  developed  brands.  We believe  that our  diverse
product  offerings  provide us with  greater  capacity  and know-how to develop,
test,  and market new  products  in each of our  product  lines,  including  the
expanded application of proprietary  technologies.  We contract with third-party
manufacturers  to develop  new  formulations  that meet our  specifications  and
quality  standards.  We have not incurred and do not expect to incur significant
capital expenditures in connection with our product development efforts.

     Our management,  working  together with our sales and marketing and product
development  personnel,  continuously  monitors  shifts in the salon industry to
identify new product  opportunities.  Feedback from salon  professionals and our
educators also plays a significant role in product  development.  We believe the
experience of our key managers, their relationships within the industry, and our
product line  orientation  enable us to quickly  recognize  and respond to salon
innovations and industry trends.

MARKETING

     We sell our professional  salon products and appliances  primarily  through
professional salon industry  distribution  channels to salon product and tanning
supply distributors,  salon chains, and beauty supply outlets,  and, to a lesser
extent,  directly to spas, resorts,  and health and country clubs throughout the
United States and in Canada,  Europe,  Latin  America,  Australia,  and Asia. We
believe that our strategy of marketing our salon products exclusively for use in
or  resale by the  salon  industry  complements  the  professional  image of our
products  and  fosters  a high  degree  of  brand  loyalty  by  distributors  of
professional salon products.

     Our sales and marketing efforts focus on educating salon  professionals and
salon product  distributors  regarding the high quality and performance benefits
of our  products  as well as the  latest  trends and  developments  in the salon
industry.  Our marketing program includes  participation in salon industry trade
shows, at which salon product  manufacturers  exhibit and sell their products to
wholesale salon product distributors;  several annual domestic and international
salon   professionals    trade   shows;   and   numerous    professional   salon
distributor-sponsored  shows,  at which  products,  styles,  and  techniques are
demonstrated to salon  professionals.  Our marketing program emphasizes customer
education  through  regular  in-the-field   product   demonstrations  for  salon
professionals, usually in conjunction with the distributors' sales and marketing
efforts.  In  addition,  our products are  advertised  in trade and  distributor
publications  and  promoted  in  national  magazines,  including  GLAMOUR,  GOOD
HOUSEKEEPING,  INSTYLE,  MARIE CLAIRE,  MCCALL'S,  MIRABELLA,  and SELF. We also
produce  educational  videos and literature for distribution to distributors and
salon professionals.

SALES AND DISTRIBUTION

     We believe that we have strong  relationships  in each of the  professional
salon distribution  channels,  including exclusive and open channels.  We depend
upon salon product and tanning supply  distributors,  beauty supply outlets, and
salon chains to distribute our products.  We currently  maintain more than 5,300
active customer accounts.  We do not, however, have long-term contracts with any
of our customers.  Products sold through  exclusive  channels are available to a
limited  number of  distributors  in each region,  while those sold through open
channels are available to all distributors.

     Regional sales managers and a strong educational support team sell the ABBA
line of hair care  products  on an  exclusive  basis to  approximately  50 salon
product distributors and salon chains throughout the United States,  Canada, and
Australia. Regional sales managers and an in-house educational support team sell
our hair color and hair care products under the Framesi,  Biogenol,  and Roffler
brand names on an exclusive  basis to 61 salon product  distributors  throughout
the United States and Latin America.

                                       6
<PAGE>
     A  professional  outside  sales  force  sells our nail care  product  lines
nationally and internationally to salon product distributors.  This distribution
base includes  Sally Beauty  Company,  Inc., the largest  wholesale  supplier of
professional supply products with more than 1,900 supply stores worldwide.

     A sales force of marketing representatives,  telemarketers, and field sales
personnel as well as independent  manufacturer  representatives sell Body Drench
products  to  salon  product  distributors,  tanning  supply  distributors,  and
directly to spas,  resorts,  and health and country clubs  throughout the United
States and in Canada, Europe, Latin America, and Australia.

     A sales force of employees and manufacturer  representatives sell SRC salon
appliances  and  salonwear  nationally  on an exclusive  basis to salon  product
distributors,  beauty  schools,  and salon  chains.  An internal  sales force of
marketing  representatives  sells our European Touch II pedicure spa products to
salon product distributors and salon chains.

PRODUCTION

     We have developed  relationships  with third parties to manufacture most of
our products.  Although we generally do not have  long-term  contracts  with our
manufacturers, we own most of the formulations, tools, and molds utilized in the
manufacturing  processes of our products and believe we could  substitute  other
manufacturers if necessary.  In addition, we assemble and upholster our European
Touch II salon furniture and appliances in our 39,000 square foot  manufacturing
and warehousing facility in Butler, Wisconsin.

     Raw materials used to produce our professional  salon products,  other than
salon appliances and sundries, include water, alcohol, mineral and natural oils,
fragrances,  other  chemicals,  and a wide  variety of packaging  materials  and
compounds including containers,  such as cardboard boxes and plastic containers,
container caps, tops, valves, and labels. We purchase all of these raw materials
from outside sources.  The principal raw materials and packaging  components for
our products are available from numerous domestic and  international  suppliers.
Although we do not purchase the raw materials used to  manufacture  the majority
of our products,  we are potentially  subject to variations in the prices we pay
our  third-party  manufacturers  for  products  depending on their costs for raw
materials.  While the industry  from time to time has  experienced  raw material
cost  increases,  we believe we will be able to  purchase  our  requirements  at
competitive  prices.  To date,  increases in raw  material  costs have not had a
material effect on our operating results.

     We continually  monitor the quality of our products.  We also carry product
liability insurance at levels we believe to be adequate.

COMPETITION

     Our products compete directly against  professional salon and other similar
products sold through  distributors and professional  salons.  We compete on the
basis of brand recognition, quality, performance, distribution, and price.

     Our  principal  competitors  in the  professional  salon hair care products
market include Nexxus Products Co., Paul Mitchell Systems,  Matrix,  Redken, and
Sebastian International.  Our largest competitors in the professional salon skin
and body care products  market include  California  Suncare,  Inc.,  Supre Inc.,
Swedish  Beauty   Manufacturing,   Inc.,   Australian   Gold,   Inc.,   American
International, Inc., and Divi International. Our competitors in the professional
salon nail care market  include  Creative Nail Design,  Inc., OPI Products Inc.,
Star Nail Products,  Inc., and  Backscratchers,  Inc. Our largest competitors in
the professional salon appliances and sundries market are Helen of Troy Limited,
Belson  Products  (a  division of  Windmere  Corporation),  Conair  Corporation,
Cricket  Brush  Company (a division of West Coast Beauty  Supply Co.),  Andre (a
division  of Fromm  International,  Inc.),  and Betty Dain  Creations,  Inc.  In
addition,  our professional salon products compete indirectly against hair care,
skin and body  care,  and nail care  products  as well as salon  appliances  and
sundries  sold  through  a  variety  of  non-salon  retail  channels,  including
department  stores,  mall-based  specialty stores and, to a lesser extent,  mass
merchants,   drugstores,   supermarkets,   telemarketing  programs,   television
"infomercials," and catalogs.

                                       7
<PAGE>
INTELLECTUAL PROPERTY

     We have registered,  or have pending applications for registration for, our
principal  trademarks  and  brand  names in the  United  States  and in  foreign
countries.  Our  principal  trademarks  and brand  names  include  ABBA Pure and
Natural Hair Care, Alpha 9, AquaTonic,  Biogenol,  Body Drench, Cosmic, European
Touch, Gena, Kizmit, Pro Finish, Revivanail, Roffler, SRC, and Suntopia.

     We believe our position in the marketplace  depends to a significant extent
upon the goodwill  engendered by our trademarks and brand names and,  therefore,
consider trademark  protection to be important to our business.  We will seek to
register or otherwise protect all significant  trademarks and brand names in all
active geographic markets.

     While we  currently  hold  certain  patents,  we do not consider any single
patent to be material to the conduct of our  business.  We rely on all facets of
intellectual property law to protect our proprietary information.

GOVERNMENT REGULATION

     Certain of our  advertising and product  labeling  practices are subject to
regulation by the FTC, and certain of our professional  salon product production
practices  are  subject to  regulation  by the FDA as well as by  various  other
federal,  state,  and local  regulatory  authorities.  Compliance  with federal,
state,  and local laws and regulations has not had a material  adverse effect on
us to date.  Nonetheless,  federal,  state, and local  regulations in the United
States that are designed to protect  consumers  have had, and can be expected to
have, an increasing  influence on product liability claims,  production methods,
product  content,  labeling,  and packaging.  In addition,  any expansion of our
operations to produce professional salon products that include  over-the-counter
drug  ingredients,  such as certain sun screen  ingredients,  would result in us
becoming  subject to additional  FDA  regulations  as well as a higher degree of
inspection and greater burden of regulatory compliance than currently exist.

     Our  operations  subject  us to  federal,  state,  and  local  governmental
regulations  related to the use, storage,  discharge,  and disposal of hazardous
chemicals.   Our  failure  to  comply  with  current  or  future   environmental
regulations  could result in the imposition of fines,  suspension of production,
or a cessation of operations.  Compliance with such regulations could require us
to acquire costly equipment or to incur other significant expenses.  Any failure
by us to control the use, or  adequately  restrict the  discharge,  of hazardous
substances could subject us to future liabilities.

     The  nature  and use of  professional  salon  products  could  give rise to
product  liability  claims if one or more users of our  products  were to suffer
adverse reactions  following their use of the products.  Such reactions could be
caused by  various  factors,  many of which are beyond  our  control,  including
hypoallergenic  sensitivity and the possibility of malicious  tampering with our
products.  In the  event  of such an  occurrence,  we  could  incur  substantial
litigation expense, receive adverse publicity, and suffer a loss of sales.

EMPLOYEES

     As  of  August  31,  2000,  we  employed  182  persons,  consisting  of  42
administrative  employees,  73 warehouse and production employees,  and 67 sales
and marketing employees.  Framesi USA, one of our subsidiaries,  is a party to a
collective  bargaining  agreement relating to certain production  employees.  We
believe that our relations with our employees are good.

                                       8
<PAGE>
                             SPECIAL CONSIDERATIONS

     AN  INVESTMENT  IN OUR COMMON  STOCK  INVOLVES A HIGH  DEGREE OF RISK.  YOU
SHOULD CONSIDER  CAREFULLY THE FOLLOWING RISK FACTORS,  IN ADDITION TO THE OTHER
INFORMATION CONTAINED IN THIS REPORT, BEFORE PURCHASING ANY OF OUR COMMON STOCK.

WE HAVE FILED FOR PROTECTION UNDER CHAPTER 11 OF THE BANKRUPTCY CODE.

     On  August  31,  2000,  we filed for  protection  under  Chapter  11 of the
Bankruptcy  Code.  The fact of this filing,  along with the process  through the
Bankruptcy  Court,  could affect our business in a variety of  unforeseen  ways.
Among other things,  the bankruptcy  could impair our ability to (a) operate our
business during the pendency of the  proceedings;  (b) continue normal operating
relationships  with our key  distributors;  (c) obtain  shipments  and negotiate
terms with  vendors;  (d) fund,  develop,  and execute our operating  plan;  (e)
attract and retain  executives  and key  employees;  and (f) otherwise  maintain
favorable courses of dealing with vendors could be impaired.

     We expect that the equity of the current  shareholders  in the Company will
be diluted significantly under the plan of reorganization we will propose to the
Bankruptcy Court. We reached an agreement with an informal  committee of holders
of an aggregate  dollar  amount of over 80% of the Notes that  requires that all
$100  million of the Notes be  exchanged  for  equity.  Under the  Restructuring
Agreement,  the Notes will be exchanged for 90% of our equity  through a plan of
reorganization in bankruptcy.  The current stockholders and management will each
receive 5% of our post-bankruptcy  equity plus warrants to acquire an additional
nine percent of such equity over five years.

     There are various risks  associated  with our Chapter 11 case.  Our plan of
reorganization  may not be approved  or, even if approved,  may not succeed.  In
addition,  we will  need to  secure  additional  financing  or  renegotiate  our
existing  credit  facility,  under  which  we are in  default,  to  execute  our
operating  plan.  We cannot  assure you that we will be able to secure  adequate
financing or successfully renegotiate our credit facility.

     We depend on our  distributor  and other key  customer  relationships.  Any
change in these  relationships  could have a significant  negative impact on our
business.  The  filing of the  Chapter  11 case  could  adversely  affect  those
relationships.  This could cause our sales to decrease. If we cannot improve our
sales, we may not generate sufficient cash to continue in business. In addition,
even if we are able to pay our bills,  we may not be able to expand our business
if sales levels do not improve.

OUR COMMON STOCK HAS BEEN DELISTED.

     Our common  stock has been  delisted  from Nasdaq for failure to meet their
standards,  primarily due to our failure to keep current our required reports to
the SEC.  Delisting could materially and adversely affect the trading market for
our common stock and our access to the capital markets.  We will have to reapply
for initial listing once Nasdaq  determines that we can meet the initial listing
requirements.  We currently cannot qualify for initial listing with Nasdaq,  and
we may never meet those requirements.

     The closing  sale price for our common  stock on October 16, 2000 was $0.33
per share.  Because  our common  stock is  delisted  from Nasdaq and our trading
price is less than  $5.00 per share,  trading in our common  stock is subject to
the  requirements  of rule 15g-9 of the  Securities  Exchange Act,  known as the
"penny stock" rules. Under this rule,  broker/dealers  who recommend  low-priced
securities to persons other than established  customers and accredited investors
must satisfy special sales practice  requirements,  including a requirement that
they make an individualized written suitability  determination for the purchaser
and  receive the  purchaser's  written  consent  prior to the  transaction.  The
Securities Enforcement Remedies and Penny Stock Reform Act of 1990 also requires
additional disclosure in connection with any trades involving a stock defined as
a "penny  stock"  (generally  any equity  security  not traded on an exchange or
quoted on Nasdaq that has a market  price less than $5.00 per share,  subject to
certain  exceptions),   including  the  delivery,   prior  to  any  penny  stock
transaction,  of a disclosure schedule explaining the penny stock market and the
risks associated with the penny stock market.  These  requirements  would likely
limit  severely the market  liquidity of our common stock and the ability of our
stockholders to dispose of their shares, particularly in a declining market.

                                       9
<PAGE>
A VARIETY OF FACTORS COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

     A wide  variety  of  factors  could  adversely  impact  our net  sales  and
operating results.  Many of these factors are beyond our control.  These factors
include the following:

     -    our  ability to identify  trends in the  professional  salon  products
          industry;

     -    our ability to modify our business to adapt to such trends;

     -    our ability to create and  introduce  new  products on a timely  basis
          that take advantage of industry trends;

     -    the  continued   market   acceptance  of  our  products   among  salon
          professionals and their clientele;

     -    our  ability to arrange  for timely  production  and  delivery  of our
          products;

     -    the level and timing of orders placed by customers; and

     -    competition and competitive pressures on prices.

     The success of our operations depends to an extent upon a number of factors
relating  to   discretionary   consumer   spending  and  continued   demand  for
professional salon products. These factors include economic conditions,  such as
employment,  business conditions,  interest rates, and tax rates, as well as the
continued growth of the  professional  salon products  industry.  General social
trends and economic  conditions could adversely affect consumer spending,  which
would adversely affect our business, financial condition, and operating results.

WE MUST RESPOND TO CONSUMER PREFERENCES.

     Consumer  preferences in the professional salon products industry depend to
a significant extent on the prescriptive role of salon professionals. Relatively
few products  achieve wide  acceptance  in the  professional  salon  market.  We
believe that our success depends, in part, on our continued ability to introduce
new and  attractive  products on a regular basis that  anticipate and respond to
changing  consumer  demands and  preferences  in a timely  manner.  New products
introduced by us may not achieve any  significant  degree of market  acceptance.
Any acceptance that is achieved may not be sustained for any significant  amount
of time.  The failure of new product lines or product  innovations to achieve or
sustain market  acceptance could have a material adverse effect on our business,
financial condition, and operating results.

WE DEPEND ON OUR DISTRIBUTION CHANNELS TO SELL MANY OF OUR PRODUCTS.

     We sell many of our products to professional salon product distributors and
salon chains.  Distributors and salon chains in the United States and in foreign
markets have periodically experienced  consolidation and other ownership changes
and in the future may  consolidate,  restructure,  or realign their ownership or
affiliations.  Some distributors and salons may be thinly capitalized and unable
to withstand changes in business conditions.  These circumstances could decrease
the number of  distributors  and salons that sell our  products or increase  the
ownership concentration within the professional salon products market.

     If a significant  distributor or salon chain discontinues  selling or using
our  products,  performs  poorly,  does  not  pay  for  purchased  products,  or
reorganizes  or liquidates and is unable to continue  selling our products,  our
business,  financial  condition,  and operating  results could be materially and
adversely affected. In addition,  the laws and regulations of various states may
limit our ability to change distributors under certain circumstances,  making it
difficult to terminate a distributor  without good or just cause,  as defined by
applicable  statutes or  regulations.  The resulting  difficulty or inability to
replace poorly performing  distributors  could have a material adverse effect on
our business, financial condition, and operating results.

                                       10
<PAGE>
WE DEPEND ON THIRD PARTIES TO MANUFACTURE OUR PRODUCTS.

     We depend upon third parties to manufacture most of our products.  Although
we own many of the  formulations,  tools,  and molds  used in the  manufacturing
processes  of our  products,  we have  limited  control  over the  manufacturing
processes  themselves.   As  a  result,  any  difficulties  encountered  by  the
third-party  manufacturers  that result in product defects,  production  delays,
cost overruns, or the inability to fulfill orders on a timely basis could have a
material  adverse  effect on our business,  financial  condition,  and operating
results.

     We  generally  do  not  have  long-term   contracts  with  our  third-party
manufacturers.  Although we believe we would be able to secure other third-party
manufacturers to produce our products, particularly as a result of our ownership
of many of the formulations, tools, and molds used in the manufacturing process,
our operations would be adversely  affected if we lost our relationship with any
of our current suppliers.

     We do not maintain an inventory of  sufficient  size to provide  protection
for any significant period against an interruption of supply, particularly if we
were  required  to obtain  alternative  sources  of supply.  Although  we do not
purchase  directly the raw  materials  used to  manufacture  the majority of our
products,  we are  potentially  subject to  variations  in the prices we pay our
third-party   manufacturers  for  products  depending  on  their  cost  for  raw
materials.

WE DEPEND ON FRAMESI S.R.L.

     We hold exclusive  license rights to sell Framesi brand hair color and hair
care  products in the majority of the Western  Hemisphere,  including the United
States and most of Latin America. We sell these products,  which are some of our
most important product offerings,  pursuant to an exclusive license with Framesi
S.r.l.  (Framesi  Italy) that expires in 2036. In addition,  we manufacture  and
sell hair care products  under the Framesi and Biogenol  brand names pursuant to
the  license.  Under our  agreement  with  Framesi  Italy,  we import hair color
products  manufactured by them. Any  difficulties  encountered by Framesi Italy,
with  respect to product  defects,  production  delays,  cost  overruns,  or the
inability to fulfill  orders on a timely basis or the  termination by Framesi or
breach by Framesi or us of the license  agreement could have a material  adverse
effect on our business, financial conditions, and operating results.

WE DEPEND ON OUR MAJOR CUSTOMERS.

     We depend upon salon product and tanning supply distributors, beauty supply
outlets, and salon chains to distribute our products. We currently maintain more
than 5,300 active customer  accounts,  but do not have long-term  contracts with
any of our customers.  An adverse change in, or termination of, our relationship
with,  or an adverse  change in the  financial  viability of, one or more of our
major customers could have a material adverse effect on our business,  financial
condition, and operating results.

WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL OPERATIONS.

     Having sold our One Touch and Clean + Easy product lines, we expect foreign
sales to  decrease  in 2000 as  compared  to  1999.  We  intend  to  expand  our
international  sales over the longer term. Our international  operations require
us to maintain equipment and inventories  abroad,  manufacture and sell products
internationally,   and  purchase  raw  materials  and  components  from  foreign
suppliers.  Our  international  operations  expose us to  certain  economic  and
political risks, including the following:

     -    compliance  with local laws and  regulatory  requirements,  as well as
          changes in such laws and requirements;

     -    foreign currency rate fluctuations;

     -    restrictions on the repatriation of funds;

     -    overlap of tax issues;

                                       11
<PAGE>
     -    political and economic conditions abroad; and

     -    the possibility of expropriation or nationalization of assets,  supply
          disruptions,  currency controls, and changes in tax laws, tariffs, and
          freight rates.

WE DEPEND ON KEY PERSONNEL.

     Our success depends to a significant  degree upon the skills of our current
key employees and our ability to identify,  hire, and retain  additional  sales,
marketing, and financial personnel. We cannot assure you that we will be able to
retain  our  existing  key  personnel  or  attract  and  retain  additional  key
personnel. The loss of services of key personnel,  particularly Sam Leopold (our
Chairman of the Board, President, and Chief Executive Officer), or the inability
to  attract  and retain  additional  qualified  personnel  could have a material
adverse effect upon our business, financial condition, and operating results.

WE FACE RISKS ASSOCIATED WITH OUR INTELLECTUAL PROPERTY.

     The  market  for our  products  depends to a  significant  extent  upon the
goodwill  associated with our trademarks and trade names.  Therefore,  trademark
protection is important to our business.  Although  most of our  trademarks  and
trade names are registered in the United States and in foreign countries, we may
not be  successful  in  asserting  trademark  or trade name  protection  for our
trademarks and trade names in the United States or other  markets.  In addition,
the laws of certain foreign countries may not protect our intellectual  property
rights to the same extent as the laws of the United  States.  The costs required
to protect our trademarks and trade names may be substantial.

     While we  currently  hold  several  patents,  we do not consider any single
patent to be material to the conduct of our business. We rely primarily on trade
secret protection for our proprietary information. We face risks associated with
our intellectual property, including the following:

     -    our intellectual  property rights may be challenged,  invalidated,  or
          circumvented;

     -    our intellectual property rights may not provide adequate protection;

     -    we may not have sufficient resources to prosecute infringements of our
          intellectual property rights;

     -    we may not be able to protect our intellectual property; and

     -    third parties may assert  intellectual  property  infringement  claims
          against us.

THE PROFESSIONAL SALON PRODUCTS INDUSTRY IS VERY COMPETITIVE.

     Our products compete directly against  professional salon and other similar
products  sold  through   distributors  of   professional   salon  products  and
professional  salons.  In addition,  our  professional  salon  products  compete
indirectly against hair care, nail care, and skin and body care products as well
as salon  appliances  and sundries  sold  through a variety of non-salon  retail
channels,  including  department stores,  mall-based  specialty stores and, to a
lesser extent, mass merchants, drugstores, supermarkets, telemarketing programs,
television  "infomercials,"  the Internet,  and catalogs.  Current and potential
competitors  include  a number of  companies  that  have  substantially  greater
resources than us,  including  better  brand-name  recognition,  broader product
lines, and wider distribution channels.

     The  professional  salon products  industry is  characterized  by a lack of
significant  barriers to entry with respect to the development and production of
professional  salon  products,  which may result in new  competition,  including
possible  imitators of one or more of our recognized product lines. In addition,
companies in the professional  salon products  industry commonly market products
that are similar to products being successfully marketed by competitors.

                                       12
<PAGE>
     Increased  competition  and any  reductions  in  competitors'  prices  that
require us to implement price  reductions in order to remain  competitive  could
have a  material  adverse  effect  on our  business,  financial  condition,  and
operating results.

WE ARE SUBJECT TO GOVERNMENT REGULATION AND POTENTIAL CLAIMS BY OTHERS.

     Certain of our  advertising and product  labeling  practices are subject to
regulation  by  the  Federal  Trade  Commission,  or  FTC,  and  certain  of its
professional salon product production practices are subject to regulation by the
Food and Drug  Administration,  or FDA,  as well as by  various  other  federal,
state, and local  regulatory  authorities.  Compliance with federal,  state, and
local laws and regulations has not had a material  adverse effect on us to date.
Nonetheless, federal, state, and local regulations in the United States that are
designed  to  protect  consumers  have  had,  and can be  expected  to have,  an
increasing  influence on product claims,  production  methods,  product content,
labeling,  and  packaging.  In addition,  if we expand our operations to produce
professional salon products that include over-the-counter drug ingredients (such
as certain sun screen  ingredients)  we would become  subject to additional  FDA
regulations  as well as a higher  degree of  inspection  and  greater  burden of
regulatory compliance than currently exist.

     Our  operations  subject  us to  federal,  state,  and  local  governmental
regulations  related to the use, storage,  discharge,  and disposal of hazardous
chemicals.   Our  failure  to  comply  with  current  or  future   environmental
regulations  could result in the imposition of fines,  suspension of production,
or a cessation of operations.  Compliance with such regulations could require us
to acquire costly equipment or to incur other significant expenses.  Any failure
by us to control the use, or  adequately  restrict the  discharge,  of hazardous
substances could subject us to future liabilities.

     The  nature  and use of  professional  salon  products  could  give rise to
product  liability  claims if one or more users of our  products  were to suffer
adverse reactions  following their use of the products.  Such reactions could be
caused by  various  factors,  many of which are beyond  our  control,  including
hypoallergenic  sensitivity and the possibility of malicious  tampering with our
products.  In the  event  of such an  occurrence,  we  could  incur  substantial
litigation expense, receive adverse publicity, and suffer a loss of sales.

ITEM 2. PROPERTIES

     We lease our corporate  headquarters  and  operations  center  located in a
66,000  square-foot  facility in  Scottsdale,  Arizona.  The  facility  includes
approximately  43,000  square  feet of  executive  and  administrative  offices;
approximately  20,000 square feet utilized for  warehousing;  and  approximately
3,000 square feet utilized for a test salon and a retail  store.  We believe the
facility  will be adequate  for our needs for the  foreseeable  future.  We also
lease production,  administrative, and warehouse space in Fair Lawn, New Jersey;
Butler, Wisconsin; Coraopolis, Pennsylvania; and the United Kingdom.

ITEM 3. LEGAL PROCEEDINGS

     Four class action  lawsuits  have been filed on behalf of purchasers of our
common stock in the U.S.  District Court for the District of Arizona  against us
and  certain of our  present  and former  officers  alleging  violations  of the
federal securities laws as discussed below.

     The  allegations  of each of the  complaints  are very  similar.  The class
period alleged in each of the actions is May 5, 1998 through  November 29, 1999.
In  general,  the  actions  claim that  during  the class  period,  we  reported
increasing  sales  and  earnings  before  interest,  taxes,  depreciation,   and
amortization  which  caused our common stock to trade at  artificially  inflated
prices.  The  complaints  allege  that the  price of our  common  stock  dropped
significantly  when we  announced  that our  third  quarter  1999  revenues  and
earnings would fall short of market expectations.  The complaints further allege
that on November 29, 1999, we announced that we could not file our Form 10-Q for
the quarter ended September 30, 1999 because of revenue  recognition  issues and
allegedly  admitted  that our results for the first two quarters of 1999 and for
the year ended  December 31, 1998 were  misstated  and would have to be restated
due to errors and  irregularities  relating  to our Body  Drench  division.  The
complaints further allege that as a result of the facts stated above, trading in

                                       13
<PAGE>
our common  stock was halted and our common  stock was  delisted by Nasdaq.  The
plaintiffs  claim  that we caused  the stock to trade at  artificially  inflated
prices during the class period.

     The complaints  allege violations of Section 10(b) of the 1934 Act and Rule
10(b)(5) for (a) employing devices, schemes and artifices to defraud; (b) making
untrue statements of material fact or omitting to state material facts such that
they would not be misleading;  (c) engaging in acts, practices,  and a course of
business  that operated as a fraud or deceit upon  plaintiff and class  members.
The complaints also allege violations of Section 20(a) of the 1934 Act by us and
claim that the plaintiffs  and other class members relied on statements  made by
us that lead them to purchase stock they would not have otherwise purchased. The
complaints do not make a specific  prayer for monetary  relief.  The  complaints
simply claim that plaintiffs and members of the class should be awarded damages,
interest,  costs,  attorneys'  fees,  expert  witness fees,  and other costs and
expenses.

     The  litigation  is in the very early  stages.  The four class actions have
been  consolidated  by The  Honorable  Roslyn  O.  Silver of the  United  States
District Court for the District of Arizona. The court has recently appointed the
lead plaintiffs and lead counsel.  No timeframes have been determined as of this
date for motions to dismiss.

     By  letter  dated  September  15,  1999,  the  staff  of  the  Division  of
Enforcement  of the SEC advised us that it was  conducting  an informal  inquiry
into our  accounting  policies  and  procedures  and  requested  that we produce
certain  documents.  In October  1999,  the SEC issued a Formal Order of Private
Investigation,  designating  SEC officers to take  testimony.  We have  provided
numerous documents to the SEC staff and continue to cooperate fully with the SEC
staff.  The SEC has not commenced any civil or  administrative  proceedings as a
result of its investigation,  and we cannot predict at this time whether the SEC
will seek to impose any  monetary or other  penalties  against  us.  Under these
circumstances,  we cannot  estimate  the  duration of the  investigation  or its
outcome.

     A former employee of Ft. Pitt Acquisition,  Inc., one our subsidiaries,  is
suing us for breach of contract for an employment and non-competition  agreement
entered into with the subsidiary prior to our acquisition.  The  non-competition
agreement requires  accelerated  payments in the event of a change in control of
Ft. Pitt  Acquisition,  Inc. Our  acquisition of Ft. Pitt  Acquisition,  Inc. is
alleged to constitute a change of control.  The payment alleged to be due to the
former  employee is $1.7 million.  We believe that the employment  agreement and
non-competition  agreement  was not properly  approved by Ft. Pitt  Acquisition,
Inc.'s board of directors and violated the former director's fiduciary duties to
our  subsidiary.  In  addition,  we believe the former  director did not perform
under the employment agreement. We intend to defend this matter vigorously.

     Four minority  interest  shareholders of Ft. Pitt  Acquisition,  Inc. filed
separate  complaints against the former majority  shareholders of the subsidiary
and us for not  accepting  an offer from Graham  Webb  Company to buy all of the
shares of Ft. Pitt  Acquisition,  Inc., but rather  accepting our offer to buy a
majority of the shares. In addition,  the minority  shareholders  allege that we
did not allow the minority shareholders to sell their shares to us. The minority
shareholders allege our actions and actions by the former majority  shareholders
caused them to incur losses.  The minority  shareholders  are seeking damages of
approximately $6.8 million. We are defending all of these allegations vigorously
and are not participating in any settlement discussions at this time.

     One  of our  former  contract  manufacturers,  Amole  Incorporated  (Amole)
assigned  receivables  (including  amounts  owed from  Body  Drench to Amole) to
Comerica  Bank.  Comerica  Bank  filed  a claim  against  us for  collection  of
outstanding  receivables in the amount of approximately $1.1 million. We filed a
counterclaim in the amount of  approximately $1 million against Amole for breach
of contract, negligence, false representation, negligent representation, various
breaches of warranty  and  indemnification.  Prior to Comerica  Bank seizing the
assets of Amole,  Body Drench had several  complaints  regarding  changes in the
product   manufactured  by  Amole  for  Body  Drench.  In  accordance  with  the
manufacturing  agreement  between us and Amole,  Amole is prohibited from making
changes in the product.  The case is scheduled  for  discovery in fall 2000.  We
intend to defend this matter vigorously.

     Panint (U.S.) Ltd. and Panint  Electric  Limited filed a lawsuit against us
for  breach  of  certain   purchase   contracts  and  are  seeking   payment  of
approximately  $994,000. We have responded to the allegations and counterclaimed
that the products  received from the plaintiff  were  defective and caused us to
lose sales, damaged our reputation,  and created other unfavorable reactions. We
intend to defend this matter vigorously.

                                       14
<PAGE>
     These cases have been stayed as a result of our filing for protection under
Chapter  11 of the  Bankruptcy  Code.  In  addition,  we are  party  to  certain
additional  legal  matters  arising  in the  ordinary  course  of  business.  In
management's  opinion,  as of December  31, 1999,  the expected  outcome of such
matters will not have a material impact on our financial  position or results of
operations.

     Our insurance coverage may not be adequate to cover all liabilities arising
out of any claims  that may be  instituted  in the future.  A lack of  insurance
coverage may have an adverse effect on our business,  financial  condition,  and
operating results.

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

     Not applicable.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

     Our common  stock  traded on the Nasdaq  National  Market  under the symbol
"STYL" from our initial public offering on November 21, 1996 at $10.00 per share
until Nasdaq  halted  trading in our common  stock from  November 29, 1999 until
January 19, 2000,  when our common stock was delisted  from the Nasdaq  National
Market.  Since then our common  stock has been  trading on the  over-the-counter
market (commonly referred to as the "pink sheets") under the symbol "STYLE." The
following table sets forth, for the periods indicated, the range of high and low
sales prices on the dates indicated for our common stock for each full quarterly
period within the two most recent fiscal years.

                                                        HIGH              LOW
                                                      ---------        --------
1998
First quarter ....................................    $  24.125        $  15.75
Second quarter ...................................    $  26.625        $  22.00
Third quarter ....................................    $  23.375        $ 10.875
Fourth quarter ...................................    $  18.875        $  8.375

1999
First quarter ....................................    $   14.75        $  9.625
Second quarter ...................................    $ 15.1875        $  12.00
Third quarter ....................................    $   15.50        $ 10.128
Fourth quarter ...................................    $  10.313        $  3.125

     On October 16, 2000,  the closing sale price of the Company's  Common Stock
was $0.33 per share. On October 16, 2000, there were approximately 15 holders of
record, and more than 800 beneficial owners of our common stock.

     We have never paid any cash  dividends  on our common stock and do not plan
to do so in the near future.

                                       15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA

SELECTED HISTORICAL FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

     The following selected consolidated financial data as of and for the fiscal
years ended December 31, 1999, 1998 and 1997 and as of December 31, 1996 and the
period  from  November  27,  1996 to  December  31,  1996 is  derived  from  the
consolidated  financial  statements  of the Company,  which have been audited by
Arthur Andersen LLP, independent public accountants. The selected financial data
provided  below  should  be  read in  conjunction  with  Item  7,  "Management's
Discussion and Analysis of Financial  Condition and Results of  Operations"  and
the Consolidated  Financial  Statements of the Company and related notes thereto
appearing elsewhere in this Report.

<TABLE>
<CAPTION>
                                                   NOVEMBER 27,
                                                     1996 TO       YEAR ENDED    YEAR ENDED    YEAR ENDED
                                                   DECEMBER 31,   DECEMBER 31,  DECEMBER 31,  DECEMBER 31,
                                                       1996           1997          1998          1999
                                                     --------      --------      ---------      ---------
<S>                                                  <C>           <C>           <C>            <C>
STATEMENT OF OPERATIONS DATA - STYLING TECHNOLOGY
CORPORATION AND SUBSIDIARIES:
   Net sales .....................................   $  1,083      $ 36,505      $  83,366      $ 107,790
   Gross profit ..................................        512        19,749         44,368         53,824
   Selling, general, and administrative expenses .        737        12,201         31,619         73,653
   Income (loss) from operations .................       (225)        7,548         12,327        (34,673)
   Income (loss) before extraordinary item .......       (151)        3,164          1,651        (50,156)
   Extraordinary item, net of tax ................         --        (1,377)        (1,091)        (1,713)
   Income (loss) after extraordinary item ........       (151)        1,787            560        (51,869)
   Basic earnings (loss) per share:
     Income (loss) before extraordinary item .....      (0.04)         0.80           0.41         (12.33)
     Extraordinary item, net .....................         --         (0.35)         (0.27)         (0.42)
     Net income (loss) ...........................      (0.04)         0.45           0.14         (12.75)
   Diluted earnings (loss) per share:
     Income (loss) before extraordinary item .....      (0.04)         0.77           0.38         (12.33)
     Extraordinary item, net .....................         --         (0.34)         (0.25)         (0.42)
     Net income (loss) ...........................   $  (0.04)     $   0.43      $    0.13      $  (12.75)
BALANCE SHEET DATA:
   Working capital ...............................   $  4,459      $ 13,005      $  30,566      $ (46,810)
   Total assets ..................................     32,234        90,886        214,073        180,395
   Long-term debt and other, less current
   Portion .......................................      2,316        47,377        140,366        101,801
   Total stockholders' equity (deficit) ..........   $ 25,319      $ 27,525      $  29,248      $ (22,611)
</TABLE>

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

INTRODUCTION

     We  develop,  produce,  and  market  a wide  array  of  professional  salon
products.   We  offer  a  diversified  line  of   well-established,   brand-name
professional salon products across all salon product categories,  including hair
care,  nail care, and skin and body care products,  as well as salon  appliances
and sundries.  We sell our products  primarily to  professional  salon  industry
distribution channels,  beauty salon outlets, and salon chains, and, to a lesser
extent,  to spas,  resorts,  and health and country clubs  throughout the United
States as well as in other parts of North America,  Latin America,  Europe,  and
Asia.

REORGANIZATION

     On August 31, 2000, we filed a voluntary  petition  under Chapter 11 of the
Bankruptcy  Code in the  United  States  Bankruptcy  Court for the  District  of
Arizona.  The  bankruptcy  case was filed in order to  implement  the  financial
restructuring  pursuant to a  Restructuring  Agreement  reached with an informal
committee of the holders of our Notes. Pursuant to the Restructuring  Agreement,

                                       16
<PAGE>
all $100 million in Notes will be exchanged for 90 percent of our equity through
a plan of reorganization in bankruptcy.  The current stockholders and management
will each receive five percent of our  post-bankruptcy  equity plus  warrants to
acquire an  additional  nine  percent of such  equity  over five  years.  We are
currently  operating  our  business  as a  debtor-in-possession,  subject to the
jurisdiction  of  the  Bankruptcy  Court.  As  a  debtor-in-possession,  we  are
authorized to operate our business in the ordinary course, but may not engage in
transactions outside our ordinary course of business without the approval of the
Bankruptcy Court.

     The accompanying financial statements have been prepared on a going concern
basis that  assumes  continuity  of  operations  and  realization  of assets and
liquidation of liabilities  in the ordinary  course of business.  As a result of
the reorganization proceedings,  there are uncertainties relating to our ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments  that  might  be  necessary  as a  result  of  the  outcome  of  the
uncertainties  discussed  in this Report,  including  the effects of any plan or
reorganization that may be filed.

RESPONSES TO CURRENT ISSUES

     We have taken a number of actions to improve  our  accounting  and  finance
controls and processes on a going forward  basis.  We recently hired a new chief
financial  officer,  who in turn has hired an experienced  controller as well as
certain other accounting and finance  personnel.  In addition to these personnel
changes, we have taken steps to improve our warehouse and distribution  systems.
In order to improve our accounts receivable management,  we have implemented new
credit policies and returned goods policies. We are also enhancing our processes
for identifying  uncollectible accounts receivable and quantifying the resulting
allowance for doubtful accounts.

     We have made substantial progress in reducing our monthly selling,  general
and administrative  expenses to an average of approximately $3.1 million in 2000
as  compared  with an  average of  approximately  $6.1  million  in 1999.  These
reductions are the result of reducing the number of employees from approximately
340 in the  beginning  of 1999 to less than 190  currently.  We have reduced our
advertising costs by selecting more focused and effective media. By reducing our
employee base and managing expenditures more efficiently,  our travel costs have
decreased   dramatically  and  with  the  elimination  of  duplicative  physical
locations due to the centralization of our brands, we have reduced our occupancy
costs dramatically. Other administrative costs such as legal and accounting have
been reduced as well due to the centralization of our systems.

     Except for the historical  information  contained herein, the discussion in
this Report  contains or may contain  forward-looking  statements  that  involve
risks and  uncertainties.  Our actual results could differ materially from those
discussed  here.  Factors  that could cause or  contribute  to such  differences
include  those  discussed  herein,  as well as  those  factors  discussed  under
"Special Considerations"  contained in Item 1 of this Report. Historical results
are not  necessarily  indicative  of trends in operating  results for any future
period.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1999

     NET SALES

     Net sales for the year  ended  December  31,  1999 were  $107.8  million as
compared to net sales of $83.4 million for the year ended December 31, 1998. The
$24.4 million or 29.3%,  increase in net sales was due primarily to the addition
of the operating  results of the brands acquired  during 1998,  which included a
full year of sales of Pro  Finish,  European  Touch,  European  Touch  Spa,  and
Framesi USA. Net sales decreased by $800,000 from 1998 pro forma sales of $108.6
million.  (Pro  forma  sales are  actual  sales  adjusted  to  include  sales of
companies we have acquired for the period prior to their acquisition.)  European
Touch Spa net sales increased by $3.1 million over pro forma 1998 net sales. The
increase  was  partially  offset  by the  decline  in net  sales of ABBA of $1.9
million.

     COST OF SALES

     Cost of sales were $54.0 million, or 50.1% of net sales, for the year ended
December 31, 1999,  as compared to cost of sales of $39.0  million,  or 46.8% of
net sales,  for the year ended  December 31,  1998.  The increase in our cost of
sales for 1999 over cost of sales for 1998 primarily was due to the inclusion of
companies  we acquired for the entire year.  Because  these brands  operate with
lower profit  margins than our other  products our cost of sales as a percentage
of sales increased 3.3%.

                                       17
<PAGE>
     GROSS PROFIT

     We realized gross profit of $53.8 million,  or 49.9% of net sales,  for the
year ended  December 31,  1999,  as compared to $44.4  million,  or 53.2% of net
sales,  for the year ended  December 31, 1998  compared to gross profit of $19.7
million,  or 54.0% of net  sales,  for the year ended  December  31,  1997.  Our
increases  in sales,  cost of  sales,  and gross  profit  were the  result of an
acquisition  made  during 1998 and  accordingly  are not  comparable  to similar
amounts in 1998.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general, and administrative expenses were $73.6 million, or 68.3%
of net sales,  for the year ended December 31, 1999 compared with $31.6 million,
or 37.9% of net sales for the year ended  December  31,  1998.  The  increase in
selling,  general,  and  administrative  expenses  resulted  in  part  from  the
acquisitions  completed during 1998 having,  on average,  a higher percentage of
selling,  general, and administrative  expenses than our existing business.  The
increase  is also  attributable  to  $13.2  million  in bad  debt  expense  (See
Responses to Current  Issues),  which included $1.4 million  related to canceled
distributors for the Body Drench division,  $2.0 million in litigation  reserves
and legal fees and $2.0 million of  advertising  costs  related to new packaging
and new brands.

     Non-recurring  charges include $13.4 million impairment of goodwill for the
Gena,  Pro Finish,  and Alpha 9 brands  recorded in 1999.  In November  1998, we
began a centralization and process reengineering initiative to further integrate
and  consolidate our acquired  businesses with the goal of achieving  additional
operating  efficiencies  and  improved  customer  service.  The  initiative  was
completed  during 1999. In connection with the  centralization  business process
reengineering  activities,  we  recorded  charges of $422,000  and $1.4  million
during 1998 and 1999, respectively.

     EXTRAORDINARY ITEM

     In June 1999,  we entered into a $90.0  million  credit  facility (the 1999
Credit Facility).  Proceeds from the 1999 Credit Facility were used to repay the
prior credit facility and working  capital needs. We reported an  extraordinary,
non-cash  charge of  approximately  $1.7 million,  or $(0.42) per diluted share,
related  to  unamortized  financing  costs  associated  with  the  prior  credit
facility.

     INTEREST EXPENSE AND OTHER

     Interest  expense and other increased by 115% to $19.8 million from $9.2 in
1998.  Interest  expense  increased by $8.7 million from $9.1 million in 1998 to
$17.8 million due to increased debt incurred  during 1999.  Included in interest
expense and other is $1.7  million of loss on  disposal of assets in  connection
with our centralization initiatives.

     NET INCOME (LOSS)

     We incurred a net loss of $50.2 million, or $(12.33) per diluted share, for
the year ended December 31, 1999 before the extraordinary  item discussed above.
After the extraordinary  item, net loss for the year ended December 31, 1999 was
$51.9  million,  or $(12.75)  per diluted  share.  Net income for the year ended
December  31,  1998 was $1.7  million,  or $0.38 per diluted  share,  before the
extraordinary item discussed below. After the extraordinary item, net income for
the year ended December 31, 1998 was $0.6 million, or $0.13 per diluted share.

     INCOME  (LOSS)  FROM  OPERATIONS  AND  EARNINGS  BEFORE  INTEREST,   TAXES,
     DEPRECIATION, AND AMORTIZATION (EBITDA)

     Loss from  operations  was $34.7  million for the year ended  December  31,
1999, a decrease of $47.0 million,  over income from operations of $12.3 million
for the year ended December 31, 1998.  Earnings (loss) before  interest,  taxes,
depreciation, and amortization ("EBITDA") was $(15.5) million for the year ended
December 31, 1999, a decrease of $33.0  million over EBITDA of $17.5 million for
the year ended December 31, 1998. EBITDA is not intended to represent net cash

                                       18
<PAGE>
provided by operating  activities  as defined by generally  accepted  accounting
principles  and should not be considered as an  alternative  to net income as an
indicator  of  operating  performance  or to  net  cash  provided  by  operating
activities as a measure of liquidity.  We believe  EBITDA is a measure  commonly
reported and widely used by analysts,  investors,  and other interested  parties
who  monitor  business   performance.   Accordingly,   we  have  disclosed  this
information  to permit a more  complete  comparative  analysis of our  operating
performance.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1998

     NET SALES

     Net sales for the year  ended  December  31,  1998 were  $83.4  million  as
compared to net sales of $36.5 million for the year ended December 31, 1997. The
$46.9  million or 128%,  increase in net sales was due primarily to the addition
of the operating  results of the brands acquired during 1998, which included the
results of Pro Finish from May 1, 1998 to December 31, 1998;  European Touch and
European  Touch Spa from June 1, 1998 to December 31, 1998; and Framesi USA from
August 1, 1998 to  December  31,  1998.  The  increase  in sales also was due to
growth in the Company's existing brands,  particularly the ABBA hair care brand,
which introduced new packaging during the third quarter of 1998.

     COST OF SALES

     Cost of sales were $39.0 million, or 46.8% of net sales, for the year ended
December 31, 1998,  as compared to cost of sales of $16.8  million,  or 46.0% of
net sales, during the year ended December 31, 1997.

     GROSS PROFIT

     We realized gross profit of $44.4 million,  or 53.2% of net sales,  for the
year ended December 31, 1998, as compared to gross profit of $19.7  million,  or
54.0% of net sales,  for the year ended  December  31,  1997.  Our  increases in
sales,  cost of sales,  and gross profit were the results of  acquisitions  made
during 1998 and accordingly are not comparable to similar categories in 1997.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general, and administrative expenses were $31.6 million, or 37.9%
of  net  sales,  for  the  year  ended  December  31,  1998,   before  recording
centralization  and  reengineering  costs of  approximately  $422,000.  Selling,
general,   and   administrative   expenses   including  the  centralization  and
reengineering  costs amounted to $32.0 million,  or 38.4% of net sales,  for the
year ended December 31, 1998 compared with $12.2 million,  or 33.4% of net sales
for the year ended  December 31, 1997.  The  increase in selling,  general,  and
administrative  expenses resulted in part from the acquisitions completed during
1998  having,  on  average,  a  higher  percentage  of  selling,   general,  and
administrative  expenses  than  our  existing  business.  The  increase  also is
attributable to the resulting  increases in the  amortization of goodwill of the
businesses  acquired  during 1998.  In addition,  expenses  during 1998 included
planned  increases  in sales  and  marketing  costs  in the  fourth  quarter  in
preparation for new products and distribution for 1999.

     On November 5, 1998, we announced  that we would  centralize our operations
in Scottsdale,  Arizona and outsource segments of our production and warehousing
functions.   These   initiatives  are  part  of  the  further   integration  and
consolidation of our acquired  businesses with the goal of obtaining  additional
operating efficiencies and positioning us for internal growth. We also announced
that we would take advantage of new  capabilities  in computer  technologies  by
combining  the  reengineering  of our  business  processes  with  an  Enterprise
Resource Planning information  technology  transformation,  which we expect will
improve operating efficiencies and customer service.

     These  initiatives  took  place  during  the  fourth  quarter  of 1998  and
throughout  1999. In connection  with the  centralization  and business  process
reengineering  activities,  we anticipated  approximately  $1.5 million  (before
income taxes) in non-recurring  reengineering costs, which were reflected in our
income statement as incurred.  Over the same period,  we invested  approximately
$3.0  million in capital  expenditures  related  to our  information  technology
transformation.  The costs of  reengineering  and  information  technology  were
accounted for under recently issued accounting  pronouncements,  Emerging Issues

                                       19
<PAGE>
Task Force Issue No. 97-13,  "Accounting for Costs Incurred In Connection With a
Consulting  Contract or an  Internal  Project  that  Combines  Business  Process
Reengineering and Information Technology  Transformation," Statement of Position
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use," and Statement of Position 95-3,  "Recognition  of Liabilities In
Connection with a Purchase Business Combination."

     EXTRAORDINARY ITEM

     In June 1998, we issued $100.0 million of 10 7/8% Senior Subordinated Notes
due 2008 in an offering  exempt from  registration  under the Securities  Act. A
portion of the proceeds  from the  offering was used to repay our then  existing
$75.0 million credit facility.  The Company reported an extraordinary,  non-cash
charge during the quarter ended June 30, 1998 of approximately $1.1 million, net
of taxes, or $(0.25) per diluted share,  related to unamortized  financing costs
associated with the credit facility.

     NET INCOME

     We earned net income of $1.7 million,  or $0.38 per diluted share,  for the
year ended  December 31, 1998 before the  extraordinary  item  discussed  above.
After the  extraordinary  item,  net income for the year ended December 31, 1998
was $0.6  million,  or $0.13 per  diluted  share.  Net income for the year ended
December  31,  1997 was $3.2  million,  or $0.77 per diluted  share,  before the
extraordinary item discussed below. After the extraordinary item, net income for
the year ended December 31, 1997 was $1.8 million, or $0.43 per diluted share.

     INCOME FROM OPERATIONS AND EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION &
     AMORTIZATION (EBITDA)

     Income from  operations  was $12.3 million for the year ended  December 31,
1998, an increase of $4.8 million,  or 64%, over income from  operations of $7.5
million for the year ended December 31, 1997.  Earnings before interest,  taxes,
depreciation,  and amortization  ("EBITDA") was $17.5 million for the year ended
December  31, 1998,  an increase of $8.1  million,  or 86%,  over EBITDA of $9.4
million  for the year  ended  December  31,  1997.  EBITDA  is not  intended  to
represent  net cash  provided by  operating  activities  as defined by generally
accepted accounting principles and should not be considered as an alternative to
net income as an indicator of operating  performance  or to net cash provided by
operating  activities as a measure of liquidity.  We believe EBITDA is a measure
commonly reported and widely used by analysts,  investors,  and other interested
parties who monitor business  performance.  Accordingly,  we have disclosed this
information  to permit a more  complete  comparative  analysis of its  operating
performance.

SEASONALITY

     We have experienced moderate seasonality in quarterly operating results due
mainly to the  effect of the  seasonality  of the indoor  tanning  season on the
operating results of the Body Drench and Suntopia product lines.

LIQUIDITY AND CAPITAL RESOURCES

     Our working  capital  position  decreased to a deficit of $46.8  million at
December 31, 1999 from $30.6 million at December 31, 1998. The decrease of $77.4
million is  primarily  due to default on the 1999 Credit  Facility  resulting in
current  classification of outstanding debt and operating losses incurred during
the year.  Our working  capital  position at December 31, 1998 was primarily the
result of the  completion  of the  acquisitions  completed  during  1998 and our
results of operations for the year ended December 31, 1998.

     As of December 31, 1999, our cash and equivalents  were $1.2, a decrease of
$2.8 million from December 31, 1998.  Cash used in operations for the year ended
December  31,1999 was $28.1 million  compared to $6.8 million during 1998.  Cash
used in operating during 1999 was primarily  attributable to our net loss and an
increase in inventory  partially  offset by non-cash items such as provision for
uncollectable  accounts,  valuation allowance for deferred taxes,  impairment of
goodwill and depreciation and amortization.

     Cash used in investing  activities  during the year ended December 31, 1999
was $2.1 million  compared to $6.9 million  during 1998.  Cash used in investing
activities  for the  year  ended  December  31,  1999  included  acquisition  of
additional  shares of Ft. Pitt  Acquisition,  Inc.  for  $359,000 in cash and an
investment of $4.1 million in our information technology  transformation system,

                                       20
<PAGE>
partially  offset by an increase in bank  overdraft  of $2.2 million at December
31, 1999. The information  technology  transformation  was completed during 1999
and we do not anticipate any further significant investment during 2000.

     Cash provided by financing  activities  during the year ended  December 31,
1999 was $27.4 million compared to $76.6 million during 1998.

     In June 1999,  we entered into a $90.0  million  credit  facility (the 1999
Credit  Facility)  maturing  on June 30,  2004  that  bears  variable  interest,
determined at prime plus 1.75% averaging 9.5% during 1999, payable monthly.  All
outstanding  amounts on the 1999 Credit  Facility  were at an  interest  rate of
10.25% at December  31, 1999.  The  proceeds  were used to repay the 1998 Credit
Facility ($58.2 million) and for working capital purposes ($29.4  million).  The
1999 Credit Facility is  collateralized  by substantially  all of our assets. We
issued $100 million of Notes in June 1998.  Interest payments are due on January
and July 1 of each year with the principal due upon maturity. As of December 31,
1999, the Company was not in compliance with certain financial and non-financial
covenants of the Notes and the 1999 Credit Facility.

     During July 2000 we entered into the  Restructuring  Agreement  with 81% of
the bondholders of the Notes. The Restructuring Agreement requires that all $100
million of the Notes be  converted  into equity and  includes a  provision  that
allows  us  to  effect   the   debt-for-equity   exchange   through  a  plan  of
reorganization  that would be effected  through a voluntary filing under Chapter
11 of the  Bankruptcy  Code. On August 31, 2000,  we filed a voluntary  petition
under Chapter 11 of the Bankruptcy  Code. The bankruptcy case was filed in order
to  implement  the  financial   restructuring   pursuant  to  the  Restructuring
Agreement.  We  anticipate  that 100% of the Notes will  convert into 90% of our
equity after we emerge from bankruptcy pursuant to the Restructuring  Agreement.
The  current  stockholders  and  management  will  each  receive  5% of our post
bankruptcy  equity plus warrants to acquire an additional 9% of such equity over
five years.

     Our plan of  reorganization  is subject to approval by the Bankruptcy Court
and there is no certainty  that our plan will  succeed.  We believe  despite the
financial  uncertainties  in the near future,  we have developed a business plan
that if  successfully  funded  and  executed  as part of the  restructuring  can
improve our operating  results.  We will need to secure additional  financing or
renegotiate our existing credit facility, which we are in default of, to execute
our  plan.  We cannot  assure  you that we will  secure  adequate  financing  on
favorable terms, if at all.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     DERIVATIVE  FINANCIAL  INSTRUMENTS,   OTHER  FINANCIAL   INSTRUMENTS,   AND
DERIVATIVE COMMODITY  INSTRUMENTS.  At December 31, 1999, we did not participate
in any  derivative  financial  instruments,  or other  financial  and  commodity
instruments for which fair value disclosure would be required under Statement of
Financial  Accounting  Standards No. 107. We hold no investment  securities that
would require disclosure on market risk.

     PRIMARY MARKET RISK EXPOSURES. Our primary market risk exposures are in the
areas of interest  rate risk and foreign  currency  exchange rate risk. We incur
interest  expense on loans made under the Notes at an  interest  rate,  which is
fixed,  for a maximum  of ten years.  At  December  31,  1999,  our  outstanding
borrowings  on the Notes were $100 million,  at an interest rate of 10.875%.  We
also incur interest on loans made under a revolving line of credit at a variable
interest  rate which was 10.25% at the end of 1999.  At December 31,  1999,  the
Company's total outstanding borrowings on the instrument was approximately $68.8
million.

     Substantially all of our business outside the United States is conducted in
U.S. dollar  denominated  transactions.  We have a sales division located in the
United Kingdom.  Some of the expenses of this foreign subsidiary are denominated
in the British pound sterling.  These expenses include local salaries and wages,
utilities,  and some operating supplies.  However, we believe that the operating
expenses  currently  incurred in foreign currency are immaterial,  and therefore
any associated  market risk is unlikely to have a material adverse effect on the
Company's business, results of operations, or financial condition.

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

     Not applicable.

                                       21
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS AND EXECUTIVE OFFICERS

     The following table sets forth certain information  regarding our directors
and executive officers.

NAME                            AGE    POSITION
----                            ---    --------
Sam L. Leopold ..............    46    Chairman of the Board, President, and
                                       Chief Executive Officer
James Yeager ................    50    Executive Vice President, Chief Financial
                                       Officer, Treasurer, and Secretary
Allen J. Smith...............    60    Executive Vice President - Sales
Paula Malloy.................    42    Executive Vice President - Marketing
James A. Brooks .............    70    Director
Peter W. Burg ...............    45    Director
Michael H. Feinstein ........    65    Director

     SAM L. LEOPOLD, a founder of our company, has served as our Chairman of the
Board and Chief Executive  Officer since our  incorporation  in June 1995 and as
our President  since February 1998. Mr. Leopold  previously  owned and served as
President and Chairman of Beauty  Boutique  International,  which was founded in
1990 and operated three retail beauty salons in Arizona.  From 1986 to 1991, Mr.
Leopold served as Executive Vice President of Consumer Beauty Supply,  Inc. (dba
Beauty Express), a mall-based retail chain of beauty supply salons.  During that
time, Mr.  Leopold was  responsible  for  day-to-day  operations and oversaw the
growth and  development  of Beauty  Express from fewer than 20 retail  salons to
more than 50 retail  salons.  From 1989 to 1991, Mr. Leopold served as President
of Avanti International, Inc. and developed a line of hair care products.

     JAMES  YEAGER has  served as  Executive  Vice  President,  Chief  Financial
Officer,  Treasurer,  and Secretary since June,  2000.  Prior to joining us, Mr.
Yeager served as Vice President-Finance,  Secretary and Treasurer of Main Street
and  Main  Incorporated,  a  publicly  held  company  and  the  world's  largest
franchisee of T.G.I. Friday's restaurants, from January 1999 until May, 2000 and
as their  Corporate  Controller  from June 1997 to January 1999.  Mr. Yeager was
Chief  Financial  Officer of  Restaurants of America,  Inc., a multiple  concept
restaurant  company.  Prior  to  that,  he was  Chief  Financial  Officer  of an
engineering and high-tech  manufacturing company, a multi-office law firm, a 160
unit chain of retail drug stores,  a 60 unit chain of retail drug stores,  and a
full-service real estate investment and management company. Mr. Yeager began his
career as a manager and a partner in a local public  accounting  firm in Dallas,
Texas where he worked from 1972 to 1983.

     ALLEN J. SMITH was named  Executive  Vice  President -- Sales during August
1999. Prior to that, Mr. Smith served as our Senior Vice President -- Operations
from November 1998 to August 1999. Mr. Smith served as Vice President of Company
Owned  Distribution at Sebastian  International  from September 1996 to November
1998,  and as  General  Manager,  Northern  California  of that  company  during
September 1993 to September 1996.

     PAULA MALLOY was named Executive Vice President -- Marketing  during August
1999.  Prior to that,  Ms. Malloy served as our Vice  President -- Education and
New Product  Development  from November 1998 to August 1999. Ms. Malloy has also
served as Senior  Director -- Education and Research & Development  of Sebastian
International  from November 1997 to November 1998, and as Director of Education
of that company from April 1995 to November 1997.

     JAMES A.  BROOKS has served as a director of our  company  since  September
1996. Mr. Brooks has been President of Signe Inc., a management  consulting firm
for major consumer product companies and a variety of salon industry  companies,
since  founding that company in December  1984. Mr. Brooks served as Senior Vice
President of Sales and Marketing of Lamaur, Inc. from 1983 to 1984, at that time
a publicly  traded  company  listed on the New York Stock Exchange and a leading
domestic  producer  and  marketer  of a broad range of hair care  products.  Mr.
Brooks  served  as  Senior  Vice  President  of Sales  and  Marketing  of Redken
Laboratories, Inc. from 1977 to 1983.

                                       22
<PAGE>
     PETER W. BURG has served as a director of our company since  February 1997.
Mr. Burg has been a director  and  shareholder  in the law firm of Burg  Simpson
Eldredge Hersh & Houliston,  P.C. (and its predecessor  Burg & Aspinwall,  P.C.)
since October 1984.

     MICHAEL H.  FEINSTEIN  has served as a director of our  company  since June
1997. Mr.  Feinstein is the Chief Financial  Officer of  AutoTradeCenter.com,  a
public  company  engaged  in the  business  of  wholesale  remarketing  of  used
automobiles and trucks both through land based operations and the Internet.  Mr.
Feinstein  served  as  President  and  Chief  Executive   Officer  of  Automated
Solutions,  Inc., a privately held Arizona company, from July 1998 until October
1999. Mr. Feinstein also serves as a director of Automated  Solutions,  Inc. Mr.
Feinstein served as a consultant to Samoth Capital Corporation, a publicly owned
real  estate  company,  from April 1998 to July 1998.  Mr.  Feinstein  served as
Senior Vice President and Chief  Financial  Officer of Monaco  Finance,  Inc., a
publicly held  specialty  finance  company,  from July 1995 to April 1998.  From
September 1993 to July 1995, Mr.  Feinstein  served  initially as Executive Vice
President and  subsequently as acting  President and Chief Executive  Officer of
American Southwest  Financial  Corporation,  which engages in the securitization
and administration of mortgage-backed bonds and certificates.  From January 1983
through  September  1993,  Mr.  Feinstein  served in various  senior  management
positions,  including,  at different times, Chief Financial Officer,  Treasurer,
Chief  Operating  Officer,  and  Executive  and Senior Vice  President  of Asset
Investors  Corporation,  a New York Stock Exchange-listed Real Estate Investment
Trust (REIT), and MDC Holdings Inc., a New York Stock  Exchange-listed  national
homebuilder. Prior to 1983, Mr. Feinstein was a partner in the public accounting
firm now known as Deloitte & Touche.

     Directors  hold  office  until  their  successors  have  been  elected  and
qualified.  Officers serve at the pleasure of the Board of Directors.  There are
no family relationships among any of our directors or officers.

ITEM 11. EXECUTIVE COMPENSATION

     The following table sets forth the total compensation received for services
rendered in all  capacities to us for the fiscal years ended  December 31, 1997,
1998,  and  1999 by our  Chief  Executive  Officer  and our  other  most  highly
compensated  officer whose aggregate cash  compensation  exceeded  $100,000 (the
"Named Executive Officers").

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                          LONG-TERM
                                                                        COMPENSATION
                                                                        -------------
                                                                           AWARDS
                                                                        -------------
                                            ANNUAL COMPENSATION          SECURITIES     ALL OTHER
                                       ------------------------------    UNDERLYING   COMPENSATION
                                       YEAR    SALARY($)(1)  BONUS($)   OPTIONS(#)(2)    ($)(3)
                                       ----    ------------  --------   -------------    ------
<S>                                    <C>      <C>          <C>         <C>             <C>
SAM L. LEOPOLD ...................     1999     $300,900     $     --          --        $5,000
   Chairman of the Board, Chief        1998     $200,000     $280,000     325,000(4)     $3,750
   Executive Officer, and              1997     $150,000           --     200,000            --
   President

RICHARD R. ROSS(5) ...............     1999     $166,005     $     --          --        $3,340
   Executive Vice President, Chief     1998     $150,000     $122,500     125,000(6)     $1,563
   Financial Officer, Treasurer,       1997     $ 86,667           --      79,530            --
   and Director

ALLEN SMITH ......................     1999     $176,150           --      10,000        $3,116
   Executive Vice President-Sales      1998     $ 21,632           --          --            --

PAULA MALLOY .....................     1999     $124,000           --       7,000        $1,654
   Executive Vice
   President-Marketing                 1998     $ 14,449           --          --            --
</TABLE>

----------
(1)  Other annual  compensation did not exceed 10% of the total salary and bonus
     for any of the Named Executive Officers.

                                       23
<PAGE>
(2)  The  exercise  prices of all stock  options  granted were equal to the fair
     market value of our common stock on the date of grant.

(3)  Amounts shown for fiscal 1998 represent  matching  contributions made by us
     to our 401(k) Plan.

(4)  Includes 125,000 options that were cancelled in December 1998.

(5)  Mr. Ross resigned from his position in March 2000.

(6)  Includes 50,000 options that were cancelled in December 1998.

OPTION GRANTS

     The  following  table  sets forth  certain  information  regarding  options
granted to the Named  Executive  Officers  during the fiscal year ended December
31, 1999.

                        OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>

                                                                                      POTENTIAL REALIZABLE
                                            INDIVIDUAL GRANTS                           VALUE AT ASSUMED
                     -------------------------------------------------------------        ANNUAL RATES
                       NUMBER OF      % OF TOTAL                                         OF STOCK PRICE
                       SECURITIES       OPTIONS                                         APPRECIATION FOR
                       UNDERLYING     GRANTED TO                                         OPTION TERM(2)
                        OPTIONS      EMPLOYEES IN        EXERCISE       EXPIRATION      -----------------
                     GRANTED(#)(1)    FISCAL YEAR      PRICE ($/SH)        DATE         5%($)      10%($)
                     -------------    -----------      ------------     ----------      -----      ------
<S>                     <C>               <C>             <C>             <C>         <C>        <C>
Sam L. Leopold .....        --              --               --                --           --          --

Richard R. Ross ....        --              --               --                --           --          --

Allen Smith ........    10,000            14.2%           10.13           8/12/09       63,700     161,400
                        10,000            14.2%           10.13           8/12/09       63,700     161,400

Paula Malloy .......     8,000            11.3%           10.13           8/12/09       50,960     129,120
</TABLE>

----------
(1)  The options were granted at the fair market value of the shares on the date
     of grant and have 10-year  terms.  One-third of the options vest and become
     exercisable on each of the first,  second,  and third  anniversaries of the
     date of grant.

(2)  Calculated  from a base price equal to the  exercise  price of each option,
     which was the fair market  value of the common  stock on the date of grant.
     Potential gains are net of the exercise price,  but before taxes associated
     with the  exercise.  Amounts  represent  hypothetical  gains  that could be
     achieved for the  respective  options if exercised at the end of the option
     term. The assumed 5% and 10% rates of stock price appreciation are provided
     in  accordance  with the rules of the SEC and do not represent our estimate
     or  projection of the future price of our common  stock.  Actual gains,  if
     any, on stock option exercises will depend upon the future market prices of
     our common stock.

OPTION EXERCISES AND HOLDINGS

     The following table represents information on options exercised in the last
fiscal year by the Named Executive Officers and the value of each such officer's
unexercised options at December 31, 1999.

                                       24
<PAGE>
                         AGGREGATED OPTION EXERCISES IN
                              LAST FISCAL YEAR AND
                          FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                NUMBER OF SECURITIES           VALUE OF UNEXERCISED
                                               UNDERLYING UNEXERCISED          IN THE MONEY OPTIONS
                    SHARES        VALUE    OPTIONS AT FISCAL YEAR-END (#)   AT FISCAL YEAR-END ($)(2)
                  ACQUIRED ON   REALIZED   ------------------------------   --------------------------
      NAME        EXERCISE (#)   ($)(1)    EXERCISABLE      UNEXERCISABLE   EXERCISABLE  UNEXERCISABLE
      ----        ------------   ------    -----------      -------------   -----------  -------------
<S>                    <C>       <C>         <C>                 <C>           <C>          <C>
Sam L. Leopold         --          --        233,334             166,666       $  --         $  --
Richard R. Ross        --          --         69,386              80,144       $  --         $  --
Allen Smith            --          --             --              20,000       $  --         $  --
Paula Malloy           --          --             --               8,000       $  --         $  --
</TABLE>

----------
(1)  Calculated  based on the market price at exercise  multiplied by the number
     of  options  exercised  less  the  total  exercise  price  of  the  options
     exercised.

(2)  The exercise prices of all options held by the Named Executive Officers are
     greater  than or equal to the  closing  sales price per share of the common
     stock as quoted on the Nasdaq National Market on November 29, 1999 when our
     common stock was delisted.

EMPLOYMENT AGREEMENTS

     Our employment agreement with Mr. Leopold provides for Mr. Leopold to serve
as our Chairman of the Board, President, and Chief Executive Officer through May
2004. Mr.  Leopold will receive a base salary of $375,000 per annum,  subject to
annual  review  by the  Compensation  Committee  beginning  July  1,  2001.  The
employment  agreement will be  automatically  renewed for  successive  five-year
terms.

     In the  event of Mr.  Leopold's  death,  at any time and from  time to time
during the 12-month period  thereafter,  his beneficiary  will have the right to
require us to repurchase  any or all of our common stock owned by Mr. Leopold at
the time of his death at their aggregate  closing market price as of the date of
the election to sell. We will not, however,  be obligated to purchase any shares
to the extent that the  aggregate  purchase  price of all of the shares  exceeds
$5.0  million,  or if any such  purchase  would cause us to become  insolvent or
would result in an event of default under any of our loan or credit  agreements.
In the  event  that  we  cannot  purchase  all of  such  shares,  Mr.  Leopold's
beneficiary  may request us to register such stock to enable the  beneficiary to
sell the shares to the public.

     Mr. Leopold may not

     -    compete with us during the term of the employment  agreement and for a
          five-year period after its termination,

     -    take actions  intended to solicit our  employees  to  terminate  their
          employment  relationship  with us  during  the term of the  employment
          agreement and for a two-year period after its termination, and

     -    at any time make  unauthorized  use or disclosure of our  confidential
          information.

     Immediately  prior to a change of control of our company,  Mr. Leopold will
receive an amount  equal to five times his  then-current  salary  plus an amount
equal to five times any incentive  compensation paid to him for the prior fiscal
year, both payable in a single sum. In addition, Mr. Leopold will receive

     -    continuation  of all of his benefits  that he received from us, unless
          he becomes  eligible for any equivalent  benefits  provided by another
          employer, and

     -    outplacement  services selected by him with a value of up to 12 months
          salary.

                                       25
<PAGE>
     Mr. Leopold may expressly waive any of the payments above as a precondition
to a change of control of our company.  If his  employment is terminated  within
the three-year period immediately after such change of control, however, he will
be entitled to receive  such  benefits  as of the date of his  termination.  Any
payments  made  under the  change of  control  agreement  will be  reduced  on a
dollar-for-dollar  basis to the extent that we are required to make any payments
under the severance provisions of the employment agreement. Mr. Leopold's change
of control  agreement  also  provides  for a gross-up  for the excise tax on any
amounts that are treated as excess parachute payments under the Internal Revenue
Code.

     In the event of a change of  control,  Mr.  Leopold  will have the right to
exercise any  outstanding  option to purchase our common  stock,  whether or not
such option is vested.  If Mr.  Leopold is not able to sell all of his shares of
our  common  stock at the same  price as other  stockholders,  Mr.  Leopold  may
request  us to  register  such  stock to  enable  him to sell the  shares to the
public. In the event that the net proceeds received by Mr. Leopold in connection
with such sale to the public is less than the  highest  per share  consideration
received by any other  stockholder  for his or her shares of our common stock in
connection  with the change of  control,  we will pay Mr.  Leopold an amount per
share  equal to the  difference  between  the  maximum  per share  consideration
received by any  stockholder,  and the  average per share price  received by Mr.
Leopold.

     The Internal  Revenue Code currently limits the  deductibility  for federal
income tax  purposes of  compensation  paid to our five most highly  compensated
executive  officers.  We may deduct certain types of compensation paid to any of
these  individuals only to the extent that such  compensation  during any fiscal
year does not exceed $1.0  million.  Certain  provisions of the  employment  and
change of control  agreements,  if triggered,  could limit our ability to deduct
compensation paid to Mr. Leopold and our other executive officers.

1996 STOCK OPTION PLAN

     The 1996 Stock Option Plan,  as amended,  (the 1996 Plan)  provides for the
grant of  options  to  purchase  shares of our  common  stock.  The 1996 Plan is
intended to promote our  interests by providing  key  employees,  members of our
board  of  directors,  consultants,  and  independent  contractors  who  provide
valuable services to us with the opportunity to acquire,  or otherwise increase,
their  proprietary  interest in our company as an incentive to remain in service
to us.

     The 1996 Plan is  divided  into the  discretionary  grant  program  and the
automatic  option  program.  The  discretionary  grant program  provides for the
granting  of options to acquire  our common  stock,  the direct  granting of our
common  stock,  the granting of stock  appreciation  rights,  or the granting of
other  cash  awards.  Options  and  awards  under the 1996 Plan may be issued to
executives,  key employees,  and others providing valuable services to us or our
subsidiaries.  Options issued under the 1996 Plan may be incentive stock options
or nonqualified  stock options.  The automatic  option program  provides for the
automatic grant of options to acquire our common stock granted to members of our
board of directors who are not employed by us.

     An aggregate  of  1,000,000  shares of our common stock may be issued under
the 1996 Plan.  If any change is made in the stock  subject to the 1996 Plan, or
subject  to any option or award  granted  under the 1996 Plan  (through  merger,
consolidation,  reorganization,   recapitalization,  stock  dividend,  split-up,
combination of shares,  exchange of shares,  change in corporate  structure,  or
otherwise),  the 1996 Plan provides that appropriate adjustments will be made as
to the  maximum  number of  shares  subject  to the 1996 Plan and the  number of
shares and exercise price per share of stock subject to outstanding  options and
awards. The 1996 Plan will remain in force until September 2006.

     To the extent that granted options are incentive  stock options,  the terms
and  conditions  of those  options  must be  consistent  with the  qualification
requirements  set forth in the Internal  Revenue Code of 1986.  Options that are
incentive  stock  options  may be  granted  only to our key  personnel  (and our
subsidiaries)  who are also our  employees  (or our  subsidiaries).  The maximum
number of shares of stock with  respect to which  options or stock  appreciation
rights may be granted to any  employee  during the term of the 1996 Plan may not
exceed 50% of the shares of stock covered by the 1996 Plan.

     To  exercise  an option,  the  optionholder  will be required to provide us
written  notice of his or her  election to exercise the option and deliver to us
full  payment  of the  exercise  price for the  number of shares as to which the
option is being  exercised.  Generally,  options can be exercised by delivery of
cash, check, or shares of our common stock.

                                       26
<PAGE>
     Awards  granted  in the  form of  stock  appreciation  rights  entitle  the
recipient to receive a payment  equal to the  appreciation  in market value of a
stated  number  of shares of  common  stock  from the price  stated in the award
agreement to the market value of the common stock on the date first exercised or
surrendered. Awards granted in the form of stock awards entitle the recipient to
receive  common stock  directly.  Cash awards  entitle the  recipient to receive
direct payments of cash depending on the market value or the appreciation of our
common stock or other securities.

     Under the automatic  option  program,  each new  independent  member of our
board of directors  automatically will receive an option to acquire 5,000 shares
of common stock on the date of his or her first  appointment  or election to our
board of  directors.  In  addition,  each  year at the  meeting  of our board of
directors  held  immediately  after our  annual  meeting of  stockholders,  each
independent  member of our board of directors  automatically  will be granted an
option to acquire an  additional  2,500 shares of common stock.  Each  automatic
option  will  become  exercisable  and  vest  on the  first  anniversary  of the
applicable  grant date. An  independent  member of the board of directors is not
eligible  to receive an annual  automatic  option if the grant date is within 90
days of such  independent  member  receiving an initial  automatic  option.  The
exercise  price per share of common stock  subject to each  automatic  option is
equal to 100% of the fair market value per share on the date of the grant. If an
independent  director ceases to serve as a director,  all automatic options that
are not vested as of the date of cessation will immediately terminate.

1998 EMPLOYEE STOCK OPTION PLAN

     The purpose of the 1998 Employee  Stock Option Plan (the "1998 Plan") is to
further our interests and our stockholders by encouraging  employees  associated
with us to acquire shares of our common stock,  thereby  acquiring a proprietary
interest in its  business and an increased  personal  interest in its  continued
success  and  progress.  The 1998 Plan  provides  for the grant of  nonqualified
options to acquire our common stock.

     A maximum of 150,000  shares of common  stock may be issued  under the 1998
Plan. If any option expires or terminates without having been exercised in full,
stock not issued under such option will again be  available  for the purposes of
the 1998 Plan. If shares of stock are used to pay for the exercise price,  those
shares will be added to the shares  available under the 1998 Plan. If any change
is made in the stock  subject to the 1998 Plan or subject to any option  granted
under   the  1998   Plan   (through   merger,   consolidation,   reorganization,
recapitalization,  stock dividend, split-up,  combination of shares, exchange of
shares,  change in corporate  structure,  or otherwise),  the 1998 Plan provides
that  appropriate  adjustments  will be made as to the maximum  number of shares
subject to the 1998 Plan and the number of shares and  exercise  price per share
of stock  subject to  outstanding  options.  The 1998 Plan will remain in effect
until May 4, 2008.

     Options may be granted  under the 1998 Plan only to persons who at the time
of grant are our employees or consultants.  Any executive  officer (as that term
is defined in Rule 16a-1(f) under the Exchange Act) or director, and all persons
who own 10% or more of our  issued and  outstanding  stock are not  eligible  to
receive options under the 1998 Plan.

     To  exercise  an option,  the  optionholder  will be required to provide us
written  notice of his or her  election to exercise the option and deliver to us
full  payment  of the  exercise  price for the  number of shares as to which the
option is being  exercised.  Generally,  options can be exercised by delivery of
cash, check, or shares of our common stock.

     As of September 30, 2000,  100,000  shares of common stock have been issued
upon  exercise  of options  granted  under the 1996 Plan and 1998 Plan and there
were 800,000 options outstanding under the 1996 Plan and the 1998 Plan.

                                       27
<PAGE>
401(k) PROFIT SHARING PLAN

     In April 1998, we established a defined contribution plan that qualifies as
a cash or deferred  profit sharing plan under Sections  401(a) and 401(k) of the
Internal Revenue Code. Under the 401(k) plan,  participating employees may defer
from 1% to 20% of their  pre-tax  compensation,  subject to the maximum  allowed
under the  Internal  Revenue  Code.  We will  contribute  $1.00 for each  dollar
contributed  by  the  employee,  up to a  maximum  contribution  of  4%  of  the
employee's contribution.  In addition, the 401(k) plan provides that we may make
an employer profit sharing  contribution in such amounts as may be determined by
our  board of  directors.  Our  matching  contributions  vest 25% each  year the
employee remains in service, and employees will be fully vested after four years
of service.  If the employee  terminates  service to us, any unvested portion of
our matching contribution will remain in the 401(k) plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     PRINCIPAL STOCKHOLDERS

     The  following  table  sets  forth  certain  information  with  respect  to
beneficial  ownership  of our  common  stock  on  August  31,  2000 by (1)  each
director;  (2) each  executive  officer;  (3) all our  directors  and  executive
officers as a group;  and (4) each person known by us to be the beneficial owner
of more than 5% of our common stock.

<TABLE>
<CAPTION>
                                                               SHARES BENEFICIALLY
NAME OF BENEFICIAL OWNER(1)                                        OWNED(1)(2)        PERCENT
---------------------------                                        -----------        -------
<S>                                                                <C>                 <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Sam L. Leopold...............................................      1,182,851(3)        26.9%
James Yeager.................................................             --             *
Allen Smith..................................................             --             *
Paula Malloy.................................................             --             *
James A. Brooks..............................................          2,500(4)          *
Peter W. Burg................................................         16,075(5)          *
Michael H. Feinstein.........................................          7,500(4)          *
Directors and executive officers as a group (nine persons)...      1,208,926(6)        28.0%

5% STOCKHOLDERS:
Lance Laifer.................................................        722,800(7)        17.8%
Friedman, Billings, Ramsey Group, Inc. ......................        421,800(8)        10.4%
Hilltop Partners, L.P........................................        363,100(7)         8.9%
Wentworth, Hauser & Violich..................................        312,175(9)         7.3%
Putnam Investments, Inc......................................        248,963(10)        6.1%
Jon D. Gruber................................................        248,000(11)        6.1%
J. Patterson McBaine.........................................        229,300(11)        5.6%
David L. Babson Company Incorporated                                 216,600(12)        5.3%
</TABLE>

----------
*    Less than one percent

(1)  Except  as  indicated,   and  subject  to  community   property  laws  when
     applicable,  the  persons  named in the table  above  have sole  voting and
     investment  power  with  respect  to all  shares of common  stock  shown as
     beneficially  owned by them.  Except as otherwise  indicated,  each of such
     persons may be reached  through our offices at 7400 East Tierra Buena Lane,
     Scottsdale, Arizona 85260.

(2)  The percentages  shown are calculated based upon 4,068,170 shares of common
     stock  outstanding  on August 31, 2000. The numbers and  percentages  shown
     include the shares of common stock actually owned as of August 31, 2000 and
     the  shares  of  common  stock  that the  person  or group had the right to
     acquire within 60 days of August 31, 2000. In calculating the percentage of

                                       28
<PAGE>
     ownership,  all shares of common stock that the identified  person or group
     had the  right to  acquire  within  60 days of  August  31,  2000  upon the
     exercise  of  options  are  deemed to be  outstanding  for the  purpose  of
     computing the percentage of the shares of common stock owned by such person
     or group, but are not deemed to be outstanding for the purpose of computing
     the percentage of the shares of common stock owned by any other person.

(3)  Includes 325,000 shares of common stock issuable upon the exercise of stock
     options.

(4)  Represents  shares of common  stock  issuable  upon the  exercise  of stock
     options.

(5)  Includes  10,000 shares of common stock issuable upon the exercise of stock
     options.

(6)  Includes 345,000 shares of common stock issuable upon the exercise of stock
     options.

(7)  Mr. Laifer, as the President,  sole director,  and principal stockholder of
     Laifer Capital  Management,  Inc., may be deemed to be the beneficial owner
     of 363,100  shares of common  stock  beneficially  owned by Laifer  Capital
     Management,  Inc. in its capacity as General Partner and Investment Advisor
     to Hilltop Partners,  L.P., and 359,700 shares of common stock beneficially
     owned by Laifer  Capital  Management,  Inc. in its  capacity as  Investment
     Advisor to various other clients. These clients include (i) various Wolfson
     family  entities,  and  (ii)  Hilltop  Offshore  Limited.   Laifer  Capital
     Management,  Inc. has sole voting and dispositive power with respect to the
     363,100 shares of common stock beneficially owned by Hilltop Partners, L.P.
     Laifer Capital Management,  Inc. also has sole voting and dispositive power
     with  respect to 49,200  shares of common  stock owned by Hilltop  Offshore
     Limited and shared  voting and  dispositive  power with  respect to 310,500
     shares of common stock  beneficially  owned by the various  Wolfson  family
     entities.  The address of Mr. Laifer and Hilltop Partners,  L.P. is 45 West
     45th Street, New York, NY 10036.  Beneficial ownership information is based
     upon a Schedule 13D/A filed with the SEC dated as of January 8, 1999.

(8)  Friedman,  Billings,  Ramsey Group,  Inc.'s principal  address is 1001 19th
     Street North, Arlington, VA 22209-1710. Beneficial ownership information is
     based upon a Schedule 13D/A filed with the SEC dated as of June 12, 2000.

(9)  Wentworth,  Hauser & Violich's principal address is 333 Sacramento St., San
     Francisco,  CA 94111.  Beneficial  ownership  information  is based  upon a
     Schedule 13D/A filed with the SEC dated as of March 17, 2000.

(10) Represents shares of common stock beneficially owned by Putnam Investments,
     Inc. ("PI"), a wholly owned subsidiary of Marsh & McLennan Companies,  Inc.
     ("M&MC"),  each of which is a registered  investment  adviser.  All of such
     shares are  beneficially  owned by  subsidiaries  of PI that are registered
     investment advisers. PI has shared dispositive power with respect to all of
     such shares, and shared voting power with respect to 10,263 of such shares.
     PI and M&MC disclaim beneficial  ownership of such shares, and disclaim any
     power to vote or dispose of such shares. PI's principal address is One Post
     Office  Square,   Boston,   Massachusetts,   02109.   Beneficial  ownership
     information  is based  upon a  Schedule  13G filed with the SEC dated as of
     February 11, 1999.

                                       29
<PAGE>
(11) Represents shares of common stock  beneficially  owned by Jon D. Gruber and
     J.  Patterson  McBaine  in  their  capacities  as the  sole  directors  and
     executive  officers of Gruber and McBaine  Capital  Management  and various
     other  entities  controlled by Messrs.  Gruber and McBaine.  Mr. Gruber has
     shared voting power and shared dispositive power with respect to 217,300 of
     such shares,  and sole voting power and sole dispositive power with respect
     to 30,700 of such shares.  Mr.  McBaine has shared  voting power and shared
     dispositive  power with respect to 217,300 of such shares,  and sole voting
     power and sole dispositive power with respect to 12,000 of such shares. The
     principal  address  of  Messrs.  Gruber  and  McBaine  is 50 Osgood  Place,
     Penthouse,   San  Francisco,   California,   94133.   Beneficial  ownership
     information  is based  upon a  Schedule  13G filed with the SEC dated as of
     December 9, 1997.

(12) David  L.  Babson  and  Company  Incorporated's  principal  address  is One
     Memorial Drive, Cambridge, MA 02412-1300.  Beneficial ownership information
     is based upon a Schedule  13D/A filed with the SEC dated as of February 10,
     2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     None.

                                       30
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:

          (1)  Financial  Statements  are  listed in the  Index to  Consolidated
               Financial Statements on page F-1 of this Report.

          (2)  Financial Statement Schedule

     All other  schedules  have been omitted  because they are not applicable or
are not required or the information required to be set forth therein is included
in the consolidated financial statements or notes thereto.

     (b)  REPORTS ON FORM 8-K

          Not applicable.

     (c)  EXHIBITS

 EXHIBIT NO.                   DESCRIPTION OF EXHIBIT
 -----------                   ----------------------
     3.1       First Amended and Restated  Certificate of  Incorporation  of the
               Registrant
     3.3       Bylaws of the Registrant(1)
     4.1       Specimen of Stock Certificate(1)
     4.2       Specimen of Redeemable Common Stock Warrant(1)
     4.3       Form of Warrant issued to Credit Agricole Indosuez(2)
     4.4       Form of Warrant issued to Bank Boston N.A.(3)
     4.5       Indenture  dated as of June 23,  1998,  by and among the Company,
               the  Guarantors  Signatories  thereto,  and State Street Bank and
               Trust Company of California, N.A.(4)
     4.6       Form of Global Notes(4)
     4.8       Rights  Agreement,  dated  February  23,  1999,  between  Styling
               Technology  Corporation and American Securities Transfer & Trust,
               Inc.,  as Rights  Agent,  together  with the  following  exhibits
               thereto; Exhibit A-Form of Certificate of Designation of Series A
               Junior  Participating   Preferred  Stock  of  Styling  Technology
               Corporation;   Exhibit  B-Form  of  Right  Certificate;   Exhibit
               C-Summary  of Rights to  Purchase  Shares of  Preferred  Stock of
               Styling Technology Corporation.(5)
     10.5      Employment Agreement between Registrant and Sam L. Leopold(1)
     10.11     1996 Stock Option Plan(1)
     10.19     Asset Purchase  Agreement  dated as of October 31, 1997 among the
               Registrant, Inverness Corporation, and Inverness (UK) Limited.(6)
     10.20     Transition and  Manufacturing  Agreement dated as of December 10,
               1997 the Registrant and Inverness Corporation.(6)
     10.23     Stock  Purchase  Agreement  dated as of June 23,  1998  among the
               Company and the former shareholders of European Touch, Ltd. II(7)
     10.24     Credit   Agreement   dated  June  30,  1998  among  the  Company,
               BankBoston, N.A., and NationsBank, N.A.(8)
     10.25     Stock Purchase  Agreement  dated as of August 3, 1998,  among the
               Company, Kevin T. Weir, Carol M. Weir, and Dennis M. Katawczik(6)
     10.26     1998 Employee Stock Option Plan(9)
     12        Computation of Ratio of Earnings to Fixed Charges
     21        Subsidiaries of Registrant
     23.1      Consent of Arthur Andersen LLP
     27        Financial Data Schedules

                                       31
<PAGE>
----------
(1)  Incorporated  by  reference  to the  Registration  Statement  on  Form  S-1
     (Registration   No.  333-12469)  filed  September  20,  1996  and  declared
     effective November 12, 1996.

(2)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     as filed with the Securities and Exchange  Commission (the "Commission") on
     August 14, 1997.

(3)  Quarterly  Report on Form 10-Q as filed with the Commission on November 14,
     1997.

(4)  Incorporated  by  reference  to the  Registration  Statement  on  From  S-4
     (Registration  No.  333-61035) filed August 7, 1998 and declared  effective
     September 18, 1998.

(5)  Incorporated  by  reference  to the  Registration  Statement on Form 8-A as
     filed with the Commission on March 8, 1999.

(6)  Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed with the Commission on December 24, 1997.

(7)  Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed with the Commission on July 8, 1998.

(8)  Incorporated by reference to Amendment No. 1 to Form S-4  (Registration No.
     333-61035)  filed September 17, 1998 and declared  effective  September 18,
     1998.

(9)  Incorporated  by reference to the  Registrant's  Annual Report on Form 10-K
     for the year ended  December 31, 1998 as filed with the Commission on March
     31, 1999.

                                       32
<PAGE>
                                   SIGNATURES

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


                                        STYLING TECHNOLOGY CORPORATION


                                        /s/ Sam L. Leopold
                                        ----------------------------------------
                                        Sam L. Leopold
                                        Chairman of the Board, President,
                                        and Chief Executive Officer


                                        Date: October 20, 2000
                                             -----------------------------------

     In accordance  with the  Securities  Exchange Act of 1934,  this Report has
been signed below by the following  persons on behalf of the  registrant  and in
the capacities and on the date indicated.

SIGNATURE                            CAPACITY                         DATE
---------                            --------                         ----

/s/ Sam L. Leopold         Chairman of the Board, President,    October 20, 2000
------------------------   and Chief Executive Officer          ----------------
Sam L. Leopold             (Principal Executive Officer)


/s/ James Yeager           Executive Vice President, Chief      October 20, 2000
------------------------   Financial Officer, Treasurer, and    ----------------
James Yeager               Secretary (Principal Financial and
                           Accounting Officer)


/s/ James A. Brooks        Director                             October 20, 2000
------------------------                                        ----------------
James A. Brooks


/s/ Michael H. Feinstein   Director                             October 20, 2000
------------------------                                        ----------------
Michael H. Feinstein

                                       33
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Index to Consolidated Financial Statements and Schedules

                                                                            Page
                                                                            ----
Consolidated Financial Statements
   Report of Independent Public Accountants                                  F-1
   Consolidated Balance Sheets                                               F-2
   Consolidated Statements of Operations                                     F-3
   Consolidated Statements of Stockholders' Equity (Deficit)                 F-4
   Consolidated Statements of Cash Flows                                     F-5
   Notes to Consolidated Financial Statements                                F-6

Financial Statement Schedule
   Valuation and Qualifying Accounts at December 31, 1997, 1998 and 1999    F-30
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Styling Technology Corporation:

We  have  audited  the  accompanying  consolidated  balance  sheets  of  STYLING
TECHNOLOGY   CORPORATION,   a  Delaware   corporation,   and  subsidiaries  (the
"Company"),  as of  December  31, 1998 and 1999,  and the  related  consolidated
statements of operations,  stockholders' equity (deficit) and cash flows for the
three years in the period ended December 31, 1999.  These  financial  statements
and the  schedule  referred  to below are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
1998 and 1999,  and the  results  of its  operations  and its cash flows for the
years ended  December 31, 1997,  1998,  and 1999 in conformity  with  accounting
principles generally accepted in the United States.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 2 to the
financial statements,  the Company has incurred substantial operating losses and
net  cash  outflows  in  1999.  On  August  31,  2000,  the  Company  filed  for
reorganization  under Chapter 11 of the Federal  Bankruptcy  Code to restructure
its debt.  Additionally,  the  Company  is subject  to  several  lawsuits  and a
Securities and Exchange Commission  investigation as described in Note 12. These
factors,  among others, raise substantial doubt about its ability to continue as
a going  concern.  Management's  plans  in  regard  to  these  matters  are also
described  in Note  2.  In the  event  a plan  of  reorganization  is  accepted,
continuation of the business thereafter is dependent on the Company's ability to
achieve successful future operations.  The accompanying  financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying  amounts or the amount and  classification  of  liabilities  that
might result should the Company be unable to continue as a going concern.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial statements taken as a whole.  Schedule II listed in Item 14 of Part IV
herein is presented for purposes of complying  with the  Securities and Exchange
Commission's  rules and are not a part of the basic financial  statements.  This
schedule has been subjected to the auditing  procedures applied in our audits of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial  data required to be set forth therein in relation to the
basic financial statements taken as a whole.


                                             /s/ Arthur Andersen LLP

Phoenix, Arizona
October 18, 2000

                                      F-1
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(in thousands except for share data)

                                                              DECEMBER 31,
                                                         ----------------------
                                                            1998         1999
                                                         ---------    ---------
                                     ASSETS

Current Assets:
  Cash and cash equivalents                              $   4,023    $   1,195
  Accounts receivable, net of allowance for
    doubtful accounts of $1,786 and $10,875                 24,812       11,403
  Inventories, net                                          25,599       33,767
  Prepaid expenses and other current assets                  1,375        2,129
                                                         ---------    ---------
     Total current assets                                   55,809       48,494

Property and Equipment, net                                  5,362        5,702
Goodwill and Other Intangibles, net of accumulated
  amortization of $5,188 and $10,378                       139,566      120,468
Other Assets                                                13,336        5,731
                                                         ---------    ---------
                                                         $ 214,073    $ 180,395
                                                         =========    =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
  Bank overdraft                                         $      --    $   2,189
  Accounts payable                                          12,108       11,168
  Accrued liabilities                                       10,367       10,841
  Current portion of long-term debt and other                2,768       71,106
                                                         ---------    ---------
     Total current liabilities                              25,243       95,304
                                                         ---------    ---------
Deferred Income Taxes                                       19,216        5,901

Long-Term Debt and Other, less current portion             140,366      101,801

Commitments and Contingencies

Stockholders' Equity (Deficit):
  Preferred stock, $.0001 par value, 1,000,000
    shares authorized, no shares issued and
    outstanding                                                --           --
  Common stock, $.0001 par value, 10,000,000 shares
    authorized, 4,876,000 shares issued and 4,068,000
    shares outstanding at December 31, 1998, and 1999           1            1
  Additional paid-in capital                               29,038       29,048
  Retained earnings (accumulated deficit)                   2,009      (49,860)
  Treasury stock, 808,000 shares                           (1,800)      (1,800)
                                                        ---------    ---------
     Total stockholders' equity (deficit)                  29,248      (22,611)
                                                        ---------    ---------
                                                        $ 214,073    $ 180,395
                                                        =========    =========

The  accompanying  notes  are an  integral  part of these  consolidated  balance
sheets.

                                       F-2
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations for the Year Ended December 31
(in thousands except for share data)

<TABLE>
<CAPTION>
                                                      1997            1998              1999
                                                  -----------      -----------      -----------
<S>                                               <C>              <C>              <C>
Net Sales                                         $    36,505      $    83,366      $   107,790
Cost of Sales                                          16,756           38,998           53,966
                                                  -----------      -----------      -----------
     Gross profit                                      19,749           44,368           53,824
                                                  -----------      -----------      -----------

Selling, General, and Administrative Expenses          12,201           31,619           73,653
Goodwill Impairment                                        --               --           13,438
Centralization and Reengineering Costs                     --              422            1,406
                                                  -----------      -----------      -----------
                                                       12,201           32,041           88,497
                                                  -----------      -----------      -----------
Income (Loss) from Operations                           7,548           12,327          (34,673)
Interest Expense and Other, net                        (1,847)          (9,206)         (19,771)
                                                  -----------      -----------      -----------
Income (Loss) Before Extraordinary Item and
   Income Taxes                                         5,701            3,121          (54,444)
Provision for (Benefit from) Income Taxes               2,537            1,470           (4,288)
                                                  -----------      -----------      -----------
Income (Loss) Before Extraordinary Item                 3,164            1,651          (50,156)
Extraordinary Item, net of tax benefit of
  approximately $882,000, $822,000, and $0,
  respectively                                         (1,377)          (1,091)          (1,713)
                                                  -----------      -----------      -----------
     Net income (loss)                            $     1,787      $       560      $   (51,869)
                                                  ===========      ===========      ===========
Basic Earnings (Loss) per Share:
   Income (loss) before extraordinary item        $      0.80      $      0.41      $    (12.33)
   Extraordinary item                                   (0.35)           (0.27)           (0.42)
                                                  -----------      -----------      -----------
     Net income (loss)                            $      0.45      $      0.14      $    (12.75)
                                                  ===========      ===========      ===========
     Weighted average shares                        3,949,000        4,033,000        4,068,000
                                                  ===========      ===========      ===========
Diluted Earnings (Loss) per Share:
   Income (loss) before extraordinary item        $      0.77      $      0.38      $    (12.33)
   Extraordinary item                                   (0.34)           (0.25)           (0.42)
                                                  -----------      -----------      -----------
     Net income (loss)                            $      0.43      $      0.13      $    (12.75)
                                                  ===========      ===========      ===========
     Weighted average shares                        4,113,000        4,313,000        4,068,000
                                                  ===========      ===========      ===========
</TABLE>

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

                                      F-3
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity (Deficit)
(in thousands)

<TABLE>
<CAPTION>
                                       COMMON STOCK                    RETAINED
                                  ---------------------   ADDITIONAL   EARNINGS                     TOTAL
                                     SHARES      COMMON    PAID-IN   (ACCUMULATED   TREASURY    STOCKHOLDERS'
                                  OUTSTANDING    STOCK     CAPITAL      DEFICIT)     STOCK     EQUITY (DEFICIT)
                                     -----        ---      -------     --------     -------       --------
<S>                                 <C>          <C>      <C>         <C>          <C>           <C>
Balance, December 31, 1996           3,949        $ 1      $27,456     $   (338)    $(1,800)      $ 25,319
  Issuance of warrants                  --         --          419           --          --            419
  Net income                            --         --           --        1,787          --          1,787
                                     -----        ---      -------     --------     -------       --------

Balance, December 31, 1997           3,949          1       27,875        1,449      (1,800)        27,525
  Issuance of common stock on
    exercise of stock options and
    warrants                           119         --          426           --          --            426
  Tax benefit from stock options
    exercised                           --         --          737           --          --            737
  Net income                            --         --           --          560          --            560
                                     -----        ---      -------     --------     -------       --------

Balance, December 31, 1998           4,068          1       29,038        2,009      (1,800)        29,248
  Issuance of common stock on
    exercise of stock options           --         --           10           --          --             10
  Net loss                              --         --           --      (51,869)         --        (51,869)
                                     -----        ---      -------     --------     -------       --------

Balance, December 31, 1999           4,068        $ 1      $29,048     $(49,860)    $(1,800)      $(22,611)
                                     =====        ===      =======     ========     =======       ========
</TABLE>

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

                                      F-4
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows for the Year Ended December 31
(in thousands)

<TABLE>
<CAPTION>
                                                              1997         1998         1999
                                                            --------     --------     --------
<S>                                                         <C>          <C>          <C>
Cash Flows from Operating Activities:
  Net income (loss)                                         $  1,787     $    560     $(51,869)
  Adjustments to reconcile net income (loss) to
    net cash used in operating activities-
      Impairment of goodwill and
        loss on disposal and sale of assets                       --           --       16,044
      Depreciation and amortization                            1,846        5,187        7,786
      Interest accretion to note payable                         174          159           --
      Extraordinary loss on early extinguishment of debt       1,377        1,091        1,713
      Provision for uncollectible accounts receivable            710        1,614       13,194
      Increase in deferred tax valuation allowance                --           --      (10,941)
      Changes in assets and liabilities:
        Accounts receivable                                   (6,512)      (6,252)         215
        Inventories, net                                      (2,992)      (8,588)      (8,168)
        Prepaid expenses and other assets                     (1,730)      (2,363)       4,377
        Accounts payable and accrued liabilities               2,960        1,807         (467)
                                                            --------     --------     --------
           Net cash used in operating activities              (2,380)      (6,785)     (28,116)
                                                            --------     --------     --------
Cash Flows from Investing Activities:
  Increase in bank overdraft                                      --           --        2,189
  Purchase of acquired businesses, net of cash acquired      (45,150)     (62,677)        (359)
  Purchases of property and equipment                           (582)      (1,962)      (4,127)
  Changes in other assets, net                                    --       (4,251)         176
                                                            --------     --------     --------
           Net cash used in investing activities             (45,732)     (68,890)      (2,121)
                                                            --------     --------     --------
Cash Flows from Financing Activities:
  Proceeds from credit facility, net of financing costs       71,633       47,298       87,626
  Payments on credit facility                                     --           --      (58,244)
  Proceeds from bond offering, net of financing costs             --       96,400           --
  Exercise of stock options                                       --        1,163           10
  Payments on long-term debt                                 (24,949)     (68,226)      (1,983)
                                                            --------     --------     --------
           Net cash provided by financing activities          46,684       76,635       27,409
                                                            --------     --------     --------
Increase (Decrease) in Cash and Cash Equivalents              (1,428)         960       (2,828)

Cash and Cash Equivalents, beginning of year                   4,491        3,063        4,023
                                                            --------     --------     --------
Cash and Cash Equivalents, end of year                      $  3,063     $  4,023     $  1,195
                                                            ========     ========     ========
Supplemental Disclosure of Cash Flow Information:
   Cash paid (refunded) for income taxes                    $  1,727     $  2,634     $ (2,590)
                                                            ========     ========     ========
   Cash paid for interest                                   $  1,155     $  3,699     $ 16,239
                                                            ========     ========     ========
</TABLE>

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

                                      F-5
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1. ORGANIZATION OF THE COMPANY

Styling  Technology  Corporation  (the  "Company") was formed in June 1995. From
June 1995 through November 26, 1996, the Company conducted no operations and its
only activities related to negotiating  acquisitions and related  financing.  In
November 1996, the Company  completed an initial public  offering (the Offering)
of 3,116,000 shares of its common stock. Simultaneously with the consummation of
the Offering, the Company acquired in separate transactions four businesses that
develop, produce, and market professional salon products. Prior to the Offering,
the Company  effected a 0.808-for-1  reverse stock split on all its  outstanding
common stock. As a result, all share amounts were adjusted to give effect to the
reverse split.

Upon  consummation of the Offering,  the Company acquired all of the outstanding
stock of Gena  Laboratories,  Inc.  ("Gena")  and JDS  Manufacturing  Co.,  Inc.
("JDS")  and  certain  assets and  liabilities  of the Body  Drench  Division of
Designs by Norvell,  Inc.  ("Body  Drench")  and  Kotchammer  Investments,  Inc.
("KII")  (collectively,  the  "Initial  Businesses").  The  cost of the  Initial
Businesses, including direct acquisition costs, was approximately $22.9 million.
The combined purchase price was funded with approximately  $20.8 million in cash
from the net proceeds of the Offering,  and approximately $2.1 million of seller
carryback  financing  and  issuance  of  common  stock.  The  acquisitions  were
accounted for using the purchase  method of  accounting.  The purchase price was
allocated based on the fair market value of the assets and liabilities acquired.
Approximately  $5.2 million was allocated to current assets,  approximately $1.1
million  to  property  and  equipment,  approximately  $5.0  million  to current
liabilities,  and  approximately  $0.3 million to long-term debt.  Approximately
$21.9 million of the purchase  price  represents  costs in excess of fair values
acquired, and was recorded as goodwill.

2. FINANCIAL RESULTS AND LIQUIDITY

During 1999, the Company incurred a $51.9 million loss and used $28.1 million in
cash for operations.  As a result of the financial  difficulties the Company has
experienced,  the Company did not make the required interest payment due July 1,
2000 on its $100  million  Senior  Subordinated  Notes (the Notes) and is not in
compliance with certain provisions of its credit facility (see Note 7).

As of June 28, 2000,  as part of the  Company's  debt  restructuring  plan,  the
Company entered into a binding agreement with 81% of the holders of the Notes to
convert 100% of the Notes into new equity in the Company.  The agreement,  which
as amended is effective through January 1, 2001,  requires that all $100 million
of the Notes be converted to equity in the Company and includes a provision that
allows  the   Company  to  effect  the   debt-for-equity   exchange   through  a
pre-negotiated  plan of  reorganization  if the  Company  is not able to  secure
consents from the remaining 19% of its  bondholders.  If the Note conversion had
occurred  at  December   31,   1999,   stockholders'   equity  would  have  been
approximately $77.4 million and total liabilities would have been $103 million.

On August 31, 2000, the Company and its subsidiaries  filed voluntary  petitions
for  reorganization  under Chapter 11 of the United States  Bankruptcy  Code and
began operating its business as  debtors-in-possession  under the supervision of
the Bankruptcy Court. The Company has attempted to notify all known or potential
creditors of the filing for the purpose of identifying  all  prepetition  claims
against the Company.

In the Chapter 11 case,  substantially  all of the  liabilities as of the filing
date  are  subject  to  settlement  under a plan of  reorganization.  Generally,
actions to enforce or otherwise effect repayment of all prepetition  liabilities
as well as all pending  litigation  against  the  Company  are stayed  while the
Company continues its business operations as debtors-in-possession.  The Company
will file  schedules  with the  Bankruptcy  Court  setting  forth the assets and
liabilities  of the debtors as of the filing date as reflected in the  Company's

                                      F-6
<PAGE>
accounting records.  Differences between amounts reflected in such schedules and
claims  filed  by  creditors  will be  investigated  and  amicably  resolved  or
adjudicated  before the  Bankruptcy  Court.  The ultimate  amount and settlement
terms  for  such  liabilities  are  subject  to a plan  of  reorganization,  and
accordingly, are not presently determinable.

All financial  disclosures after August 31, 2000 will be made in accordance with
SOP  90-7,   "Financial  Reporting  by  Entities  in  Reorganization  under  the
Bankruptcy  Code."  Further,  the  plan  of  reorganization  may  result  in the
impairment of certain assets (including goodwill and other intangibles) recorded
at cost on the balance sheet at December 31, 1999.

The  accompanying  financial  statements  have been  prepared on a going concern
basis that  assumes  continuity  of  operations  and  realization  of assets and
liquidation of liabilities  in the ordinary  course of business.  As a result of
the reorganization proceedings,  there are uncertainties relating to our ability
to continue as a going  concern.  The  financial  statements  do not include any
adjustments  that  might  be  necessary  as a  result  of  the  outcome  of  the
uncertainties   discussed   above,   including   the  effects  of  any  plan  of
reorganization that has been filed.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     a.   PRINCIPLES OF CONSOLIDATION

          The consolidated  financial statements include all the accounts of the
          Company and its subsidiaries.  All significant  intercompany  accounts
          and  transactions are eliminated in  consolidation.  All references to
          the Company  herein refer to Styling  Technology  Corporation  and its
          subsidiaries. Certain reclassifications have been made in the 1997 and
          1998 financial statements to conform to the 1999 presentation.

     b.   CASH AND CASH EQUIVALENTS AND CONCENTRATIONS OF CREDIT RISK

          All highly liquid  investments  purchased with original  maturities of
          three months or less are considered to be cash equivalents.  Financial
          instruments which potentially subject the Company to concentrations of
          credit  risk   consist  of  cash  and  cash   equivalents   and  trade
          receivables.  The  Company  believes  that it places its cash and cash
          equivalents  in high quality  credit  institutions.  Concentration  of
          credit risk is limited due to the large number of customers comprising
          the Company's  customer  base.  The Company  performs  ongoing  credit
          evaluations  of its  customers,  but does not  require  collateral  to
          support customer receivables. The Company establishes an allowance for
          doubtful  accounts based upon factors  surrounding  the credit risk of
          specific customers, historical trends and other information.

     c.   INVENTORIES

          Inventories are valued at the lower of cost  (first-in,  first-out) or
          net realizable value. Write-downs are provided for excess, slow-moving
          and  obsolete  items and for items where the net  realizable  value is
          less than cost.

          Inventories consist of the following (in thousands):

                                                         DECEMBER 31,
                                                   ----------------------
                                                      1998         1999
                                                   ---------    ---------
          Raw materials and work-in-process        $   8,612    $   9,351
          Finished goods                              16,987       24,416
                                                   ---------    ---------

                                                   $  25,599    $  33,767
                                                   =========    =========

                                      F-7
<PAGE>
     d.   PROPERTY AND EQUIPMENT

          Property  and  equipment  are  recorded  at cost and  depreciation  on
          property and equipment is provided using the straight-line method over
          their estimated useful lives.

          Expenditures for major renewals and betterments are capitalized, while
          expenditures for maintenance and repairs,  which do not improve assets
          or extend their useful lives are charged to expense as incurred.

     e.   GOODWILL AND OTHER INTANGIBLES

          Goodwill is the cost in excess of fair value of net assets of acquired
          businesses  and is amortized  using the  straight-line  method over 25
          years.  Other  intangible  assets  include  the  cost  assigned  to an
          exclusive  license,  which is being amortized using the  straight-line
          method over its contractual life of 40 years. The Company  continually
          evaluates whether events and circumstances have occurred subsequent to
          acquisitions  that  indicate the  remaining  estimated  useful life of
          goodwill or other  intangible  assets may warrant revision or that the
          remaining  balance may not be recoverable.  When factors indicate that
          goodwill or other  intangible  assets should be evaluated for possible
          impairment,  the Company uses an estimate of the  undiscounted  future
          cash flows over the remaining  life in measuring  whether the goodwill
          or other intangible  assets are recoverable.  During 1999, the company
          recognized  a $13.4  million  impairment  related to goodwill  for the
          Gena, Pro Finish and JDS acquisitions.

     f.   USE OF ESTIMATES

          The preparation of financial  statements in conformity with accounting
          principles generally accepted in the United States requires management
          to make estimates and assumptions  that affect the reported amounts of
          assets  and   liabilities,   disclosure  of   contingent   assets  and
          liabilities  at the date of the financial  statements and the reported
          amounts of revenues and expenses during the reporting  period.  Actual
          results  could  differ from those  estimates.  Significant  accounting
          estimates  include  establishment of allowance for doubtful  accounts,
          reserves for sales  returns,  discounts and  allowances,  valuation of
          excess and obsolete inventory and litigation exposure.

     g.   FAIR VALUE OF FINANCIAL INSTRUMENTS

          The Company's financial instruments include cash and cash equivalents,
          accounts receivable,  accounts payable, accrued liabilities,  debt and
          letters of credit.  The carrying values of cash and cash  equivalents,
          accounts   receivable,   accounts  payable  and  accrued   liabilities
          approximate  fair  values due to the  short-term  maturities  of these
          instruments.  The  carrying  amount of the letters of credit and notes
          payable (other than the Senior  Subordinated  Debt) reflect fair value
          as the related fees are  competitively  determined in the marketplace.
          The fair value of the Senior  Subordinated Debt is not determinable at
          December 31, 1999 because of  uncertainties  surrounding the Company's
          financial  reporting and  illiquidity  in the trading  markets for the
          notes. See Note 7.

          Fair value  estimates are made at a specific  point in time,  based on
          relevant  market  information  about the financial  instrument.  These
          estimates  are  subjective  in nature and  involve  uncertainties  and
          matters of  significant  judgment and  therefore  cannot be determined
          with  precision.  Changes in assumptions  could  significantly  affect
          these estimates.

     h.   REVENUE RECOGNITION

          The Company  recognizes  revenue when title  passes,  which is usually
          upon shipment.  Net sales is comprised of gross sales less  provisions
          for estimated returns, discounts and promotional allowances.

                                      F-8
<PAGE>
     i.   BUSINESS PROCESS REENGINEERING CHARGES AND EXIT COSTS OF ACQUIRED
          BUSINESSES

          During the third quarter of 1998, the Company  implemented a strategic
          consolidation  initiative,  which included the  centralization  of its
          operations into a new facility  located in Scottsdale,  Arizona.  This
          initiative  included  the  closing of several  of its  facilities.  In
          addition,  the Company  combined  the  reengineering  of its  business
          processes  with an  Enterprise  Resource  Planning  (ERP)  information
          technology  transformation.  During the years ended  December 31, 1998
          and 1999, the Company  recorded  pre-tax  charges of $422,000 and $1.3
          million,  respectively,  related to the  reengineering of its business
          processes,  as prescribed  under EITF 97-13,  Accounting  for Business
          Process  Reengineering-Consulting Costs. EITF 97-13 requires companies
          to  expense  all  costs  related  to  business  process  reengineering
          activities,  whether done  internally  or by third parties as they are
          incurred. In addition,  during 1998, the Company accrued approximately
          $3.5  million  in  connection  with  management's  plan to  close  the
          facilities of certain  businesses  acquired during 1998, as prescribed
          in EITF 95-3, Recognition of Liabilities in Connection with a Purchase
          Business Combination.  Under this requirement, the Company has accrued
          certain  costs as part of the  acquisitions  during  1998,  based on a
          specific  plan  identified  by  management  to  close  these  specific
          facilities.  During 1998 and 1999, the Company  charged  approximately
          $1.5  million and $2.0  million,  respectively,  against  this accrual
          related to direct costs paid to exit these activities,  which included
          employee  severance costs,  costs associated with the physical closing
          of the facilities, and external consulting costs.

     j.   LEGAL COSTS

          The Company records charges for the costs it anticipates  incurring in
          connection  with  litigation  and  claims  against  the  Company  when
          management can reasonably estimate these costs.

     k.   INCOME TAXES

          The Company  provides for income  taxes using the asset and  liability
          method. Under this method,  deferred income tax assets and liabilities
          are recognized for the expected future income tax consequences,  based
          on enacted tax laws,  of temporary  differences  between the financial
          statement carrying amounts and the tax bases of assets and liabilities
          and  carryforwards.  This method requires  recognition of deferred tax
          assets for the expected future tax effects of all deductible temporary
          differences, loss carryforwards and tax credit carryforwards. Deferred
          tax assets  are then  reduced,  if deemed  necessary,  by a  valuation
          allowance for the amount of any tax benefits  which,  more likely than
          not based on current circumstances, are not expected to be realized.

     l.   OTHER ASSETS

          Other  assets  consist  primarily  of  the  following:   (i)  deferred
          financing  costs  associated  with  the  Company   completing  various
          financing  transactions (see Note 7) and (ii) deferred tax assets (see
          Note 9).  Deferred  financing costs are amortized over the life of the
          related  obligation.  The  Company  recorded  approximately  $170,000,
          $333,000 and $673,000 in deferred  financing cost amortization for the
          years ended December 31, 1997, 1998 and 1999, respectively.

     m.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

          In  June  1998,  the  Financial  Accounting  Standards  Boards  issued
          Statement  of  Financial  Accounting  Standards  ("SFAS")  No. 133 (as
          amended by SFAS No. 137 and SFAS No. 138),  Accounting  for Derivative
          Instruments  and  Hedging  Activities.   This  statement   establishes
          accounting  and  reporting   standards  for  derivative   instruments,
          including derivative instruments embedded in other contracts,  and for
          hedging  activities.  The statement,  as amended, is effective for the
          Company's  quarter  ending  September  30, 2000.  The Company does not
          anticipate  any  material  impact from the adoption of SFAS No. 133 as
          amended, on its future results of operations and financial position.

                                      F-9
<PAGE>
          In December 1999, the Securities and Exchange  Commission (SEC) issued
          Staff Accounting  Bulletin No. 101 (SAB 101),  Revenue  Recognition in
          Financial Statements,  which was subsequently updated by SAB 101B. SAB
          101 and SAB 101B  summarize  certain  of the SEC's  views in  applying
          accounting  principles  generally  accepted  in the  United  States to
          revenue recognition in financial  statements.  The Company is required
          to adopt SAB 101 no later than the fourth  quarter of its fiscal  year
          ending  December 31, 2000.  The Company is  currently  evaluating  the
          impact of the  adoption  of SAB 101 on its results of  operations  and
          financial position.

     n.   EARNINGS (LOSS) PER SHARE

          Earnings (loss) per share have been computed as follows (in thousands,
          except per share amounts):

<TABLE>
<CAPTION>
                                             1997                              1998
                               -------------------------------    --------------------------------
                                          EFFECT OF                          EFFECT OF
                                            STOCK                              STOCK
                                           OPTIONS                            OPTIONS
                                BASIC        AND      DILUTED      BASIC        AND       DILUTED
                                 EPS       WARRANTS     EPS         EPS       WARRANTS      EPS
                               -------     -------    -------     -------     --------    -------
<S>                            <C>         <C>        <C>         <C>         <C>         <C>
Income before extraordinary
  item                         $ 3,164          --    $ 3,164     $ 1,651           --    $ 1,651
Extraordinary item, net         (1,377)         --     (1,377)     (1,091)          --     (1,091)
                               -------     -------    -------     -------     --------    -------
         Net income            $ 1,787          --    $ 1,787     $   560           --    $   560
                               =======     =======    =======     =======     ========    =======
Weighted Average Shares          3,949         164      4,113       4,033          280      4,313
                               =======     =======    =======     =======     ========    =======
Per share amount -- income
  before extraordinary item    $  0.80                $  0.77     $  0.41                 $  0.38
Per share amount -
  extraordinary item, net        (0.35)                 (0.34)      (0.27)                  (0.25)
                               -------                -------     -------                 -------
Per share amount -
  net income                   $  0.45                $  0.43     $  0.14                 $  0.13
                               =======                =======     =======                 =======
</TABLE>

                                                             1999
                                               --------------------------------
                                                          EFFECT OF
                                                            STOCK
                                                           OPTIONS
                                                BASIC        AND       DILUTED
                                                 EPS       WARRANTS      EPS
                                               --------    --------    --------
Net loss before extraordinary item             $(50,156)        --     $(50,156)
Extraordinary item, net                          (1,713)        --       (1,713)
                                               --------     ------     --------
         Net loss                              $(51,869)        --     $(51,869)
                                               ========     ======     ========
Weighted Average Shares                           4,068         --        4,068
                                               ========     ======     ========
Per share amount - net loss before
  extraordinary item                           $(12.33)                  (12.33)

Per share amount - extraordinary item, net        (0.42)                  (0.42)
                                               --------                --------
Per share amount - net loss                    $ (12.75)               $ (12.75)
                                               ========                ========

The  calculation  of weighted  average common and common  equivalent  shares for
purposes of calculating  the 1999 diluted loss per share excludes  approximately
43,000  weighted  average  shares of options  computed  under the treasury stock
method, as these shares would be anti-dilutive.

                                      F-10
<PAGE>
4. BUSINESS COMBINATIONS

In May 1998, the Company  acquired  substantially  all of the assets and assumed
certain operating  liabilities of Pro Finish USA, Ltd. (Pro Finish),  a producer
of name-brand  professional nail enhancement and nail care products. The Company
paid a purchase price of approximately $5.0 million in cash. The acquisition was
accounted for using the purchase method of accounting.

In June 1998, the Company acquired  European Touch Co. and two related companies
(collectively  European Touch) and European Touch,  Ltd. II. European Touch is a
developer, producer, and marketer of professional nail enhancement and treatment
products and European Touch II is a developer,  producer,  and marketer of salon
pedicure equipment. These companies were purchased for a combined purchase price
of  approximately  $25.0  million in cash,  and accounted for using the purchase
method of accounting.

In August  1998,  the  Company  acquired  a  controlling  interest  in Ft.  Pitt
Acquisition, Inc. and its 90% owned subsidiary, Ft. Pitt-Framesi, Ltd. (together
Framesi USA).  Framesi USA holds  exclusive  license  rights for the sale in the
United  States and most of Latin  America of Framesi hair color  products  along
with its  complementary  Biogenol  line of shampoos,  conditioners,  and styling
products.  The  Company  paid  approximately  $33.0  million  for the  Ft.  Pitt
Acquisition,  Inc. stock, in the form of cash and seller carryback  financing of
approximately $5.0 million. The acquisition was accounted for using the purchase
method of accounting.  The excess of the purchase price paid over the net assets
was allocated to the exclusive license rights, which is being amortized over its
contractual  life of 40 years.  During 1999, the Company  acquired an additional
8,970 shares of Ft. Pitt  Acquisition,  Inc.  stock for $359,000 in cash.  As of
December  31,  1999,  the  Company  owned   approximately   84.4%  of  Ft.  Pitt
Acquisition, Inc. See Note 12.

The following table summarizes the allocation of purchase price for acquisitions
completed in 1998 (in thousands).

                                                                      1998
                                                                    --------
    Accounts receivable                                             $  7,481
    Inventories                                                        6,060
    Other assets                                                         803
    Property and equipment                                               968
    Assumed accounts payable and accrued liabilities                  (9,563)
    Assumed debt                                                      (1,716)
                                                                    --------
    Net assets acquired                                                4,033
    Cash paid at closing for purchase price and acquisition costs     62,677
                                                                    --------
    Goodwill and other intangibles                                  $ 58,644
                                                                    ========

The following table depicts, for the year ended December 31, 1998, unaudited pro
forma consolidated  information as if all of the companies acquired in 1998 were
acquired on January 1, 1998 (in thousands).

                                                                      1998
                                                                    --------
    Net sales                                                       $108,601
    Net income                                                           246
    Income per basic share                                              0.06
    Income per diluted share                                            0.06

The unaudited pro forma  financial data is for  informational  purposes only, is
not  necessarily  indicative of the results of operations  had the  acquisitions
occurred at the beginning of 1998, and is not  necessarily  indicative of future
operating results.

                                      F-11
<PAGE>
5. PROPERTY AND EQUIPMENT

Property and equipment consist of the following at December 31 (in thousands):

                                                 USEFUL
                                                 LIVES
                                                (YEARS)      1998        1999
                                                -------    --------    --------
     Land                                          -       $    150    $     --
     Building and leasehold improvements          7-40        1,065         504
     Machinery and equipment                      3-7         1,706       2,160

     Furniture and fixtures                         7         1,326         262
     Computers, vehicles and other                3-5         4,216       4,940
                                                           --------    --------
                                                              8,463       7,866
     Less -- accumulated depreciation                        (3,101)     (2,164)
                                                           --------    --------
                                                           $  5,362    $  5,702
                                                           ========    ========

The Company  recorded  approximately  $383,000,  $1,342,000  and  $2,148,000  in
depreciation  expense  for the years ended  December  31,  1997,  1998 and 1999,
respectively,  which is included in selling, general and administrative expenses
in the accompanying consolidated statements of operations.

6. ACCRUED LIABILITIES

Accrued  liabilities  consist of amounts  accrued but unpaid as of December  31,
1998 and 1999.  Accrued  interest at December 31, 1998 and December 31, 1999 was
$5,798,000  and  $6,113,000,  respectively.  Accrued  liabilities  also  include
commissions, professional fees, taxes, payroll, and other liabilities.

7. LONG-TERM DEBT AND OTHER

Long-term  debt and other  consists of the following (in  thousands) at December
31:

                                                           1998          1999
                                                        ---------     ---------
Senior subordinated notes (the Notes), bearing
interest at 10 7/8%, maturing 2008                      $ 100,000     $ 100,000

Senior credit facility (the 1998 Credit Facility),
collateralized by substantially all the assets of
the Company, maturing through June 2003, paid in
full during 1999                                           37,033            --

Senior secured revolving credit facility (the 1999
Credit Facility), collateralized by substantially
all the assets of the Company, maturing through
June 30, 2004                                                  --        68,789

Seller carryback financing, related to the
acquisition of Ft. Pitt Acquisition, Inc., bearing
interest at 6%, maturing through August 2001                5,000         3,333

Unsecured note payable of Ft. Pitt Acquisition, Inc.        1,101            --

Other                                                          --           785
                                                        ---------     ---------
                                                          143,134       172,907
Less: current portion                                      (2,768)      (71,106)
                                                        ---------     ---------
                                                        $ 140,366     $ 101,801
                                                        =========     =========

                                      F-12
<PAGE>
Aggregate  future  maturities  of  long-term  debt and other are as  follows  at
December 31, 1999 (in thousands):

     2000                                                        $  71,106
     2001                                                            1,801
     2008                                                          100,000
                                                                 ---------
                                                                 $ 172,907
                                                                 =========

     a.   SENIOR CREDIT FACILITIES

          In June 1999, the Company  entered into a $90 million credit  facility
          with  General   Electric   Capital   Corporation   (the  "1999  Credit
          Facility").  A portion of the proceeds  from the 1999 Credit  Facility
          was used to repay amounts  outstanding under the 1998 Credit Facility.
          The  remaining  proceeds of the 1999 Credit  Facility were for working
          capital  purposes.  During 1999, the 1999 Credit Facility had variable
          interest rates determined at prime plus 1.75% averaging 9.5% and which
          were 10.25% at December 31, 1999,  payable  monthly.  The principal is
          due upon  maturity  on June 30,  2004.  The 1999  Credit  Facility  is
          collateralized  by  substantially  all of the  assets of the  Company.
          During 1999, the Company reported an extraordinary, non cash charge of
          approximately  $1.7 million,  ($ 0.42) per diluted  share,  related to
          unamortized  financing costs associated with the repayment of the 1998
          Credit Facility.

     b.   NOTES

          On June 23,  1998,  the Company  issued the Notes in an offering  (the
          "Notes Offering") exempt from registration under the Securities Act of
          1933.  Interest  under the Notes is payable  semi-annually  in arrears
          commencing January 1, 1999. The Notes are not callable until July 2003
          subject  to the terms of the  Indenture  under  which  the Notes  were
          issued.   The  Company  filed  a  registration   statement  under  the
          Securities Act,  relating to an exchange offer for these Notes,  which
          was  declared  effective  in August  1998.  The  proceeds of the Notes
          Offering  were  used  to  finance  acquisitions,   to  repay  existing
          indebtedness  (including the Company's  previous credit  facility) and
          for working capital purposes.

     c.   DEBT COVENANTS

          The Company's 1999 Credit Facility agreement contains provisions that,
          among  other  things,  require  the  Company  to comply  with  certain
          financial ratios and net worth requirements and will limit the ability
          of the Company and its subsidiaries to incur additional  indebtedness,
          pay  dividends,   sell  assets,   or  engage  in  certain  mergers  or
          consolidations.  At December 31, 1999,  Styling was not in  compliance
          with all applicable covenants.

          The Notes  described  above are general  unsecured  obligations of the
          Company  and are  unconditionally  guaranteed  on a joint and  several
          basis  by  all  of the  Company's  wholly  owned  current  and  future
          subsidiaries  (see Note 15).  The  Company  did not make the  required
          interest  payment on July 1, 2000 to the  Noteholders of the Notes. As
          of June 28, 2000, an agreement was reached with 81% of the Noteholders
          to convert all $100 million of the Notes into 90% of the equity of the
          Company. The existing  shareholders and management will receive 10% of
          the new stock to be  issued,  together  with  warrants  to  acquire an
          additional  9% of the Company on a fully  diluted  basis over 5 years.
          The agreement,  which as amended is effective through January 1, 2001,
          includes  a   provision   that   allows   the   Company  to  effect  a
          debt-for-equity    exchange   through   a   pre-negotiated   plan   of
          reorganization  if the Company is not able to secure consents from the
          remaining 19% of the Noteholders.

                                      F-13
<PAGE>
          There can be no  assurance  that the  lenders  will  continue to grant
          waivers. The Company does not currently have alternative  financing to
          meet its obligations as they come due. See Note 2.

     d.   INTEREST RATE PROTECTION

         In connection with the 1998 Credit Facility,  the Company maintained an
         interest rate swap and an interest rate cap (the  Agreements) to reduce
         the impact of changes in interests  rates.  During 1999, the Agreements
         were terminated when the facility was repaid.

8. STOCKHOLDERS' EQUITY

     a.   WARRANTS

          In connection  with a previous  credit  facility,  the Company  issued
          160,000 five year  warrants to lenders with  exercise  prices  between
          $10.18 and $11.38 per share.  In  connection  with the  Offering,  the
          Company issued 203,000 five year warrants to its underwriters  with an
          exercise price of $12.00 per share.  These warrants have been recorded
          at fair  value  as  additional  paid-in  capital  in the  accompanying
          consolidated balance sheets. Prior to the Offering, the Company issued
          20,000 warrants with an exercise price $12.50 per share.  During 1998,
          this warrant holder exercised all 20,000 warrants.

     b.   SHAREHOLDER RIGHTS PLAN

          During  February  1999,  the  Company's  Board of Directors  adopted a
          shareholder  rights plan,  which  authorized the  distribution  of one
          right to  purchase  one  one-thousandth  of a share of Series A Junior
          Participating  Preferred Stock, at a purchase price of $70, subject to
          certain  anti-dilution  adjustments.  The rights  will expire 10 years
          after  issuance  and  will be  exercisable  if (i) a  person  or group
          becomes the  beneficial  owner of 15% or more of the Company's  Common
          Stock;  (ii) persons currently holding 15% or more of the Common Stock
          acquire  an  additional  1% or more of the  Common  Stock;  or (iii) a
          person or group commences a tender or exchange offer that would result
          in the offeror  beneficially owning 15% or more of the Common Stock (a
          "Stock  Acquisition  Date"). If a Stock Acquisition Date occurs,  each
          right, unless redeemed by the Company, entitles the holder to purchase
          an amount of Common Stock of the Company, or in certain  circumstances
          a combination  of securities  and/or assets or the common stock of the
          acquiror,  having a market  value of twice the  exercise  price of the
          right.  Rights held by the acquiring  person will become void and will
          not be exercisable to purchase shares at the bargain purchase price.

     c.   STOCK OPTIONS

          At the initial capitalization of the Company, 162,000 stock options to
          purchase  shares of the common  stock of the Company were issued to an
          officer  with an  exercise  price of $0.10  per  share.  Subsequently,
          approximately  72,000 stock options were cancelled in connection  with
          the officer's retirement.

          During 1996, the Company adopted the 1996 Stock Option Plan, which was
          amended  during  1999  to  provide  up  to  1,000,000   incentive  and
          nonqualified  stock options to acquire  common stock of the Company to
          key personnel and directors of the Company.

          During 1998, the Company  adopted the 1998 Employee Stock Option Plan,
          which  provides  for the  grant of up to  150,000  nonqualified  stock
          options to acquire  common  stock of the Company to  employees  of the
          Company.

                                      F-14
<PAGE>
          A summary of the status of all the Company's stock options at December
          31,  1997,  1998 and 1999 and  changes  during the years then ended is
          presented in the following table:

<TABLE>
<CAPTION>
                                      1997                   1998                   1999
                              --------------------   --------------------   --------------------
                                          WEIGHTED               WEIGHTED               WEIGHTED
                                           AVERAGE                AVERAGE                AVERAGE
                                          EXERCISE               EXERCISE               EXERCISE
                              OPTIONS      PRICE     OPTIONS      PRICE     OPTIONS      PRICE
                              --------     ------    --------     ------    --------     ------
<S>                            <C>         <C>        <C>         <C>        <C>         <C>
Outstanding at beginning of
  year                         250,000     $ 3.58     549,000     $ 7.38     794,000     $10.76
     Granted                   430,000      10.57     694,000      12.83      86,000      10.41
     Exercised                      --         --     (99,000)      1.87      (1,000)     11.38
     Canceled                 (131,000)     10.60    (350,000)     12.09     (79,000)     11.90
                              --------     ------    --------     ------    --------     ------
Outstanding at end of year     549,000     $ 7.38     794,000     $10.76     800,000     $10.63
                              ========     ======    ========     ======    ========     ======
Exercisable at end of year     136,000     $ 9.71     279,000     $10.10     412,000     $10.36
                              ========     ======    ========     ======    ========     ======
Weighted average fair value
  per share of options
  granted                                  $ 4.13                 $ 5.44                 $ 4.36
                                           ======                 ======                 ======
</TABLE>

          Options  outstanding at December 31, 1999 have exercise prices between
          $0.1 and $24.00  approximately 9,000 options have an exercise price of
          $0.1 with a remaining  average  contractual life of 5.5 years, and are
          fully vested.  647,480  options have exercise prices between $9.25 and
          $12.375 with a remaining  average  contractual life of 8.2 years, with
          vesting  between 1 and 5 years.  143,750  options have exercise prices
          between $12.375 and $24.00 with a remaining  average  contractual life
          of 8.65 years, with vesting between 1 and 5 years.

          The  following  pro forma  disclosures  of net income  (loss) are made
          assuming the Company had accounted  for the stock options  pursuant to
          the provision of SFAS No. 123, Accounting for Stock-Based Compensation
          (in thousands except per share data).

                                        DECEMBER 31,  DECEMBER 31,  DECEMBER 31,
                                           1997          1998           1999
                                        ------------  ------------  ------------
Income (loss) before extraordinary item
  As reported                            $    3,164   $    1,651     $  (50,156)
  Pro forma                                   2,833          849        (51,352)
  Diluted EPS - as reported                    0.77         0.38         (12.33)
  Diluted EPS - pro forma                      0.69         0.20         (12.62)
Extraordinary item, net
  As reported                                (1,337)      (1,091)        (1,713)
  Diluted EPS - as reported                   (0.34)       (0.25)         (0.42)
Net income (loss)
  As reported                                 1,787          560        (51,869)
  Pro forma                                   1,456         (242)       (53,065)
  Diluted EPS - as reported                    0.43         0.13         (12.75)
  Diluted EPS - pro forma                      0.35        (0.05)        (13.04)

          The fair value of each option is  estimated on the date of grant using
          the  Black-Scholes  options pricing model with the following  weighted
          average assumptions used for grants in 1997:  risk-free interest rates
          of  5.99%  to  6.62%,  expected  lives  of  two to  six  years;  and a
          volatility factor of 38.59%. The weighted average assumptions used for
          grants in 1998 were as  follows:  risk-free  interest  rates of 4.98%,
          expected lives of two to six years; and a volatility factor of 38.59%.

                                      F-15
<PAGE>
          The  weighted  average  assumptions  used for  grants  in 1999 were as
          follows:  risk-free  interest  rates of 5.81%,  expected lives of 4.67
          years;  and a volatility  factor of 40%. The assumed dividend yield is
          zero for 1997, 1998 and 1999.

9. INCOME TAXES

The provision for (benefit  from) income taxes for the years ended  December 31,
1997, 1998 and 1999 consists of the following (in thousands):

                                               1997          1998         1999
                                              -------       ------      -------
     Current expense                          $ 2,586       $   --      $    --
     Deferred expense (benefit)                   (49)       1,470       (4,288)
                                              -------       ------      -------
     Net income tax expense (benefit)         $ 2,537       $1,470      $(4,288)
                                              =======       ======      =======

The  Company's  entire  net  deferred  tax asset  was  offset  with a  valuation
allowance at December 31, 1999 in light of the uncertain  future  utilization of
net operating loss  carryforwards  (NOLCs),  tax credit  carryforwards and other
future  deductions.  At December 31, 1999, the Company has regular federal NOLCs
of  approximately  $35.8  million  which will expire,  if unused,  through 2019.
Should the restructuring described in Note 2 be accomplished, the NOLCs would be
reduced by the differences between the fair market value of equity issued to the
creditors  and the amount of the debt that is  discharged.  The $5.9  million in
deferred tax  liabilities at December 31, 1999 represent  temporary  differences
which will reverse after the NOLCs expire.

The  components  of the  deferred tax accounts as of December 31, 1998 and 1999,
consist of the following (in thousands):

                                                          1998           1999
                                                        --------       --------
     Current deferred tax assets:
     Reserves and other accruals                        $    516       $  4,351
     Inventory capitalization                              1,298         (1,235)
     Valuation allowance                                      --         (3,116)
                                                        --------       --------
     Total current deferred tax assets                     1,814             --
                                                        --------       --------
     Long-term deferred tax assets:
     Net operating loss carry forward                      2,581         14,271
     Reserves and accruals                                 2,562          5,128
     Valuation allowance                                      --         (7,825)
                                                        --------       --------
     Total non-current deferred tax assets                 5,143         11,574
                                                        --------       --------
     Non-current deferred tax liabilities:
       Accelerated tax deductions, depreciation,
         and amortization                                 (6,118)        (4,735)
       Effect of book basis in excess of tax basis
         of licenses                                     (13,098)       (12,740)
                                                        --------       --------
         Total non-current deferred tax liabilities      (19,216)       (17,475)
                                                        --------       --------
         Net non-current deferred tax liability         $(12,259)      $ (5,901)
                                                        ========       ========

                                      F-16
<PAGE>
A reconciliation  of the U.S. federal statutory income tax rate to the Company's
income before extraordinary item effective tax rate is as follows:

                                                             DECEMBER 31,
                                                         ---------------------
                                                         1997    1998     1999
                                                         ----    ----     ----
     Statutory federal rate                                34%     34%     (34)%
     Effect of state taxes                                  4%      4%      (4)%
     Nondeductible amortization, impairment of
       goodwill, and other permanent differences            7%      9%      10%
     Increase in valuation allowance                       --      --       20%
                                                         ----    ----     ----
                                                           45%     47%      (8)%
                                                         ====    ====     ====

10. RELATED PARTY INFORMATION

A member of the Company's Board of Directors serves as president of a consulting
firm  which was paid a  $150,000  fee during  1997 in  connection  with the ABBA
acquisition.

A member of the Company's Board of Directors is a partner in a merchant  banking
firm which provided  services to the Company related to obtaining  financing and
completing  certain  acquisitions.  During 1997, this firm earned $1,120,000 for
these services.

A member of the  Company's  Board of  Directors is a partner in a law firm which
provided  services to the Company  related to defending  certain legal  actions.
During 1999, this firm earned $44,000 for these services.

11. SEGMENT INFORMATION

The  Company  monitors  its  salon  distribution  operations  by the  hair-care,
nail-care,  skin and body care, and appliances and sundries product  categories.
Distribution of the product takes place primarily  throughout the United States.
Management  monitors and evaluates the  financial  performance  of the Company's
operations  by its current four  operating  segments.  The  following  operating
segment information  includes financial  information (in thousands) for all four
of the Company's operating segments.

DECEMBER 31, 1999
-----------------

<TABLE>
<CAPTION>
                                                            APPLIANCES
                                                 SKIN AND      AND
                        HAIR CARE    NAIL CARE   BODY CARE   SUNDRIES     PARENT     ELIMINATIONS     TOTAL
                        ---------    ---------   ---------   --------     ------     ------------     -----
<S>                     <C>          <C>          <C>         <C>        <C>           <C>          <C>
Net sales               $ 43,684     $ 19,069     $27,030     $17,987    $      20     $     --     $ 107,790
Income (Loss) from
   Operations            (11,794)     (12,061)        897       6,263      (17,978)          --       (34,673)
Depreciation and
   Amortization            2,913          441       2,051       1,055          653           --         7,113
Total assets              85,692       12,182      40,346      24,238      107,386      (89,449)      180,395
Capital expenditures         195           91         212         193        3,436           --         4,127
</TABLE>

                                      F-17
<PAGE>
DECEMBER 31, 1998
-----------------

<TABLE>
<CAPTION>
                                                            APPLIANCES
                                                 SKIN AND      AND
                        HAIR CARE    NAIL CARE   BODY CARE   SUNDRIES    PARENT     ELIMINATIONS     TOTAL
                        ---------    ---------   ---------   --------    ------     ------------     -----
<S>                     <C>          <C>          <C>         <C>       <C>           <C>          <C>
Net sales                $29,224      $18,902     $25,930     $ 9,310    $     --    $      --      $ 83,366
Income (Loss) from
   Operation               4,385        3,467       3,165       3,489      (2,179)          --        12,327
Depreciation and
   Amortization              107        2,561       1,189         215       1,115           --         5,187
Total assets              97,571       46,796      80,375      30,326      94,258     (135,253)      214,073
Capital expenditures          25          134         661         146         996           --         1,962

DECEMBER 31, 1997
-----------------
                                                           APPLIANCES
                                                 SKIN AND     AND
                        HAIR CARE    NAIL CARE   BODY CARE  SUNDRIES     PARENT     ELIMINATIONS     TOTAL
                        ---------    ---------   ---------  --------     ------     ------------     -----
Net sales                $ 8,768      $12,545     $14,078    $ 1,114     $     --    $      --      $ 36,505
Income (Loss) from
   Operation               2,352        2,226       4,311        268       (1,609)          --         7,548
Depreciation and
   Amortization               13        1,058         292         62          421           --         1,846
Total assets              27,180       20,757      48,686      1,842       25,238      (32,817)       90,886
Capital expenditures          --           90         275          2          215           --           582
</TABLE>

Sales to a major U.S.  beauty  supply chain as a  percentage  of total net sales
approximated 13% during 1997. During 1998 and 1999, sales to any single customer
as a percentage of total net sales did not exceed 10%.

12. COMMITMENTS AND CONTINGENCIES

     a.   LEGAL MATTERS

          During the period  from  December  1999 to  January  2000,  four class
          action lawsuits were filed on behalf of certain  shareholders  against
          the Company and  certain of its present and former  officers  alleging
          violations of the federal  securities laws. The complaints allege that
          the defendants reported increasing sales and earnings before interest,
          taxes,  depreciation and amortization which caused the Company's stock
          to trade at  artificially  inflated  levels and allowed the Company to
          complete  a $100  million  senior  subordinated  notes  offering.  The
          complaints  further allege that as a result of  announcements  made by
          the  Company  of  errors  and   irregularities  in  previously  issued
          financial  statements,  trading of the Company's  stock was halted and
          the stock was  delisted by Nasdaq.  If the Company is unable to settle
          this matter with the  plaintiffs  within a reasonable  amount of time,
          then the Company intends to defend this matter vigorously.

          On September  15, 1999 the SEC served the Company a voluntary  request
          for  production of documents.  Subsequently,  on October 29, 1999, the
          SEC issued a Formal  Order of Private  Investigation.  The  Company is
          cooperating  with  the  SEC in its  investigation  and  simultaneously
          negotiating a settlement.  The Company cannot predict the term of such
          investigation or its potential outcome.

          A former employee of Ft. Pitt  Acquisition,  Inc. is suing the Company
          for breach of contract for an employment agreement and non-competition
          in  place  at the  time of the  acquisition.  The  agreements  require
          accelerated  payments  in the event of a change in control at Ft. Pitt
          Acquisition,  Inc. The Company's  acquisition of Ft. Pitt Acquisition,
          Inc. is alleged to constitute a change of control. The alleged payment
          due to the former employee is $1.7 million.  The Company believes that
          the agreements were not properly approved by the board of directors of

                                      F-18
<PAGE>
          Ft. Pitt Acquisition,  Inc. and not executed. In addition, the Company
          believes  the former  employee  did not perform  under the  employment
          agreement. The Company intends to defend this matter vigorously.

          Four minority  interest  shareholders  of Ft. Pitt  Acquisition,  Inc.
          filed separate complaints against the former majority shareholders and
          the Company for not accepting an offer from Graham Webb Company to buy
          all of the shares of Ft. Pitt Acquisition,  Inc., but rather accepting
          an offer from the  Company.  In addition,  the  minority  shareholders
          allege  that the Company did not allow the  minority  shareholders  to
          sell to the Company. The minority shareholders allege these actions by
          the Company and the former majority  shareholders  cause them to incur
          losses. The minority shareholders are seeking damages of approximately
          $5.3  million.  The  Company  is  defending  all of these  allegations
          vigorously and is not  participating in any settlement  discussions at
          this time.

          A former manufacturer, Amole Incorporated (Amole) assigned receivables
          (including  amounts owed from Body Drench to Amole) to Comerica  Bank.
          Comerica  Bank filed a claim  against the Company  for  collection  of
          outstanding  receivables in the amount of approximately  $1.1 million.
          The Company filed a  counterclaim  in the amount of  approximately  $1
          million  against  Amole for  breach  of  contract,  negligence,  false
          representation, negligent representation, various breaches of warranty
          and  indemnification.  Prior to  Comerica  Bank  seizing the assets of
          Amole, Body Drench had several complaints regarding changes in product
          manufactured  by  Amole  for  Body  Drench.  In  accordance  with  the
          Exclusive  Manufacturing  Agreement,  Amole is prohibited  from making
          changes in the product.  The case is scheduled  for  discovery in fall
          2000. The Company intends to defend this matter vigorously.

          Panint (U.S.) Ltd. and Panint Electric Limited filed a lawsuit against
          the Company for breach of certain  purchase  contracts and are seeking
          payment of  approximately  $994,000.  The Company has responded to the
          allegations  and  counterclaims  that the products  received  from the
          plaintiff  were defective and caused the Company lost sales and damage
          to reputation amongst other unfavorable reactions. The Company intends
          to defend this matter vigorously.

          Amounts accrued for litigation matters represent the anticipated costs
          (damages  and/or  settlement   amounts)  in  connection  with  pending
          litigation and claims and related anticipated legal fees for defending
          such  actions.  The costs are accrued when it is both  probable that a
          liability   has  been  incurred  and  the  amount  can  be  reasonably
          estimated. The accruals are based upon management's assessment,  after
          consult  with  counsel,  of  probable  loss  based  on the  facts  and
          circumstances of each case, the legal issues  involved,  the nature of
          the claim  made,  the nature of the  damages  sought and any  relevant
          information about the plaintiffs and other  significant  factors which
          vary by cost. When it is not possible to estimate a specific  expected
          cost to be incurred,  the Company evaluates the range of probable loss
          and records the  minimum  end of the range.  At December  31, 1998 and
          1999, the Company has recorded accruals for litigation matters of $1.1
          million  and   $530,000,   respectively.   Management   believes  that
          anticipated  probable cost of litigation  matters existing at December
          31,  1999  and  1998  have  been  adequately  reserved  to the  extent
          determinable.

          The Company is party to certain  additional  legal matters  arising in
          the ordinary course of its business.  In management's  opinion,  as of
          December 31, 1999, the expected  outcome of such matters will not have
          a material  adverse  effect on the  Company's  financial  position  or
          results of operations.

     b.   OPERATING LEASES

          The Company  leases certain  equipment and office and warehouse  space
          under  noncancelable  operating leases.  Rent expense related to these
          lease  agreements  totaled  approximately  $313,000,   $1,132,000  and
          $2,756,000 for the years ended December 31, 1997, 1998 and 1999.

                                      F-19
<PAGE>
          Future  lease  payments  under  noncancelable   operating  leases  (in
          thousands) are as follows:

          YEARS ENDING
          DECEMBER 31,
          ------------
             2000                                              $  2,487
             2001                                                 1,868
             2002                                                 1,662
             2003                                                 1,256
             2004                                                 1,311
             Thereafter                                           4,095
                                                               --------
                                                               $ 12,679
                                                               ========

     c.   RETIREMENT PLANS

          On  April  1,  1998,  the  Company  adopted  the  Styling   Technology
          Corporation  401(k) Plan (the "401(k)  Plan").  The 401(k) Plan allows
          eligible  employees to  contribute  up to 20% of their annual  pre-tax
          compensation.  Currently,  the Company matches 100% of the first 4% of
          the  employee's  contribution.  Generally,  employees  are eligible to
          participate  at the  first  calendar  quarter  following  90  days  of
          continuous  service.  Collective  bargaining  units are excluded  from
          participation.  Vesting in the Company's matching  contribution is 25%
          per year of service;  the  employee  would be 100%  vested  after four
          years of service. The Company made payments to this 401(k) Plan in the
          sum of $98,000 and  $151,000  during 1998 and 1999,  respectively.  An
          employee's  unvested  portion  of the  Company  match goes back to the
          401(k) Plan upon a  termination  distribution.  Forfeited  amounts are
          first applied  toward 401(k) Plan expenses and are then applied toward
          future matching contributions.

          Four of the Company's divisions or subsidiaries had other 401(k) plans
          in place  at the  time of the  acquisition.  With  the  April 1,  1998
          adoption of the 401(k)  Plan,  these four plans are no longer  active.
          All  participants  of these plans are eligible to  participate  in the
          Company's 401(k) Plan. These plans were terminated  effective December
          15, 1999.  Active  employees who had  participated  in these plans may
          have the opportunity to roll existing balances into the 401(k) Plan or
          to their personal IRA.  Terminated  employees have the  opportunity to
          rollover to their IRA or receive a direct distribution.

          Another of the Company's  Subsidiaries,  Ft. Pitt  Acquisition,  Inc.,
          ("Ft.  Pitt")  sponsors a 401(k) plan ("Ft. Pitt 401(k) Plan") for its
          separate employees. All full time Ft. Pitt employees, except employees
          covered by a union plan,  are  eligible to  participate.  The Ft. Pitt
          401(k) Plan allows  employees to  contribute up to 20% of their annual
          pre-tax  compensation.  Ft.  Pitt  will  match  20% of the  employees'
          deferral,  subject to a six year vesting schedule. The Ft. Pitt 401(k)
          Plan also  provides for  discretionary  profit-sharing  contributions.
          During  1998  and  1999,  Ft.  Pitt  made  matching  contributions  of
          approximately  $11,000  and  $23,000  respectively.  Ft.  Pitt  made a
          discretionary  profit sharing contribution of $20,000 during 1998. Ft.
          Pitt made no discretionary profit sharing contributions during 1999.

13. VENDOR CONCENTRATION

As part of the Company's strategy, the Company uses third parties to manufacture
the  majority of the  Company's  products.  One of these  third party  suppliers
accounted for  approximately 15% and 13% of the total cost of sales for the year
ended December 31, 1998 and 1999, respectively.  During 1998 and 1999, purchases
from a single supplier as a percentage of total purchases did not exceed 10%.

                                      F-20
<PAGE>
14. OTHER SUBSEQUENT EVENT

During  January 2000,  the company sold certain  assets and  liabilities  of One
Touch and Clean & Easy and entered into a 2 year  consulting  agreement with the
buyer for a total of $26.5 million in cash. The Company  recorded a pre-tax gain
of  approximately  $4.3 million and deferred  $2.4 million to be earned over the
two year life of the consulting agreement.

During  1999,  One Touch  and Clean & Easy  accounted  for  approximately  $16.4
million  in net sales and $2.8  million  of pre-tax  income  before  considering
interest expense.

15. GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

The Notes described in Note 7 are general  unsecured  obligations of the Company
and are  unconditionally  guaranteed  on a joint and several basis by all of the
Company's wholly owned current and future subsidiaries.

The financial statements presented below include the combined financial position
as of December 31, 1998 and 1999;  the results of operations  and  statements of
cash  flows for the years  ended  December  31,  1997,  1998 and 1999 of Styling
Technology  Corporation (Parent);  guarantor  subsidiaries  (Guarantors) and the
non-guarantor subsidiaries (Non-guarantors).

                                      F-21
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Balance Sheet
as of December 31, 1998 (in thousands)

<TABLE>
<CAPTION>
                                                                        NON-
                                              PARENT     GUARANTORS  GUARANTORS    ELIMINATING   CONSOLIDATED
                                              ------     ----------  ----------    -----------   ------------
<S>                                          <C>         <C>         <C>           <C>           <C>
                                     ASSETS
Current Assets:
  Cash and cash equivalents                  $   2,867     $   343    $     813     $      --     $   4,023
  Accounts receivable, net                      10,100       8,830        5,882            --        24,812
  Inventories, net                              13,456      10,060        2,083            --        25,599
  Prepaid expenses and other current
    assets                                         597         695           83            --         1,375
  Due to/from affiliates                         2,383       5,462       (7,845)           --            --
                                             ---------     -------    ---------     ---------     ---------
      Total current assets                      29,403      25,390        1,016            --        55,809

Property and Equipment, net                      3,625       1,626          111            --         5,362
Goodwill and Other Intangibles, net             37,128      52,509       49,929            --       139,566
Other Assets                                    13,033         118          185            --        13,336
Investment in Subsidiaries, net                104,317          --           --      (104,317)           --
                                             ---------     -------    ---------     ---------     ---------
                                             $ 187,506     $79,643    $  51,241     $(104,317)    $ 214,073
                                             =========     =======    =========     =========     =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
  Accounts payable                           $   8,224     $ 2,960    $     924     $      --     $  12,108
  Accrued liabilities                            1,884       5,841        2,642            --        10,367
  Current portion of long-term debt
    and other                                    1,309         357        1,102            --         2,768
                                             ---------     -------    ---------     ---------     ---------
      Total current liabilities                 11,417       9,158        4,668            --        25,243
                                             ---------     -------    ---------     ---------     ---------
Deferred Income Taxes                            6,475          --       12,741            --        19,216

Long-Term Debt and Other, less current
portion                                        140,366          --           --            --       140,366

Commitments and Contingencies

Stockholders' Equity:
  Preferred stock                                   --          --           --            --            --
  Common stock                                       1          --           --            --             1
  Additional paid-in capital                    29,038      61,770       32,527       (94,297)       29,038
  Retained earnings                              2,009       8,715        1,305       (10,020)        2,009
  Treasury stock                                (1,800)         --           --            --        (1,800)
                                             ---------     -------    ---------     ---------     ---------
      Total stockholders' equity                29,248      70,485       33,832      (104,317)       29,248
                                             ---------     -------    ---------     ---------     ---------
                                             $ 187,506     $79,643    $  51,241     $(104,317)    $ 214,073
                                             =========     =======    =========     =========     =========
</TABLE>

                                      F-22
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Balance Sheet
as of December 31, 1999 (in thousands)

<TABLE>
<CAPTION>
                                                                               NON-
                                                   PARENT      GUARANTORS   GUARANTORS   ELIMINATING   CONSOLIDATED
                                                   ------      ----------   ----------   -----------   ------------
<S>                                               <C>           <C>          <C>          <C>           <C>
                                     ASSETS
Current Assets:
  Cash and cash equivalents                       $   1,275     $    (82)    $      2     $      --     $   1,195
  Accounts receivable, net                            2,812        5,475        3,116            --        11,403
  Inventories, net                                   14,119       13,433        6,215            --        33,767
  Prepaid expenses and other current
    assets                                            2,095           28            6            --         2,129
  Due to/from affiliates                             17,951        7,141      (25,092)           --            --
                                                  ---------     --------     --------     ---------     ---------
      Total current assets                           38,252       25,995      (15,753)           --        48,494

Property and Equipment, net                           5,201          440           61            --         5,702
Goodwill and Other Intangibles, net                  31,453       40,509       48,506            --       120,468
Other Assets                                          5,530          191           10            --         5,731
Investment in Subsidiaries, net                      89,449           --           --       (89,449)           --
                                                  ---------     --------     --------     ---------     ---------
                                                  $ 169,885     $ 67,135     $ 32,824     $ (89,449)    $ 180,395
                                                  =========     ========     ========     =========     =========

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current Liabilities:
  Bank Overdraft                                  $   2,189     $     --     $     --     $      --     $   2,189
  Accounts payable                                    7,842        1,977        1,349            --        11,168
  Accrued liabilities                                 9,727          274          840            --        10,841
  Current portion of long-term debt                      --           --           --            --            --
    and other                                        70,941          165           --            --        71,106
                                                  ---------     --------     --------     ---------     ---------
      Total current liabilities                      90,699        2,416        2,189            --        95,304
                                                  ---------     --------     --------     ---------     ---------
Deferred Income Taxes                                    --           --        5,901            --         5,901

Long-Term Debt and Other, less current
   portion                                          101,797            4           --            --       101,801

Commitments and Contingencies

Stockholders' Equity (Deficit):
  Preferred stock                                        --           --           --            --            --
  Common stock                                            1           --           --            --             1
  Additional paid-in capital                         29,048       61,770       32,527       (94,297)       29,048
  Retained Earnings(Accumulated Deficit)            (49,860)       2,945       (7,793)        4,848       (49,860)
  Treasury stock                                     (1,800)          --           --            --        (1,800)
                                                  ---------     --------     --------     ---------     ---------
      Total stockholders' equity (deficit)          (22,611)      64,715       24,734       (89,449)      (22,611)
                                                  ---------     --------     --------     ---------     ---------
                                                  $ 169,885     $ 67,135     $ 32,824     $ (89,449)    $ 180,395
                                                  =========     ========     ========     =========     =========
</TABLE>

                                      F-23
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement of Operations
for the Year Ended December 31, 1997 (in thousands)

<TABLE>
<CAPTION>
                                                                       NON-
                                            PARENT    GUARANTORS    GUARANTORS  ELIMINATING  CONSOLIDATED
                                            ------    ----------    ----------  -----------  ------------
<S>                                        <C>          <C>          <C>          <C>          <C>
Net sales                                  $ 15,193     $ 21,312     $     --     $    --      $ 36,505
Cost of sales                                 6,348       10,408           --          --        16,756
                                           --------     --------     --------     -------      --------
Gross profit                                  8,845       10,904           --          --        19,749
Selling, general and administrative
   expenses                                   5,874        6,327           --          --        12,201
                                           --------     --------     --------     -------      --------
Income from operations                        2,971        4,577           --          --         7,548
Interest expense and other, net              (1,789)         (58)          --          --        (1,847)
                                           --------     --------     --------     -------      --------
Income before extraordinary item and
   income taxes                               1,182        4,519           --          --         5,701
Provision for income taxes                      719        1,818           --          --         2,537
                                           --------     --------     --------     -------      --------
Income before extraordinary item                463        2,701           --          --         3,164
Extraordinary item, net of tax benefits      (1,377)          --           --          --        (1,377)
Income from wholly owned subsidiaries         2,701           --           --      (2,701)           --
                                           --------     --------     --------     -------      --------
Net income                                 $  1,787     $  2,701     $     --     $(2,701)     $  1,787
                                           ========     ========     ========     =======      ========
</TABLE>

                                      F-24
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement of Operations
for the Year Ended December 31, 1998 (in thousands)

<TABLE>
<CAPTION>
                                                                      NON-
                                             PARENT    GUARANTORS  GUARANTORS  ELIMINATING  CONSOLIDATED
                                             ------    ----------  ----------  -----------  ------------
<S>                                         <C>          <C>         <C>         <C>          <C>
Net sales                                   $ 30,958     $40,326     $12,082     $    --      $ 83,366
Cost of sales                                 15,684      18,470       4,844          --        38,998
                                            --------     -------     -------     -------      --------
Gross profit                                  15,274      21,856       7,238          --        44,368
Selling, general, and administrative
   expenses                                   14,200      11,439       5,980          --        31,619
Centralization and reengineering costs           422          --          --          --           422
                                            --------     -------     -------     -------      --------
Income from operations                           652      10,417       1,258          --        12,327
Interest income (expense) and other, net      (9,302)         --          96          --        (9,206)
                                            --------     -------     -------     -------      --------
Income (loss) before extraordinary item
   and Income Taxes                           (8,650)     10,417       1,354          --         3,121
Provision (benefit) for income taxes          (2,981)      4,402          49          --         1,470
                                            --------     -------     -------     -------      --------
Income (loss) before extraordinary item       (5,669)      6,015       1,305          --         1,651
Extraordinary item, net of tax benefit        (1,091)         --          --          --        (1,091)
Income from majority owned subsidiaries        7,320          --          --      (7,320)           --
                                            --------     -------     -------     -------      --------
Net income                                  $    560     $ 6,015     $ 1,305     $(7,320)     $    560
                                            ========     =======     =======     =======      ========
</TABLE>

                                      F-25
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement of Operations
for the Year Ended December 31, 1999 (in thousands)

<TABLE>
<CAPTION>
                                                                         NON-
                                              PARENT     GUARANTORS   GUARANTORS  ELIMINATING  CONSOLIDATED
                                              ------     ----------   ----------  -----------  ------------
<S>                                          <C>          <C>          <C>          <C>          <C>
Net sales                                    $ 32,298     $ 47,019     $ 28,473     $    --      $ 107,790
Cost of sales                                  16,203       25,899       11,864          --         53,966
                                             --------     --------     --------     -------      ---------
      Gross profit                             16,095       21,120       16,609          --         53,824

Selling, general, and administrative
   expenses                                    32,241       14,698       26,714          --         73,653
Goodwill impairment                             3,977        9,461           --          --         13,438
Centralization and Reengineering Costs          1,406           --           --          --          1,406
                                             --------     --------     --------     -------      ---------
Loss from operations                          (21,529)      (3,039)     (10,105)         --        (34,673)
Interest (expense) and other income, net      (18,949)        (578)        (244)         --        (19,771)
                                             --------     --------     --------     -------      ---------
Loss before income taxes                      (40,478)      (3,617)     (10,349)         --        (54,444)
Provision for (benefit from) income taxes      (5,190)       2,153       (1,251)         --         (4,288)
                                             --------     --------     --------     -------      ---------
Loss before Extraordinary Item                (35,288)      (5,770)      (9,098)         --        (50,156)
Extraordinary Item                             (1,713)          --           --          --         (1,713)

Loss from majority owned subsidiaries         (14,868)          --           --      14,868             --
                                             --------     --------     --------     -------      ---------
Net loss                                     $(51,869)    $ (5,770)    $ (9,098)    $14,868      $ (51,869)
                                             ========     ========     ========     =======      =========
</TABLE>

                                      F-26
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement of Cash Flows
for the Year Ended December 31, 1997 (in thousands)

<TABLE>
<CAPTION>
                                                                         NON-
                                              PARENT     GUARANTORS   GUARANTORS   ELIMINATING  CONSOLIDATED
                                             --------     --------     --------     --------      --------
<S>                                          <C>          <C>          <C>          <C>           <C>
Cash Flows from Operating Activities:
   Net Income                                $  1,787     $  2,701     $     --     $ (2,701)     $  1,787
   Adjustments to reconcile net income to
     net cash provided by (used in)
     operating activities-
       Depreciation and amortization            1,058          788           --           --         1,846
       Interest accretion on note payable           6          168           --           --           174
       Extraordinary loss on early
         extinguishment of debt                 1,377           --           --           --         1,377
       Provision for uncollectable
         accounts                                 710           --           --           --           710
       Change in certain assets and
         liabilities:
           Accounts receivable, net            (4,334)      (2,178)          --           --        (6,512)
           Inventories, net                    (2,063)        (929)          --           --        (2,992)
           Prepaid expenses and other
              assets                           (1,825)          95           --           --        (1,730)
           Accounts payable and
              accrued liabilities                 845        2,115           --           --         2,960
           Due to/from affiliates, net           (507)      (2,194)          --        2,701            --
                                             --------     --------     --------     --------      --------
                  Net cash provided by
                    (used in) operating
                    activities                 (2,946)         566           --           --        (2,380)
                                             --------     --------     --------     --------      --------
Cash Flows from Investing Activities:
   Purchasing of property and equipment          (518)         (64)          --           --          (582)
   Purchase of acquired business, net of
     cash acquired                            (45,131)         (19)          --           --       (45,150)
                                             --------     --------     --------     --------      --------
                  Net cash used in
                  investing activities        (45,649)         (83)          --           --       (45,732)
                                             --------     --------     --------     --------      --------
Cash Flows from Financing Activities:
   Proceeds from credit facility, net of
     financing costs                           71,633           --           --           --        71,633
   Payments on long-term debt                 (24,472)        (477)          --           --       (24,949)
                                             --------     --------     --------     --------      --------
                  Net cash provided by
                    (used in) financing
                    activities                 47,161         (477)          --           --        46,684
                                             --------     --------     --------     --------      --------
Increase (Decrease) in Cash and Cash
   Equivalents                                 (1,434)           6           --           --        (1,428)
                                             --------     --------     --------     --------      --------
Cash and Cash Equivalents, beginning
   of year                                      4,341          150           --           --         4,491
                                             --------     --------     --------     --------      --------
Cash and Cash Equivalents, end
   of year                                   $  2,907     $    156     $     --     $     --      $  3,063
                                             ========     ========     ========     ========      ========
</TABLE>

                                      F-27
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement of Cash Flow
for the Year Ended December 31, 1998 (in thousands)

<TABLE>
<CAPTION>
                                                                         NON-
                                                PARENT    GUARANTORS  GUARANTORS   ELIMINATING   CONSOLIDATED
                                               --------    --------    --------      --------      --------
<S>                                            <C>         <C>         <C>           <C>           <C>
Cash Flows from Operating Activities:
   Net Income                                  $    560    $  6,015    $  1,305      $ (7,320)     $    560
   Adjustments to reconcile net income
     to net cash provided by (used in)
     operating activities:
       Depreciation and amortization              2,993       1,839         355            --         5,187
       Interest accretion on note payable           159          --          --            --           159
       Extraordinary loss on early
         extinguishment of debt                   1,091          --          --            --         1,091
       Provision for uncollectable
         accounts                                   600         781         233            --         1,614
       Change in certain assets and
         liabilities
           Accounts receivable, net                (795)     (3,998)     (1,459)           --        (6,252)
           Inventories, net                      (3,997)     (5,329)        738            --        (8,588)
           Prepaid expenses and other
              assets                             (2,636)        (51)        324            --        (2,363)
           Accounts payable and accrued
           liabilities                           (2,124)      2,641       1,290            --         1,807
           Due to/from affiliates, net          (16,157)        992       7,845         7,320            --
                                               --------    --------    --------      --------      --------
                  Net cash provided by (used
                  in) operating activities      (20,306)      2,890      10,631            --        (6,785)
                                               --------    --------    --------      --------      --------
Cash Flows from Investing Activities:
   Purchasing of property, plant and
     equipment                                   (1,766)       (174)        (22)           --        (1,962)
   Purchasing of acquired business, net of
     cash acquired                              (62,677)         --          --            --       (62,677)
   Change in other assets                         2,978      (2,510)     (4,719)           --        (4,251)
                                               --------    --------    --------      --------      --------
                  Net cash used in
                  investing activities          (61,465)     (2,684)     (4,741)           --       (68,890)
                                               --------    --------    --------      --------      --------
Cash Flows from Financing Activities:
   Proceeds from credit facility, net of
     financing costs                             47,298          --          --            --        47,298
   Proceeds from bond offering, net of
     offering costs                              96,400          --          --            --        96,400
   Exercise of stock options                      1,163          --          --            --         1,163
   Payments on long-term debt                   (63,130)        (19)     (5,077)           --       (68,226)
                                               --------    --------    --------      --------      --------
                  Net cash provided by
                    (used in) financing
                    activities                   81,731         (19)     (5,077)           --        76,635
                                               --------    --------    --------      --------      --------
Increase (Decrease) in Cash and Cash
   Equivalents                                      (40)        187         813            --           960

Cash and Cash Equivalents, beginning
   of period                                      2,907         156          --            --         3,063
                                               --------    --------    --------      --------      --------
Cash and Cash Equivalents, end
   of period                                   $  2,867    $    343    $    813      $     --      $  4,023
                                               ========    ========    ========      ========      ========
</TABLE>

                                      F-28
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement of Cash Flow
for the Year Ended December 31, 1999 (in thousands)

<TABLE>
<CAPTION>
                                                                          NON-
                                                 PARENT    GUARANTORS  GUARANTORS   ELIMINATING   CONSOLIDATED
                                                --------    --------    --------      --------      --------
<S>                                             <C>         <C>         <C>           <C>           <C>
Cash Flows from Operating Activities:
   Net Loss                                     $(51,869)   $ (5,770)   $ (9,098)     $ 14,868      $(51,869)
   Adjustments to reconcile net loss to net
     cash provided by (used in) in
     operating activities:
       Net loss on disposal and sale
       Assets                                      5,105      10,817         122            --        16,044
       Depreciation and amortization               3,326       2,577       1,883            --         7,786
       Extraordinary item                          1,713          --          --            --         1,713
       Provision for uncollectable accounts
         receivable                                6,511       3,609       3,074            --        13,194
       Increase in deferred tax valuation
         allowance                                (4,101)         --      (6,840)           --       (10,941)
       Change in certain assets and
         liabilities -
           Accounts receivable                       777        (254)       (308)           --           215
           Inventory, net                           (663)     (3,373)     (4,132)           --        (8,168)
           Prepaid expenses and other
              assets                               3,633         667          77            --         4,377
           Accounts payable and accrued
              liabilities                          7,460      (6,550)     (1,377)           --          (467)
           Due to/from affiliates, net              (678)     (1,580)     17,126       (14,868)           --
                                                --------    --------    --------      --------      --------
         Net cash provided by (used in)
           operating activities                  (28,786)        143         527            --       (28,116)
                                                --------    --------    --------      --------      --------
Cash Flows from Investing Activities:
   Increase in bank overdraft                      2,189          --          --            --         2,189
   Purchase of acquired business, net of
     cash acquired                                    --          --        (359)           --          (359)
   Purchasing of property, and equipment          (3,768)       (307)        (52)           --        (4,127)
   Change in other assets, net                        74         (73)        175            --           176
                                                --------    --------    --------      --------      --------
         Net cash used in investing
           activities                             (1,505)       (380)       (236)           --        (2,121)
                                                --------    --------    --------      --------      --------
Cash Flows from Financing Activities:
   Proceeds from credit facility, net of
     financing costs                              87,626          --          --            --        87,626
   Payments on credit facility                   (58,244)         --          --            --       (58,244)
   Exercise of stock options                          10          --          --            --            10
   Payments on long-term debt                       (693)       (188)     (1,102)           --        (1,983)
                                                --------    --------    --------      --------      --------
         Net cash provided by (used in)
         financing activities                     28,699        (188)     (1,102)           --        27,409
                                                --------    --------    --------      --------      --------
Decrease in Cash and Cash Equivalents             (1,592)       (425)       (811)           --        (2,828)
                                                --------    --------    --------      --------      --------
Cash and Cash Equivalents, beginning
   of year                                         2,867         343         813            --         4,023
                                                --------    --------    --------      --------      --------
Cash and Cash Equivalents, end
   of year                                      $  1,275    $    (82)   $      2      $     --      $  1,195
                                                ========    ========    ========      ========      ========
</TABLE>

                                      F-29
<PAGE>
                                   SCHEDULE II

                 STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

                        Valuation and Qualifying Accounts
                      At December 31, 1997, 1998, and 1999


                                             1997          1998          1999
                                           --------      --------      --------
                                                      (in thousands)
Allowance for doubtful accounts:
   Balance at beginning of year            $    427      $  1,032      $  1,786
   Provision                                    710         1,614        13,194
   Write-offs                                  (105)         (860)       (4,105)
                                           --------      --------      --------
Balance at end of year                     $  1,032      $  1,786      $ 10,875
                                           ========      ========      ========


                                             1997          1998          1999
                                           --------      --------      --------
                                                      (in thousands)
Tax valuation:
   Balance at beginning of year            $     --      $     --      $     --
   Provision                                     --            --       (10,941)
                                           --------      --------      --------
Balance at end of year                     $     --      $     --      $(10,941)
                                           ========      ========      ========

                                      F-30