SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                 ---------------
   
                                   FORM 10-K/A
    
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1996       Commission file number 0-21703


                        STYLING TECHNOLOGY CORPORATION
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)


             Delaware                                        75-2665378
  -------------------------------                         ----------------
  (State or other jurisdiction of                         (I.R.S. employer
  incorporation or organization)                         identification no.)

   
           2390 East Camelback Road, Suite 435, Phoenix, Arizona 85016
           -----------------------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (602) 955-3353
               ---------------------------------------------------
               Registrant's telephone number, including area code:
    
           Securities registered pursuant to Section 12(b) of the Act:

                                      None
                               Title of each Class

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

                    Common Stock, par value $.0001 per share
                                (Title of class)

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

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

      As of March 27, 1997, the aggregate  market value of the voting stock held
by non-affiliates of the registrant,  computed by reference to the average sales
price  of  such  stock  as of such  date  on the  Nasdaq  National  Market,  was
$32,406,696.  A total of approximately  1,140,000 shares of Common Stock held by
four institutional investors have been included.  Shares of Common Stock held by
each officer and director  have been excluded in that such persons may be deemed
to be affiliates.  This  determination  of affiliate  status is not  necessarily
conclusive.

      As of March 27,  1997,  there were  3,948,703  shares of the  registrant's
Common Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of  the   registrant's   definitive   Proxy   Statement  for  the
registrant's  1997 Annual Meeting of Stockholders  are incorporated by reference
in Part III hereof.
<PAGE>
                               TABLE OF CONTENTS
   
PART I..................................................................... 3
      ITEM 1. BUSINESS..................................................... 3
      ITEM 2. PROPERTIES................................................... 3
      ITEM 3. LEGAL PROCEEDINGS............................................ 3
      ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 3

PART II.................................................................... 3
      ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
              STOCKHOLDER MATTERS.......................................... 3
      ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA......................... 3
      ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
              AND RESULTS OF OPERATIONS.................................... 3
      ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 3
      ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE.......................... 3

PART III................................................................... 3
      ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 3
      ITEM 11. EXECUTIVE COMPENSATION...................................... 3
      ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT.................................................. 3
      ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 3

PART IV.................................................................... 3
      ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
               8-K......................................................... 3

SIGNATURES................................................................. 5
    

FINANCIAL STATEMENTS.......................................................F-1

                                       2
<PAGE>
                                     PART I
   
ITEMS 1 THROUGH 13.

Incorporated  by reference  to the  Registrant's  Annual  Report on Form 10-K as
filed on April 10, 1997.
    
                                     PART IV

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

      (a)   Exhibits

Exhibit No.                   Description of Exhibit
------------                  ----------------------
1     Form of Underwriting Agreement(1)
3.1   Certificate of Incorporation of the Registrant(1)
3.2   Certificate of Amendment of Certificate of Incorporation(1)
3.3   Bylaws of the Registrant(1)
4.1   Specimen of Stock Certificate(1)
4.2   Specimen of Redeemable Common Stock Warrant(1)
10.1  Stock  Purchase  Agreement  by and among  Registrant  and Donald N. Black,
      Howard Black, Barbara Black,  Robert Black, Don Cottam, Jim Cottam and the
      Cottam Family  Partnership,  L.P.  (shareholders)  with  respect  to  Gena
      Laboratories, Inc.(1)
10.2  Stock Purchase Agreement by and among Registrant and Jack Sperling and 
      Gary Sperling (Shareholders) with respect to JDS Manufacturing Co.,Inc.(1)
10.3  Asset Purchase Agreement by and among Registrant, Designs by Norvell, Inc.
      and Joy  Norvell  Martin  (Stockholder)  with respect  to the Body  Drench
      division of Designs by Norvell, Inc.(1)
10.4  Asset Purchase Agreement by and among Registrant, Kotchammer  Investments,
      Inc. and the Hammer Family Living Trust, The Jones Family Trust and Gerald
      Kotch (Stockholders)(1)
10.5  Employment   Agreement  between  Registrant and  Sam  L.  Leopold(1)  10.6
      Employment  Agreement between  Registrant and Thomas M.  Clifford(1)  10.7
      Employment  Agreement between Registrant and David E. Ziegler(1) 10.8 Form
      of Employment Agreement between Registrant and Richard E. Norvell(1)
10.9  Form of Employment Agreement between Registrant and Gerald L. Kotch( 1)
10.10 Employment Agreement between  Registrant and Donald L. Black(1) 10.11 1996
      Stock Option Plan(1) 10.12 Stock Repurchase Agreement, as amended, between
      Registrant and Kenneth S. Bernstein(1)
10.13 Bridge Note(1)
   
10.15 Exclusive Manufacturing Agreement between the Registrant and Amole,
      Incorporated (2)
11    Statement regarding computation of per share earnings (2)
21    Subsidiaries of Registrant (2)
23    Consent of Arthur Andersen LLP
27    Financial Data Schedule (2)
    
----------
(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 Company's Form 10-K filed April 10, 1997.
    
                                       3
<PAGE>

       (b) Financial Statements filed as part of this report:

            Consolidated  Financial  Statements  and  Supplemental  Schedules as
            listed in the Index to Consolidated Financial Statements on page F-1
            of this report.

       (c) Reports on Form 8-K:

            None.

       (d)  Financial Statement Schedules

            None.



                                        4
<PAGE>
                                   SIGNATURES

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

                                   STYLING TECHNOLOGY CORPORATION

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

   
                                                                  March 19, 1998
    

Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the  following  persons on behalf of the  Registrant  and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
   
SIGNATURE                                    TITLE                             DATE
---------                                    -----                             ----
<S>                                <C>                                   <C> 
By /s/ Sam L. Leopold               Chairman of the Board of Directors,      March 19, 1998
   -------------------------        President and Chief Executive Officer
      Sam L. Leopold                (Principal Executive Officer)


By /s/ Richard R. Ross              Vice President, Chief Financial 
   -------------------------        Officer, Treasurer, and Secretary        March 19, 1998
       Richard R. Ross              (Principal Financial Officer)

 
By                                  Director                                 
   -------------------------
       James A. Brooks


By /s/ Peter W. Burg                Director                                 March 19, 1998
   -------------------------
       Peter W. Burg


By                                  Director                                 
   -------------------------
       Michael H. Feinstein


By /s/ Sylvan Schefler              Director                                 March 19, 1998
   -------------------------
      Sylvan Schefler
</TABLE>
    

                                       5
<PAGE>
                         INDEX TO FINANCIAL STATEMENTS

                                                                          PAGE
                                                                         ------
STYLING TECHNOLOGY CORPORATION
        Report of Independent Public Accountants ...................      F-3
        Consolidated Balance Sheets ................................      F-4
        Consolidated Statement of Operations .......................      F-5
        Consolidated Statement of Stockholders' Equity .............      F-6
        Consolidated Statement of Cash Flows .......................      F-7
        Notes to Financial Statements ..............................      F-8

GENA LABORATORIES, INC.
        Report of Independent Public Accountants ...................      F-20
        Balance Sheets .............................................      F-21
        Statements of Operations ...................................      F-22
        Statements of Stockholders' Equity .........................      F-23
        Statements of Cash Flows ...................................      F-24
        Notes to Financial Statements ..............................      F-25

BODY DRENCH (A DIVISION OF DESIGNS BY NORVELL, INC.)
        Report of Independent Public Accountants ...................      F-32
        Balance Sheets .............................................      F-33
        Statements of Operations ...................................      F-34
        Statements of Changes in Owners' Investment ................      F-35
        Statements of Cash Flows ...................................      F-36
        Notes to Financial Statements ..............................      F-37

JDS MANUFACTURING CO., INC.
        Report of Independent Public Accountants ...................      F-41
        Balance Sheets .............................................      F-42
        Statements of Operations ...................................      F-43
        Statements of Stockholders' Equity .........................      F-44
        Statements of Cash Flows ...................................      F-45
        Notes to Financial Statements ..............................      F-46

KOTCHAMMER INVESTMENTS, INC.
        Report of Independent Public Accountants ...................      F-50
        Balance Sheet ..............................................      F-51
        Statements of Operations ...................................      F-52
        Statements of Stockholders' Deficit ........................      F-53
        Statements of Cash Flows ...................................      F-54
        Notes to Financial Statements ..............................      F-55


                                       F-1
<PAGE>
                         STYLING TECHNOLOGY CORPORATION

                              FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1995 and 1996
                             TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS





                                      F-2
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors and Stockholders of
Styling Technology Corporation:


We  have  audited  the  accompanying  consolidated  balance  sheets  of  STYLING
TECHNOLOGY CORPORATION (a Delaware corporation) as of December 31, 1995 and 1996
and the related consolidated statements of operations,  stockholders' equity and
cash flows for the period ended December 31, 1996, as discussed in Note 1. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion, the financial statement referred to above present fairly, in all
material respects,  the financial position of Styling Technology  Corporation as
of December 31, 1995 and 1996 and the results of their operations and cash flows
for the period ended December 31, 1996, in conformity  with  generally  accepted
accounting principles.

   
                                              /s/ Arthur Andersen LLP
                                              ----------------------------------
                                                  Arthur Andersen LLP
    


Phoenix, Arizona,
   March 21, 1997.

                                      F-3
<PAGE>
                         STYLING TECHNOLOGY CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                                                     December 31,   December 31,
                                                        1995           1996
                                                      ----------   ------------
                                     ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                           $   200     $  4,491,302
   Accounts receivable, net of allowance for doubtful
     accounts of $427,426 at December 31, 1996            --          1,640,049
   Inventory                                              --          2,634,997
   Prepaid expenses and other current assets            66,202          292,177
                                                       -------     ------------
      Total current assets                              66,402        9,058,525
                                                       -------     ------------
PROPERTY AND EQUIPMENT, net of accumulated
 depreciation of $11,011 at December 31, 1996               --        1,125,139

GOODWILL AND OTHER                                          --       22,050,720
                                                       -------     ------------
      Total assets                                     $66,402     $ 32,234,384
                                                       =======     ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                                     $     --      $ 2,999,909
 Accrued liabilities                                    66,202        1,518,363
 Current portion of long-term debt                          --           82,994
                                                       -------     ------------
      Total current liabilities                         66,202        4,601,266
                                                       -------     ------------
LONG-TERM DEBT, less current portion                        --        2,316,004
                                                       -------     ------------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
 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, 1,615,702 shares issued 
  and outstanding at December 31, 1995; 4,756,554
  shares issued and 3,948,703 shares outstanding 
  at December 31, 1996                                     162              476
 Additional paid-in capital                                 38       27,455,571
 Retained deficit                                           --         (338,933)
 Treasury stock                                             --       (1,800,000)
                                                       -------     ------------
      Total stockholders' equity                           200       25,317,114
                                                       -------     ------------

      Total liabilities and stockholders' equity       $66,402     $ 32,234,384
                                                       =======     ============

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

                                      F-4
<PAGE>
                         STYLING TECHNOLOGY CORPORATION

                      CONSOLIDATED STATEMENT OF OPERATIONS


                                                         For the Period
                                                          November 27,
                                                              1996
                                                         (commencement
                                                         of operations)
                                                               to
                                                          December 31,
                                                              1996
                                                         --------------

NET SALES                                                 $ 1,083,373

COST OF SALES                                                 571,231
                                                          -----------

      Gross profit                                            512,142

  SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                736,567
                                                          -----------

      Loss from operations                                   (224,425)

OTHER INCOME                                                   22,619

INTEREST EXPENSE                                              (21,409)
                                                          -----------

Loss before benefit from income taxes                        (223,215)

BENEFIT FROM INCOME TAXES                                     (72,250)
                                                          -----------

Net loss                                                  $  (150,965)
                                                          ===========


WEIGHTED AVERAGE SHARES OUTSTANDING                         3,769,854
                                                          ===========

NET LOSS PER SHARE                                        $      (.04)
                                                          ===========

               The accompanying notes are an integral part of this
                        consolidated financial statement.

                                       F-5
<PAGE>
                         STYLING TECHNOLOGY CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                           Common Stock
                                        -----------------  Additional                                 Total
                                         Shares   Common    Paid-in                    Retained    Stockholders'
                                         Issued   Stock     Capital    Treasury Stock   Deficit       Equity
                                       ---------- ------  -----------  --------------  ---------   -------------
<S>                                       <C>        <C>     <C>          <C>             <C>         <C>
BALANCE, June 30, 1995 (inception)     $       --   $ --    $       --    $       --   $      --

 Issuance of common stock               1,615,702    162            38            --          --             200
                                       ----------   ----   -----------  -----------    ---------    ------------

BALANCE, December 31, 1995              1,615,702    162            38            --          --             200

 Issuance of common stock and warrants
  in Bridge financing                      20,000      1       179,310           --     (187,968)         (8,657)

 Issuance of common stock and warrants
  in initial public offering, net of 
  offering costs of $1,350,822           3,115,852   312    27,226,224           --           --      27,226,536

 Issuance of common stock in KII 
  acquisition                                5,000     1        49,999           --           --          50,000

 Purchase of 807,851 shares of 
  treasury stock                                --    --            --    (1,800,000)         --      (1,800,000)

 Net loss for the period from 
  November 27, 1996 (commencement of
  operations) to December 31, 1996              --    --            --                  (150,965)       (150,965)
                                        ----------  ----   -----------   -----------   ---------    ------------

BALANCE, December 31, 1996               4,756,554  $476   $27,455,571   $(1,800,000)  $(338,933)   $ 25,317,114
                                        ==========  ====   ===========   ===========   =========    ============
</TABLE>

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

                                       F-6
<PAGE>
                         STYLING TECHNOLOGY CORPORATION

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                                                For the Period
                                                                 November 27,
                                                                     1996
                                                                 (commencement
                                                                 of operations)
                                                                      to
                                                                 December 31,
                                                                     1996
                                                                --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                       $   (150,965)
Adjustments to reconcile net loss to net cash used in
 operating activities-
   Depreciation and amortization                                     96,712
   Changes in assets and liabilities-
     Decrease in accounts receivable, net                           531,552
     Increase in inventory                                          (21,341)
     Increase in prepaid expenses and other assets                  (33,785)
     Decrease in accounts payable and accrued liabilities          (788,124)
                                                               ------------

         Net cash used in operating activities                     (365,951)
                                                               ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchase of Acquired Businesses, net of cash acquired          (20,522,915)
 Purchases of property and equipment                                (46,056)
                                                               ------------

         Net cash used in investing activities                  (20,568,971)
                                                                ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from issuance of common stock, net of offering and
  acquisition costs                                              27,226,224
 Purchase of treasury stock                                      (1,800,000)
                                                               ------------

      Net cash provided by financing activities                  25,426,224
                                                               ------------

INCREASE IN CASH AND CASH EQUIVALENTS                             4,491,302

CASH AND CASH EQUIVALENTS, beginning of period                            -
                                                               ------------
CASH AND CASH EQUIVALENTS, end of period                       $  4,491,302
                                                               ============

               The accompanying notes are an integral part of this
                        consolidated financial statement.

                                      F-7
<PAGE>
                         STYLING TECHNOLOGY CORPORATION

                          NOTES TO FINANCIAL STATEMENTS


(1)   FORMATION OF THE COMPANY:

         ACQUISITIONS AND INITIAL PUBLIC OFFERING

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.  During
November 1996, the Company  completed an initial public  offering  (Offering) of
3,115,852  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  (collectively,  the
Acquired Businesses).

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).  The  cost  of the  Acquired  Businesses,
including direct acquisition costs, was approximately $22,900,000.  The combined
purchase  price was funded with  approximately  $20,800,000 in cash from the net
proceeds of the  Offering,  and  approximately  $2,100,000  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
$5,200,000 was allocated to current assets, approximately $1,100,000 to property
and   equipment,   approximately   $5,000,000   to  current   liabilities,   and
approximately  $300,000 to  long-term  debt.  Approximately  $21,900,000  of the
purchase  price  represents  costs in excess of fair  values  acquired,  and was
recorded as goodwill.  The amounts of assets  acquired and  liabilities  assumed
were based on the  preliminary  fair values as of the date of the  acquisitions,
and may be revised at a later date.

Immediately  following  the  purchase of the  Acquired  Businesses,  the Company
commenced operations on November 27, 1996. After the purchase, the Company began
consolidating its operations,  negotiated a new  manufacturing  agreement with a
major  supplier,  met with major  customers to discuss its new marketing  plans,
strengthened its distribution  network,  and established its  infrastructure and
organization  for the  future  growth  of  existing  operations  and for  future
acquisitions.

                                      F-8
<PAGE>

         PRO FORMA RESULTS OF OPERATIONS

The  following  unaudited  pro forma  summary  includes the combined  results of
operations of the Company and the Acquired Businesses as if the acquisitions had
occurred  at the  beginning  of 1996 after  giving  effect to certain  pro forma
adjustments  permitted by the disclosure  requirements of Accounting  Principles
Board Opinion No. 16, Business Combinations.  These adjustments include only the
effect of  amortization  of  goodwill,  interest  expense  that  would have been
incurred to finance a portion of the purchase of the Acquired Businesses and the
estimated  related  income  tax  effects.  The pro forma  financial  data is for
informational purposes only, and is not necessarily indicative of the results of
operations as they would have been had the transactions been effected on January
1, 1996, and is also not necessarily indicative of future operating results.

                                                        Year Ended
                                                       December 31,
                                                           1996
                                                       ------------
                                                        (unaudited)

     Net sales                                        $ 22,982,000
     Loss from operations                                 (214,000)
     Net loss                                             (291,000)
     Loss per share                                           (.08)

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         PRINCIPLES OF CONSOLIDATION

The  accompanying  consolidated  financial  statements  include the  accounts of
Styling  Technology   Corporation  (which  includes  the  Body  Drench  and  KII
divisions)  and the Gena and JDS  subsidiaries.  The  Company  is engaged in the
business of developing,  producing and marketing of high-end  professional salon
products. The Company's consolidated statements of operations and cash flows for
the period November 27, 1996 to December 31, 1996, include the operations of the
Styling  Technology  Corporation  and the Acquired  Businesses  from the date of
acquisition   and   commencement  of  operations.   All  material   intercompany
transactions have been eliminated in consolidation.

         CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with original maturities of three months
or less are considered to be cash equivalents.

                                      F-9
<PAGE>

         CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit risk  consist of cash and cash  equivalents  and trade  receivables.  The
Company places its cash and cash equivalents in high quality  institutions.  The
Company  establishes  an  allowance  for  doubtful  accounts  based upon factors
surrounding the credit risk of specific  customers,  historical trends and other
information.

A  component  of  the  Company's  strategy  includes  providing  production  and
distribution services to a major U.S. beauty distribution company. Sales to this
customer as a percentage of total sales approximated 25% for the period November
27,  1996 to December  31,  1996.  During  1996,  this  customer  accounted  for
approximately  16% of the  combined  net sales of the Company  and the  Acquired
Businesses.  The  significant  amount of sales to a single  customer  results in
certain  concentrations  of credit risk for the  Company.  The  Company's  total
accounts receivable balance,  including the accounts receivable of the Company's
largest  customers,  is  comprised  of a  large  number  of  customers,  located
primarily in the United States and the United Kingdom.


         INVENTORY

Inventory is valued at the lower of cost (first-in, first-out) or net realizable
value.  Reserves are established  against inventory for excess,  slow-moving and
obsolete items and for items where the net realizable value is less than cost.

Inventory consist of the following:

                                                     December 31,
                                                         1996
                                                     ------------
Raw materials and work-in-process                     $1,324,508
Finished goods                                         1,310,489
                                                      ----------
                                                      $2,634,997
                                                      ==========

         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.

                                      F-10
<PAGE>

         GOODWILL

Goodwill is the cost in excess of fair value of net tangible  assets of acquired
businesses and is amortized  using the  straight-line  method over 25 years.  At
December  31,  1996,  goodwill  amounted  to  $21,831,211,  net  of  accumulated
amortization of $85,701.  The Company  continually  evaluates whether events and
circumstances  have  occurred  subsequent to its  acquisition  that indicate the
remaining  estimated  useful life of goodwill  may warrant  revision or that the
remaining  balance of goodwill may not be  recoverable.  In accordance with SFAS
No. 121,  Accounting  for the  Impairment  of Long-Lived  Assets and  Long-Lived
Assets  to Be  Disposed  Of,  when  factors  indicate  that  goodwill  should be
evaluated  for  possible  impairment,  the  Company  uses  an  estimate  of  the
undiscounted  future  cash  flows over the  remaining  life of the  goodwill  in
measuring whether the goodwill is recoverable.

         USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,  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.  Final settlement
amounts could differ from those estimates.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial instruments is
made in accordance with the  requirements  of Statement of Financial  Accounting
Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments.
The  Company's  financial  instruments  as defined by SFAS No. 107 include cash,
accounts  receivable,  accounts  payable and long-term  debt. The estimated fair
value amounts have been  determined  by the Company at December 31, 1996,  using
available  market  information  and  valuation  methodologies  described  below.
Considerable  judgment is required  in  interpreting  market data to develop the
estimates of fair value. Accordingly, the estimates may not be indicative of the
amounts  that  could  be  realized  in a  current  market  exchange.  The use of
different market  assumptions or valuation  methodologies  could have a material
effect on the estimated fair value amounts. 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 long-term debt is estimated to approximate fair value
as the actual interest rates are consistent with rates estimated to be currently
available for debt with similar terms and remaining maturities.

         REVENUE RECOGNITION

The Company recognizes revenue from sales at the time product is shipped.

         OTHER INCOME

Other  income  consists   primarily  of  interest  earned  from  cash  and  cash
equivalents.

                                      F-11
<PAGE>

         EARNINGS (LOSS) PER COMMON SHARE

Earnings  (loss) per share is computed by dividing  net  earnings  (loss) by the
weighted  average number of common shares and common share  equivalents  assumed
outstanding  during the year.  For the period  November  27,1996 to December 31,
1996, no common share equivalents were considered in the calculation of loss per
share as their effect was antidilutive.

         ACCOUNTING PRONOUNCEMENTS NOT YET REQUIRED TO BE ADOPTED

In March 1997 the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
128,  Earnings Per Share which  modified the methods used to determine  earnings
per share. The new statement is effective for fiscal years ending after December
15, 1997, and may require  restatement of prior years'  earnings per share.  The
Company does not believe the adoption of the new statement  will have a material
impact on its per share results of operations.

(3)   PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

                                                        December 31,
                                                            1996
                                                        ------------
Land                                                    $   150,000
Building and leasehold improvements                         567,806
Machinery and equipment                                     273,577
Furniture and fixtures                                       64,533
Computers, vehicles and other                                80,234
                                                        -----------
                                                          1,136,150
Less- Accumulated depreciation                              (11,011)
                                                        -----------
                                                        $ 1,125,139
                                                        ===========
(4) LONG-TERM DEBT:

Long-term debt consists of the following at December 31, 1996:

  Note payable related to the acquisition of Gena.  Imputed
  interest at 10%, secured by 200,000 shares of contingently
  issuable common stock, maturing November 26, 1998              $ 1,667,353

  Unsecured notes payable related to the acquisition of JDS,
  bearing interest from 8% to 10%, due quarterly, maturing
  November 26, 1998                                                  283,313

  Note payable  related to the acquisition of KII, bearing  
  interest at 10%, maturing May 26, 1999, secured by
  certain assets of the Company                                      139,140

  Note payable, bearing interest at 7%, maturing in 2003,
  secured by certain property                                        309,192
                                                                 -----------
                                                                   2,398,998 
     Less: current portion                                           (82,994)
                                                                 ----------- 
                                                                 $ 2,316,004 
                                                                 =========== 
                                      F-12
<PAGE>

Aggregate  future  maturities  of long-term  debt are as follows at December 31,
1996:

  Maturity
  --------
    1997                                  $    82,994
    1998                                    2,044,667
    1999                                       69,541
    2000                                       45,976
    2001                                       50,414
    Thereafter                                105,406
                                          -----------
                                          $ 2,398,998
                                          ===========

During 1996, the Company  obtained  bridge loan financing  (Bridge Note) to fund
approximately  $400,000 of deferred  issuance and acquisition  costs. The Bridge
Note bore interest at an annual rate of 10% and was repaid upon the consummation
of the Offering.  In connection  with the Bridge Note, the Company issued 20,000
shares of common stock to the holders upon the consummation of the Offering. The
Company  also issued two year  warrants to purchase an equal amount of shares at
an  exercise  price of  $12.50.  The  Bridge  Note was  recorded  based upon the
proportionate fair value of consideration  received,  with the related financing
cost  recorded  as a charge to  accumulated  deficit in the period  prior to the
commencement of operations.

                                      F-13
<PAGE>

(5)   STOCKHOLDERS' EQUITY:

In connection with the organization and initial capitalization of the Company in
June 1995,  the Company  issued  1,615,702  shares of common stock for $200.  In
addition, in June 1995 the Company issued 161,571 options with an exercise price
of $.10 per share to an officer of the Company, which approximated fair value at
the time of issuance.  The options  become  exercisable  on June 29,  1999,  but
vesting may accelerate based on the Company meeting certain minimum earnings per
share requirements in future periods, and Board of Directors' approval.

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 split, including the option terms as discussed herein.

In October 1996, the Company  entered into a Stock  Repurchase  Agreement with a
founder,  pursuant  to which  the  founder  agreed  to sell  807,851  shares  of
Company's   common  stock  to  the  Company  for  $1.8  million,   payable  upon
consummation of the Offering.  Accordingly,  upon  consummation of the Offering,
the founder was no longer a stockholder of the Company.

In November 1996, the Company  completed the Offering of 3,115,852 shares of its
common  stock  with an issue  price of $10.00  per share.  During  December  the
Company's  underwriters  exercised an over  allotment  option,  resulting in the
issuance of an  additional  215,852  shares.  Net proceeds from the Offering and
over allotment option amounted to $27,226,224.  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.

During 1996,  the Company  adopted the 1996 Stock Option Plan (the Plan),  which
provides for the grant of incentive  and  nonqualified  stock options to acquire
common  stock of the  Company  to key  personnel,  directors,  consultants,  and
independent contractors. During 1996, the Company issued 87,707 shares of common
stock under the Plan, at an exercise price equal to the Offering price.

                                      F-14
<PAGE>

The following pro forma disclosures of net loss are made assuming the Company
had accounted for the stock options pursuant to the provision of Statement of
Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for
Stock-Based Compensation.

                                               For the Period
                                              November 27, 1996
                                              (commencement of
                                               operations) to
                                              December 31, 1996
                                               --------------
As Reported                                         $(.04)
                                                    =====

Pro Forma                                           $(.06)
                                                    =====

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 1996;  risk-free  interest  rates of 5.85% and
expected lives of 3.8 years; and a volatility  factor of 60%. The dividend yield
assumed is zero.

A summary of the status of the Company's  stock options at December 31, 1995 and
1996, changes during the years ended is presented in the following table:

                                               1995               1996
                                       -----------------   -----------------
                                                Weighted            Weighted
                                                 Average             Average
                                                Exercise            Exercise
                                       Options    Price    Options    Price
                                       -------  --------   -------  --------
Outstanding at beginning of period
 (June 30, 1995 and
 January 1, 1996)                           --    $ --     161,571   $  .10
   Granted                             161,571     .10      87,707    10.00
   Exercised                                --      --          --       --
   Canceled                                 --      --          --       --
                                       -------             -------

Outstanding at end of year             161,571             249,278
                                       =======             =======

Exercisable at end of year                --               18,177
                                       =======             =======
Weighted average fair value
 per share of options granted          $  1.77                       $ 5.65
                                       =======                       ======

(6)   INCOME TAXES:

SFAS No. 109,  Accounting  for Income  Taxes,  requires  the use of an asset and
liability  approach in  accounting  for income  taxes.  Deferred  tax assets and
liabilities  are  recorded  based  on  the  differences  between  the  financial
statement  and tax bases of assets and  liabilities  and the tax rates in effect
when these differences are expected to reverse.

                                      F-15
<PAGE>

The provision for income taxes for the year ended December 31, 1996, consists of
the following:

Current benefit                                               $     --
Deferred benefit                                               (72,250)
                                                              --------
        Net deferred benefit for income taxes                 $(72,250)
                                                              ========
Deferred tax asset
  Current:
    Tax effect of net operating loss carry forward              86,094
    Reserves and other accruals                                 84,331
    Other                                                       38,156
  Non Current:
    Reserves and accruals                                      251,199
                                                              --------
Total deferred tax assets                                      459,780
                                                              --------
Deferred tax liabilities
    Accelerated tax depreciation                                16,835
                                                              --------
Total deferred tax liabilities                                  16,835
                                                              --------
Net deferred tax asset                                         442,945
Valuation Allowance                                           (251,199)
                                                              --------
Adjusted net deferred tax asset                                191,746
                                                              ========

                                      F-16
<PAGE>

A reconciliation of the U.S. federal  statutory rate to the Company's  effective
tax rate is as follows:

Statutory federal rate                                      (34)%
Effect of state taxes                                        (6)
Nondeductible amortization of goodwill                        8
Other                                                        (1)
                                                            ---
                                                             33%
                                                            ===

Net operating loss  carryforwards  for federal tax purposes  totaled  $86,094 at
December 31, 1996, which expire in the year 2011.

(7)   RELATED PARTY INFORMATION

During 1996, certain founders advanced  approximately $112,500 to the Company to
fund various Offering and acquisition  costs, all of which was repaid during the
year.

A member of the Company's  Board of Directors is an officer and  shareholder  of
one of the underwriting firms that managed the Offering.

(8)   COMMITMENTS AND CONTINGENCIES:

      The Company is, and may in the future be, party to  litigation  arising in
the ordinary  course of its business.  The Company does not consider any current
claims  to be  material  to its  business,  financial  condition,  or  operating
results.

In connection  with the acquisition  note payable to the former  shareholders of
Gena,  the Company is  required  to maintain a $500,000  letter of credit with a
bank. As of December 31, 1996, the Company  maintains a 90-day interest  bearing
certificate  of  deposit  at the bank as a  condition  to this  letter of credit
arrangement. The certificate of deposit is included in cash and cash equivalents
in the  accompanying  consolidated  balance sheet.  This note is also secured by
200,000 shares of common stock,  which would become  issuable to the noteholders
in the event of default.

The  Company  leases  certain  equipment  and office and  warehouse  space under
noncancelable  operating leases.  Rent expense related to these lease agreements
totaled  approximately $12,000 for the period November 27, 1996 (commencement of
operations) to December 31, 1996.

                                      F-17
<PAGE>
Future lease payments under noncancelable operating leases are as follows:

              Years Ending
              December 31,
              ------------
                  1997                                      $  63,900
                  1998                                         57,300
                  1999                                         41,100
                  2000                                         41,100
                  2001                                         41,100
                  Thereafter                                  205,500
                                                            ---------
                                                            $ 450,000
                                                            =========
(9)   SUBSEQUENT EVENT:

During March 1996,  the Company  entered into an agreement to acquire the assets
of the Utopia line of high-end tanning  products from Creative  Laboratories for
approximately $350,000.

                                      F-18
<PAGE>
                             GENA LABORATORIES, INC.

                              FINANCIAL STATEMENTS
                  AS OF FEBRUARY 28, 1995 AND FEBRUARY 29, 1996
                             TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS





                                      F-19
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
Styling Technology Corporation:


We have audited the accompanying balance sheets of GENA LABORATORIES, INC. as of
February  28,  1995  and  February  29,  1996,  and the  related  statements  of
operations,  stockholders' equity, and cash flows for each of the three years in
the period ended February 29, 1996, and for the period March 1, 1996 to November
26, 1996.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Gena Laboratories,  Inc. as of
February 28, 1995 and February 29, 1996,  and the results of its  operations and
its cash flows for each of the three years in the period ended February 29, 1996
and for the period  March 1, 1996 to  November  26,  1996,  in  conformity  with
generally accepted accounting principles.

   
                                              /s/ Arthur Andersen LLP
                                              ----------------------------------
                                                  Arthur Andersen LLP
    
Phoenix, Arizona,
   March 21, 1997.



                                      F-20
<PAGE>
                             GENA LABORATORIES, INC.

                                 BALANCE SHEETS

                                                       February 28, February 29,
                                                          1995         1996
                                                       -----------  -----------
                                     ASSETS

CURRENT ASSETS:
 Cash and cash equivalents                             $  390,325   $  250,644
 Investments                                               14,999       46,500
 Accounts receivable, net of allowance for doubtful
  accounts of $120,347 and $136,093, respectively         863,208      965,615
 Inventory                                                965,335    1,213,688
 Deferred tax asset                                        99,055      131,790
                                                       ----------   ----------
      Total current assets                              2,332,922    2,608,237
                                                       ----------   ----------
PROPERTY AND EQUIPMENT, net of
  accumulated depreciation of $392,026
  and $471,771, respectively                              884,638      830,093
DEFERRED TAX ASSET, net of current portion                     --       19,870
OTHER ASSETS                                              346,866      256,770
                                                       ----------   ----------
                                                       $3,564,426   $3,714,970
                                                       ==========   ==========
                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
 Accounts payable                                      $  391,381   $  382,926
 Accrued expenses                                         302,808      259,903
 Current portion of note payable to
  related parties                                          32,571       34,929
 Current portion of long-term debt                         96,056       95,248
                                                       ----------   ----------
      Total current liabilities                           822,816      773,006
                                                       ----------   ----------
NOTE PAYABLE TO RELATED PARTIES, less current portion     342,464      307,358
                                                       ----------   ----------
LONG-TERM DEBT, net of current portion                    124,186       11,518
                                                       ----------   ----------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
   Common stock, $5 par value, 2,000 shares
    authorized, issued and outstanding                     10,000       10,000
   Additional paid-in capital                              88,303       88,303
   Unrealized holding loss on investment                  (35,303)      (3,802)
   Retained earnings                                    2,211,960    2,528,587
                                                       ----------   ----------
                  Total stockholders' equity            2,274,960    2,623,088
                                                       ----------   ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY             $3,564,426   $3,714,970
                                                       ==========   ==========

         The accompanying notes to financial statements are an integral
                          part of these balance sheets.

                                      F-21
<PAGE>
                             GENA LABORATORIES, INC.

                            STATEMENTS OF OPERATIONS

                                                                  For the Period
                                    For the Years Ended            March 1, 1996
                           --------------------------------------       to
                           February 28, February 28, February 29,   November 26,
                              1994         1995          1996          1996
                           -----------  -----------  -----------    -----------
NET SALES                  $ 6,426,416  $ 7,523,751  $ 8,384,092    $ 6,707,727
COST OF SALES                3,280,046    4,163,395    4,818,786      3,900,347
                           -----------  -----------  -----------    -----------
GROSS PROFIT                 3,146,370    3,360,356    3,565,306      2,807,380
SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES   2,744,363    2,963,926    3,033,409      1,983,650
                           -----------  -----------  -----------    -----------
INCOME FROM OPERATIONS         402,007      396,430      531,897        823,730
OTHER INCOME AND
   (EXPENSE), net               35,092      (35,282)     (30,480)         2,225
                           -----------  -----------  -----------    -----------
INCOME BEFORE PROVISION
   FOR INCOME TAXES            437,099      361,148      501,417        825,955
PROVISION FOR INCOME
   TAXES                       158,613      129,606      184,790        297,344
                           -----------  -----------  -----------    -----------
NET INCOME                 $   278,486  $   231,542  $   316,627    $   528,611
                           ===========  ===========  ===========    ===========


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

                                      F-22
<PAGE>
                             GENA LABORATORIES, INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                           Common Stock   Additional                 Total
                                         ---------------   Paid-in    Retained    Stockholders'
                                         Shares   Amount   Capital    Earnings      Equity
                                         ------ --------  ---------   ---------   -----------
<S>                                    <C>     <C>       <C>        <C>         <C>       
BALANCE AT FEBRUARY 28, 1993             2,000   $10,000   $88,303    1,687,828   $1,786,131
 Net income                               --          --        --      278,486      278,486
 Net change in unrealized holding loss    --          --        --        1,006        1,006
                                         -----   -------  --------   ----------   ----------
BALANCE AT FEBRUARY 28, 1994             2,000    10,000    88,303    1,967,320    2,065,623
 Net income                               --          --        --      231,542      231,542
 Net change in unrealized holding loss    --          --        --      (22,205)     (22,205)
                                         -----   -------  --------   ----------   ----------
BALANCE AT FEBRUARY 28, 1995              2000    10,000    88,303    2,176,657    2,274,960
 Net income                               --          --        --      316,627      316,627
 Net change in unrealized holding loss    --          --        --       31,501       31,501
                                         -----   -------  --------   ----------   ----------
BALANCE AT FEBRUARY 29, 1996             2,000    10,000    88,303    2,524,785    2,623,088
 Net income for the period March 1, 1996
  to November 26, 1996                      --       --        --      528,611       528,611
 Distributions to stockholders              --       --        --     (513,000)     (513,000)
                                         -----  -------   -------   ----------   -----------
BALANCE AT NOVEMBER 26, 1996             2,000  $10,000   $88,303   $2,540,396    $2,638,699
                                         =====  =======   =======   ==========   ===========
</TABLE>

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

                                      F-23
<PAGE>

                             GENA LABORATORIES, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   For the Period
                                                                      For the Years Ended           March 1, 1996
                                                           ----------------------------------------      to
                                                           ebruary 28,   February 28,   February 29, November 26,
                                                             1994           1995            1996        1996
                                                           ---------     -----------    -----------  -----------
<S>                                                          <C>            <C>            <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income                                                $ 278,486      $ 231,542      $ 316,627    $ 528,611
 Adjustments to reconcile net income to net
  cash used in operating activities-
   Depreciation and amortization                             114,021        155,185        168,685       37,939
   Loss on sale of securities on fixed assets                     --         32,513             --           --
   Decrease (increase) in accounts receivable                 38,647       (157,714)      (102,407)      90,671
   Decrease (increase) in inventory                          (14,638)      (118,638)      (248,353)     (24,975)
   Decrease (increase) in other assets                        80,863        (30,814)       (51,449)    (228,444)
   (Decrease) increase in accounts payable and
     accrued liabilities                                    (122,813)       210,426        (51,360)      14,157
                                                           ---------      ---------      ---------    ---------
      Net cash provided by (used in) operating activities    374,566        322,500         31,743      417,959
                                                           ---------      ---------      ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                       (331,996)       (23,648)       (25,200)     (11,886)
 Cost incurred to acquire new businesses                    (180,213)      (140,000)            --           --
 Proceeds from sale of investments                                --             --             --       46,500
                                                           ---------      ---------      ---------    ---------
      Net cash provided by (used in) investing activities   (512,209)      (163,648)       (25,200)      34,614
                                                           ---------      ---------      ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from (payments of) long-term debt, net             178,585       (136,668)      (146,224)    (137,098)
 Distributions to stockholders                                    --             --             --     (513,000)
                                                           ---------      ---------      ---------    ---------
      Net cash provided by (used in) financing activities    178,585       (136,668)      (146,224)    (650,098)
                                                           ---------      ---------      ---------    ---------
NET INCREASE (DECREASE) IN CASH                               40,942         22,184       (139,681)    (197,525)
CASH AND CASH EQUIVALENTS, beginning of period               327,199        368,141        390,325      250,644
                                                           ---------      ---------      ---------    ---------
CASH AND CASH EQUIVALENTS, end of period                   $ 368,141      $ 390,325      $ 250,644    $  53,119
                                                           =========      =========      =========    =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Interest paid                                             $   8,325      $  54,401      $  43,259    $  23,871
                                                           =========      =========      =========    =========
 Income taxes paid                                         $ 137,580      $ 127,609      $ 232,417    $ 195,860
                                                           =========      =========      =========    =========
FIXED ASSETS AND NEW BUSINESSES ACQUIRED
   THROUGH FINANCING TRANSACTIONS                          $ 528,449      $  24,911      $      --    $      --
                                                           =========      =========      =========    =========
</TABLE>

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

                                      F-24
<PAGE>
                             GENA LABORATORIES, INC.

                          NOTES TO FINANCIAL STATEMENTS

(1) ORGANIZATION AND BASIS OF PRESENTATION:

        ACQUISITION AND BASIS OF PRESENTATION

Effective  November 26,  1996,  shareholders  of Gena  Laboratories,  Inc.  (the
Company) sold all of its outstanding stock to Styling Technology Corporation for
consideration of approximately  $9,700,000.  These financial  statements present
the  historical  financial  position and results of  operations  of the acquired
business  for periods  prescribed  by  applicable  rules of the  Securities  and
Exchange Commission.

        ORGANIZATION AND NATURE OF OPERATIONS

The Company was  incorporated in 1930 to manufacture nail care and personal care
products.  In 1979,  the current  owners  purchased  the Company and focused the
operation  on  professional  salon care with an emphasis on nail  products.  The
Company is now a recognized quality manufacturer and distributor of professional
beauty products  worldwide,  and offers an extensive line of nail, skin and hair
care  products as well as  pedicure  and other  specialty  beauty  products  and
accessories.  Principally,  its products are sold through wholesale distributors
of professional  beauty products,  hair and nail salons and professional  beauty
supply outlets worldwide.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with original maturities of three months
or less are considered to be cash equivalents.

        INVESTMENTS

The Company considers all its investments as available for sale and accordingly,
recognizes  any unrealized  holding gains and losses as a separate  component of
stockholders'  equity,  in accordance with SFAS No. 115,  Accounting for Certain
Investments in Debt and Equity Securities.

        INVENTORY

Inventory is valued at the lower of cost (first-in, first-out) or net realizable
value.  Reserves are established  against inventory for excess,  slow-moving and
obsolete items and for items where the net realizable value is less than cost.

                                      F-25
<PAGE>

Inventories consist of the following:


                                            February 28,     February 29,
                                               1995              1996
                                            ----------        ----------
Raw materials and work-in-process           $  675,735        $  849,582
Finished goods                                 289,600           364,106
                                            ----------        ----------
                                            $  965,335        $1,213,688
                                            ==========        ==========

        PROPERTY AND EQUIPMENT

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

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.  For the years  ended
February 28, 1994 and 1995,  February 29, 1996, and for the period March 1, 1996
to  November  26,  1996,  maintenance  and  repair  expenses  charged to cost of
operations   were   approximately   $26,000,   $47,000,   $23,000  and  $32,245,
respectively.

        CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit  risk  consist  principally  of  temporary  cash  investments  and  trade
receivables.  The Company places its temporary  cash  investments in high credit
quality  institutions.  Concentrations  of  credit  risk with  respect  to trade
receivables  are described in Note 6. The Company  establishes  an allowance for
doubtful  accounts  based upon factors  surrounding  the credit risk of specific
customers, historical trends and other information.

        FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents,  receivables, accounts payable
and accrued expenses approximate fair values due to the short-term maturities of
these  instruments.  The carrying  amount on the long-term  debt is estimated to
approximate  fair value as the actual  interest rates are consistent  with rates
estimated to be currently  available  for debt with similar  terms and remaining
maturities.

        REVENUE RECOGNITION

The Company recognizes revenue from sales at the time product is shipped.

                                      F-26
<PAGE>

        USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,  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.  Final settlement
amounts could differ from those estimates.

(3) OTHER ASSETS:

Other  assets  consist  primarily of goodwill,  which  represents  the excess of
consideration  paid over the fair  market  values  of  identifiable  net  assets
acquired.  The  goodwill is being  amortized  on a  straight-line  basis over 25
years.  The Company has also recorded  other  intangible  assets,  which include
noncompete,  consulting and trademark  agreements,  related to  acquisitions  of
various beauty  companies.  Such assets are being  amortized on a  straight-line
basis,  over  a  period  of 3 to 25  years.  Accumulated  amortization  on  such
intangibles  was  $349,423 and $433,070 as of February 28, 1995 and February 29,
1996.

(4) PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

                                                 February 28,       February 29,
                                                    1995               1996
                                                 -----------        -----------
Land                                             $   150,000        $   150,000
Factory equipment                                    407,427            431,832
Computers                                             43,030             43,825
Furniture, fixtures and autos                        108,875            108,875
Building and leasehold improvements                  567,332            567,332
                                                 -----------        -----------
                                                   1,276,664          1,301,864
Less- Accumulated depreciation                      (392,026)          (471,771)
                                                 -----------        -----------
                                                 $   884,638        $   830,093
                                                 ===========        ===========
(5) LONG-TERM DEBT:

Long-term debt consists of the following:

                                                     February 28,   February 29,
                                                         1995           1996
                                                      ---------      ---------

Unsecured note payable, bearing interest at prime
(8.25% at February 29, 1996), unpaid balance due by
November 1996                                         $ 123,529      $  52,942

Various notes payable, bearing interest from 7.5%
to 8.0%, maturing through 1998                           96,713         53,824
                                                      ---------      ---------
                                                        220,242        106,766
Less: Current maturities                                (96,056)       (95,248)
                                                      ---------      ---------
                                                      $ 124,186      $  11,518
                                                      =========      =========

                                      F-27
<PAGE>

In 1993, the Company entered into a $250,000 unsecured revolving line of credit,
which bears interest at prime and matures July 1997. As of February 28, 1995 and
February 29, 1996, the Company had not drawn on this facility.

Aggregate principal payments on long-term debt are as follows:

Year Ending
February 28,
------------

   1997                                                $ 95,248
   1998                                                  11,518
                                                       --------
                                                       $106,766
                                                       ========
(6) MAJOR CUSTOMERS:

The Company's strategy includes providing  production and distribution  services
to a major  U.S.  beauty  distribution  company.  Sales  to this  customer  as a
percentage  of total  sales  approximated  31%,  28% and 28% for the years ended
February 28, 1994,  1995 and  February 29, 1996,  respectively,  and 34% for the
period March 1, 1996 to November 26, 1996.

(7) INCOME TAXES:

The Company  accounts for income taxes using  Statement of Financial  Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires the
use of an asset and liability approach in accounting for income taxes.  Deferred
tax assets and  liabilities  are recorded based on the  differences  between the
financial statement and tax bases of assets and liabilities and the tax rates in
effect when these differences are expected to reverse.  These differences result
principally  from the  recognition of revenues and expenses using the cash basis
of accounting and the use of different depreciation and amortization methods for
income tax reporting.

The components of the income tax provision consist of the following:

                                                                  For the Period
                                                                   March 1, 1996
                                  For the Years                         to
                  February 28,  Ended February 28,  February 29,    November 26,
                     1994            1995              1996            1996
                  -----------   -----------------   ------------    -----------
Current:
 Federal           $ 134,927      $ 139,468           $208,499       $303,501
 State                18,699         19,329             28,896         42,054
                   ---------      ---------           --------       --------
                     153,626        158,797            237,395        345,555
Deferred provision
 (benefit)             4,987        (29,191)           (52,605)       (48,211)
                   ---------      ---------           --------       -------
Provision for
 income taxes      $ 158,613      $ 129,606           $184,790       $297,344
                   =========      =========           ========       ========

                                   F-28
<PAGE>

The components of deferred taxes are as follows:

                                                   February 28,   February 29,
                                                      1995            1996
                                                    ---------      ---------
Deferred tax assets:
  Inventory reserve                                 $  6,707      $  8,376
  Uniform inventory cost capitalization               50,233        62,739
  Capital losses in excess of capital gains            1,544        10,362
  Allowance for doubtful accounts                     44,492        50,314
  Amortization                                        15,773        38,586
                                                    --------      --------
      Total gross deferred tax assets                118,749       170,377
                                                    --------      --------
Deferred tax liabilities:
  Depreciation                                       (19,694)      (18,717)
                                                    --------      --------
      Total gross deferred tax liabilities           (19,694)      (18,717)
                                                    --------      --------
      Net deferred tax asset                        $ 99,055      $151,660
                                                    ========      ========

The  following  is a  reconciliation  of income  taxes  provided  at the federal
statutory rate with income taxes recorded by the Company:

<TABLE>
<CAPTION>
                                                                         For the Period
                                              For the Years Ended         March 1, 1996
                                   -------------------------------------       to      
                                   February 28, February 28, February 29, November 26,
                                      1994         1995         1996          1996
                                     --------     --------     --------     --------
<S>                              <C>          <C>          <C>          <C>
Tax provision at statutory rate     $148,614     $122,790     $170,482     $280,824
Expense of permanent
 differences resulting from
 the recognition of interest
 income and travel and
 entertainment expenses,
 and the effect of state taxes         9,999        6,816       14,308       16,520
                                    --------     --------     --------     --------
      Income tax provision          $158,613     $129,606     $184,790     $297,344
                                    ========     ========     ========     ========
</TABLE>

(8) RELATED PARTY TRANSACTIONS:

In the fiscal year ended  February  28,  1994,  the Company  purchased  land and
building  amounting to $650,000,  from a partnership (the  Partnership) of which
three of the four  partners are  shareholders  of the  Company.  The sales price
approximated  the  book  value  as  recorded  by the  Partnership.  Prior to the
transaction  the  Company  leased this real  estate  from the  Partnership.  The
Company  acquired the land and building  using cash,  and financed the remaining
portion with a note due the  Partnership.  Interest and  principal of $5,105 are
payable monthly. The loan bears interest at 7%, and fully matures in 2003.

                                      F-29
<PAGE>

The total of the related party note payable is as follows:

                                               February 28,     February 29,
                                                   1995            1996
                                                ---------        ---------
Total shareholder note payable                  $ 375,035        $ 342,287
  Less:  Current maturities                       (32,571)         (34,929)
                                                ---------        ---------
Shareholder note payable, net of current
  portion                                       $ 342,464        $ 307,358
                                                =========        =========

Principal maturities related to this loan are as follows:

Year Ending
February 28,                                       Total
------------                                       -----
1997                                             $ 34,929
1998                                               37,454
1999                                               40,162
2000                                               43,065
2001                                               46,178
Thereafter                                        140,499
                                                 --------
                                                 $342,287
                                                 ========

The  Company  also  entered  into a lease  with the  Partnership  in  1991,  for
approximately  10,000  square feet for storage and  production  purposes.  Lease
expense related to this space totaled approximately  $83,049,  $44,346,  $51,346
and $ 58,993 for the years ended February 28, 1994 and 1995,  February 29, 1996,
and the period March 1, 1996 to November 26, 1996, respectively.

(9) COMMITMENTS AND CONTINGENCIES:

In the normal course of business, the Company is named as a defendant in various
litigation  matters. In management's  opinion,  the ultimate resolution of these
matters will not have a material impact on the Company's financial statements.

Lease commitments related primarily to a warehouse space lease are as follows:

Year Ending
February 28,                                       Total
------------                                     --------
1997                                             $ 41,100
1998                                               41,100
1999                                               41,100
2000                                               41,100
2001                                               41,100
Thereafter                                        202,500
                                                 --------
                                                 $408,000
                                                 ========

                                      F-30
<PAGE>
                                   BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                              FINANCIAL STATEMENTS
                        AS OF DECEMBER 31, 1995 AND 1994
                             TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS







                                      F-31
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
Styling Technology Corporation:


We have audited the  accompanying  balance  sheets of BODY DRENCH (a Division of
Designs by Norvell,  Inc., a Tennessee  corporation) as of December 31, 1994 and
1995, and the related  statements of operations,  changes in owner's  investment
and cash flows for each of the three years in the period ended December 31, 1995
and for the  period  January  1, 1996 to  November  26,  1996.  These  financial
statements   are  the   responsibility   of  the  Division's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of Body Drench as of December 31,
1994 and 1995,  and the results of its operations and its cash flows for each of
the three years then ended and for the period  January 1, 1996 to  November  26,
1996, in conformity with generally accepted accounting principles.

   
                                              /s/ Arthur Andersen LLP
                                              ----------------------------------
                                                  Arthur Andersen LLP
    


Phoenix, Arizona,
   March 21, 1997.

                                      F-32
<PAGE>
                                   BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                                 BALANCE SHEETS

                                                               December 31,
                                                       -------------------------
                                                          1994           1995
                                                       ----------     ----------
                                     ASSETS

CURRENT ASSETS:
 Accounts receivable, net of allowance
   for doubtful accounts of $89,841 and
   $58,242, respectively                                $1,396,048    $1,234,966
 Inventories                                             3,052,783     3,078,656
 Other current assets                                        5,152       150,713
                                                        ----------    ----------
      Total current assets                               4,453,983     4,464,335
                                                        ----------    ----------

EQUIPMENT, net of accumulated
 depreciation of $245,424 and $297,176,
 respectively                                              167,697       316,443
                                                        ----------    ----------
      Total assets                                      $4,621,680    $4,780,778
                                                        ==========    ==========

                       LIABILITIES AND OWNER'S INVESTMENT

CURRENT LIABILITIES:
 Accounts payable                                       $2,550,654    $3,221,337
 Bank overdraft                                            651,953       274,810
 Accrued expenses and other                                296,546       257,813
                                                        ----------    ----------
      Total current liabilities                          3,499,153     3,753,960
                                                        ----------    ----------

COMMITMENTS AND CONTINGENCIES (Note 5)

OWNER'S INVESTMENT                                       1,122,527     1,026,818
                                                        ----------    ----------
      Total liabilities and owner's investment          $4,621,680    $4,780,778
                                                        ==========    ==========


             The accompanying notes to the financial statements are
                    an integral part of these balance sheets.

                                      F-33
<PAGE>
                                   BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                            STATEMENTS OF OPERATIONS

                                                                 For the Period
                                                                 January 1, 1996
                                 Years ended December 31,              to
                         --------------------------------------   November 26,
                            1993          1994          1995          1996
                         ----------   -----------   ----------- ---------------
NET SALES                $6,653,488   $11,138,369   $11,871,171   $ 9,642,980

COST OF SALES             4,039,843     6,342,770     6,426,775     5,867,104
                         ----------   -----------   -----------   -----------

GROSS PROFIT              2,613,645     4,795,599     5,444,396     3,775,876

SELLING, GENERAL AND
   ADMINISTRATIVE
   EXPENSES               2,054,919     4,075,756     4,883,265     4,004,728
                         ----------   -----------   -----------   -----------

INCOME FROM OPERATIONS      558,726       719,843       561,131      (228,852)
                         ----------   -----------   -----------   -----------

INTEREST EXPENSE             30,159          --          87,585          --
                         ----------   -----------   -----------   -----------
INCOME BEFORE PROVISION
   FOR INCOME TAXES         528,567       719,843       473,546      (228,852)

PROVISION (BENEFIT) FOR
   INCOME TAXES             200,855       273,540       179,947       (91,541)
                         ----------   -----------   -----------   -----------

NET INCOME (LOSS)        $  327,712   $   446,303   $   293,599   $  (137,311)
                         ==========   ===========   ===========   ===========


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

                                      F-34
<PAGE>
                                   BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                   STATEMENTS OF CHANGES IN OWNERS' INVESTMENT


BALANCE, December 31, 1992                                          $  (127,491)
   Net income                                                           327,712
   Net payments to parent                                              (748,153)
                                                                    -----------

BALANCE, December 31, 1993                                             (547,932)
   Net income                                                           446,303
   Net receipts from parent                                           1,224,156
                                                                    -----------

BALANCE, December 31, 1994                                            1,122,527
   Net income                                                           293,599
   Net payments to parent                                              (389,308)
                                                                    -----------

BALANCE, December 31, 1995                                            1,026,818
   Net loss                                                            (137,311)
   Net payments to parent                                            (1,311,710)
                                                                    -----------
BALANCE, November 26, 1996                                          $  (422,203)
                                                                    ===========

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

                                      F-35
<PAGE>
                                   BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 For the Period
                                                                                    January 1,
                                                          For the Years Ended          1996
                                                             December 31,               to
                                              ---------------------------------     November 26,
                                                1993         1994       1995           1996
                                              ---------  -----------  ---------   --------------
<S>                                          <C>           <C>           <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                            $ 327,712  $   446,303  $ 293,599  $  (137,311)
 Adjustments to reconcile net income to net
   cash used in operating activities-
     Depreciation                                67,244       36,619     51,752       94,963
 Changes in operating assets and liabilities:
   Accounts receivable, net                     (49,548)  (1,099,273)   161,082      274,164
   Inventories                                 (224,184)  (2,024,887)   (25,873)
   Other, net                                    (5,127)       2,084   (145,561)   1,167,937
   Accounts payable                             516,725      783,427    670,683      158,304
   Accrued expenses                             177,767       33,284    (38,733)    (258,849)
                                              ---------  -----------  ---------  -----------
      Net cash provided by (used in) 
        operating activities                    810,589   (1,822,443)   966,949    1,299,208
                                              ---------  -----------  ---------  -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
 Purchases of equipment                         (62,436)     (53,666)  (200,498)     (12,502)
                                              ---------  -----------  ---------  -----------

      Net cash provided by (used in)
        investing activities                    (62,436)     (53,666)  (200,498)     (12,502)
                                              ---------  -----------  ---------  -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
 Bank overdraft                                      --      651,953   (377,143)      25,004
 Net payments to/receipts from parent          (748,153)   1,224,156   (389,308)  (1,311,710)
                                              ---------  -----------  ---------  -----------
      Net cash provided by (used in)
        financing activities                   (748,153)   1,876,109   (766,451)  (1,286,706)
                                              ---------  -----------  ---------  -----------
NET CHANGE IN CASH                                   --           --         --           --
                                              ---------  -----------  ---------  -----------
CASH, beginning of period                            --           --         --           --
                                              ---------  -----------  ---------  -----------
CASH, end of period                           $      --  $        --  $      --  $        --
                                              =========  ===========  =========  ===========
</TABLE>

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

                                      F-36
<PAGE>
                                   BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                          NOTES TO FINANCIAL STATEMENTS


(1)   ORGANIZATION AND BASIS OF PRESENTATION:

         ACQUISITION AND BASIS OF PRESENTATION

Effective November 26, 1996, Designs by Norvell,  Inc. (Norvell) sold the assets
of its Body Drench  Division (the  Division) to Styling  Technology  Corporation
(STC) for consideration of approximately $7,900,000.  These financial statements
present the  historical  financial  position  and results of  operations  of the
acquired  business for periods  prescribed by applicable rules of the Securities
and Exchange Commission.

The  accompanying  financial  statements  represent the accounts of the Division
pursuant to the terms of the Asset Purchase  Agreement  between STC and Norvell.
In  addition,   interest  expense  included  in  the  statements  of  operations
represents allocations of parent company interest, as calculated by Norvell.

         NATURE AND SEASONALITY OF OPERATIONS

The Division is engaged in the  manufacture  and  distribution of skin care, sun
care and body care products.  Their products are sold to  professional  hair and
tanning  salons,  health clubs,  beauty supply  outlets and retail product based
salons, both domestic and international.

The Division's revenues are seasonal in nature, with the first six months of the
year having the majority of the volume.

(2)   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         FAIR VALUE OF FINANCIAL INSTRUMENTS

The  carrying  values of  receivables,  accounts  payable and  accrued  expenses
approximate fair values due to the short-term maturities of these instruments.

         CONCENTRATION OF CREDIT RISK

Financial  instruments which potentially  subject the Division to concentrations
of credit risk  consist  principally  of trade  receivables.  Concentrations  of
credit risk with respect to trade  receivables  are limited due to the number of
customers  comprising the Division's customer base. The Division  establishes an
allowance for doubtful  accounts based upon factors  surrounding the credit risk
of specific customers, historical trends and other information.

                                      F-37
<PAGE>

         USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,  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.  Final settlement
amounts could differ from those estimates.

         REVENUE RECOGNITION

The Division recognizes revenue from sales at the time product is shipped.

         EQUIPMENT

Equipment is recorded at cost and  depreciation  on equipment is provided  using
the straight-line method over the estimated useful lives of the related assets.

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. For the three years ended
December  31,  1995 and for the period  January 1, 1996 to  November  26,  1996,
maintenance and repair expenses charged to cost of operations were approximately
$25,978, $26,117, $30,498 and $6,021, respectively.

         INVENTORY

Inventory is valued at the lower of cost or market. Cost is determined using the
first-in, first-out method.

The components of inventories are summarized as follows:

                                               1994               1995
                                            ----------         ----------
Raw materials and work-in-process           $1,675,601         $1,583,372
Finished goods                               1,377,182          1,495,284
                                            ----------         ----------
                                            $3,052,783         $3,078,656
                                            ==========         ==========

(3)   PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

                                               1994               1995
                                            ---------          ---------
Factory equipment                           $ 134,880          $ 178,405
Computer equipment                            243,647            394,026
Furniture and fixtures                         34,594             41,188
                                            ---------          ---------
                                              413,121            613,619
Less- Accumulated depreciation               (245,424)          (297,176)
                                            ---------          ---------
                                            $ 167,697          $ 316,443
                                            =========          =========

                                      F-38
<PAGE>

(4)   INCOME TAXES:

The Division  accounts for income taxes using Statement of Financial  Accounting
Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires the
recording of deferred tax assets and  liabilities  based on differences  between
the  financial  statement  and tax bases of assets and  liabilities  and the tax
rates in effect when these  differences  are expected to reverse.  In accordance
with SFAS 109, the Division has recorded a provision for income taxes separately
from Norvell.

(5)   COMMITMENTS AND CONTINGENCIES:

         LEASES

The Division  leases certain  facilities  and equipment  under  operating  lease
agreements.

Future  minimum  payments  under  noncancelable  operating  leases with terms in
excess of one year are as follows:

     December 31,
     ------------
        1996                                     $ 79,455
        1997                                       50,423
        1998                                       41,067
        1999                                        2,333

Rental expense under such operating leases was $52,163,  $101,217,  $238,746 and
$188,761,  for the three  years  ended  December  31,  1995,  and for the period
January 1, 1996 to November 26, 1996, respectively.

The  Division  is involved in certain  legal  proceedings  arising in the normal
course of  business.  In the opinion of  management,  the  Division's  potential
exposure  under  the  pending  proceedings  is  adequately  provided  for in the
accompanying financial statements.

(6)   SIGNIFICANT VENDORS:

Two vendors accounted for 69.3%,  67.4%, 53.0% and 53.0% of the Division's total
raw  materials  purchases  from  vendors for the years ended  December 31, 1993,
1994,   1995  and  for  the  period  January  1,  1996  to  November  26,  1996,
respectively.  Management  does not believe that the loss of these vendors would
significantly impact the Division's operations.

                                      F-39
<PAGE>
                           JDS MANUFACTURING CO., INC.

                              FINANCIAL STATEMENTS
                        AS OF SEPTEMBER 30, 1995 AND 1996
                             TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS



                                      F-40
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


To the Board of Directors of
Styling Technology Corporation:


We have audited the accompanying  balance sheets of JDS MANUFACTURING  CO., INC.
(a California  corporation)  as of September 30, 1995 and 1996,  and the related
statements of operations,  stockholders'  equity, and cash flows for each of the
three years in the period ended September 30, 1996 and for the period October 1,
1996 to November 26, 1996. These financial  statements are the responsibility of
the Company's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of JDS Manufacturing Co., Inc. as
of September 30, 1995 and 1996,  and the results of its  operations and its cash
flows for each of the three years in the period ended September 30, 1996 and for
the period  October 1, 1996 to November 26, 1996, in conformity  with  generally
accepted accounting principles.

   
                                              /s/ Arthur Andersen LLP
                                              ----------------------------------
                                                  Arthur Andersen LLP
    
Phoenix, Arizona,
   March 21, 1997.


                                      F-41
<PAGE>

                           JDS MANUFACTURING CO., INC.

                                 BALANCE SHEETS

                                                    September 30,  September 30,
                                                        1995           1996
                                                    -------------  -------------
                                     ASSETS
CURRENT ASSETS:
 Cash                                                 $ 57,397       $ 85,260
 Accounts receivable, net of allowance for
   doubtful accounts of $10,000, and $15,000,
   respectively                                        329,965        313,405
 Inventory                                             264,347        209,140
 Prepaid expenses                                       11,861          4,716
                                                      --------       --------
      Total current assets                             663,570        612,521
                                                      --------       --------
PROPERTY AND EQUIPMENT, net of
  accumulated depreciation of $100,031, and
  $114,660, respectively                                30,292         19,157

OTHER ASSETS                                           102,934        136,404
                                                      --------       --------
                                                      $796,796       $768,082
                                                      ========       ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
 Accounts payable                                     $196,309       $152,938
 Accrued expenses                                       53,740         81,411
                                                      --------       --------

      Total current liabilities                        250,049        234,349
                                                      --------       --------

NOTES PAYABLE TO RELATED PARTIES                       516,200        434,210
                                                      --------       --------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
 Common stock, $10 par value, 10,000 shares
  authorized, 1,000 shares issued and
  outstanding                                           10,000         10,000
 Retained earnings                                      20,547         89,523
                                                      --------       --------

      Total stockholders' equity                        30,547         99,523
                                                      --------       --------
      Total liabilities and stockholders' equity      $796,796       $768,082
                                                      ========       ========

         The accompanying notes to financial statements are an integral
                          part of these balance sheets.

                                      F-42
<PAGE>
                           JDS MANUFACTURING CO., INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                    For the Period
                                                                    October 1, 1996
                                  For the Years Ended September 30,       to
                                 ----------------------------------  November 26,
                                    1994        1995         1996       1996
                                 ----------  ----------  ---------- --------------
<S>                              <C>          <C>          <C>       <C>
SALES                            $3,577,779  $3,367,599  $3,113,682   $613,142

COST OF SALES                     1,651,965   1,550,155   1,407,128    275,513
                                 ----------  ----------  ----------   --------

      Gross profit                1,925,814   1,817,444   1,706,554    337,629

SELLING, GENERAL AND
   ADMINISTRATIVE EXPENSES        1,981,928   1,843,871   1,614,505    257,784
                                 ----------  ----------  ----------   --------
      Income (loss) from
        operations                  (56,114)    (26,427)     92,049     79,845

OTHER INCOME, net                    44,191      41,951      35,272      1,263
                                 ----------  ----------  ----------   --------

INCOME (LOSS) BEFORE PROVISION
   FOR INCOME TAXES                 (11,923)     15,524     127,321     81,108

PROVISION FOR INCOME TAXES            4,571       6,950      58,345     35,688
                                 ----------  ----------  ----------   --------

NET INCOME (LOSS)                $  (16,494) $    8,574  $   68,976   $ 45,420
                                 ==========  ==========  ==========   ========
</TABLE>

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


                                      F-43
<PAGE>

                           JDS MANUFACTURING CO., INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

                                        Common Stock
                                      ---------------   Retained
                                      Shares  Amount    Earnings       Total
                                      ------  -------   ---------    ---------
BALANCE, September 30, 1993           1,000   $10,000   $  28,467    $  38,467
   Net loss                              --        --     (16,494)     (16,494)
                                      -----   -------   ---------    ---------
BALANCE, September 30, 1994           1,000    10,000      11,973       21,973
   Net income                            --        --       8,574        8,574
                                      -----   -------   ---------    ---------
BALANCE, September 30,1995            1,000    10,000      20,547       30,547
   Net income                            --        --      68,976       68,976
                                      -----   -------   ---------    ---------
BALANCE, September 30, 1996           1,000    10,000      89,523       99,523
   Net income, for the period 
    October 1, 1996 to 
    November 26, 1996                    --        --      45,420       45,420
                                      -----   -------   ---------    ---------
BALANCE, November 26, 1996            1,000   $10,000   $ 134,943    $ 144,943
                                      =====   =======   =========    =========



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


                                        F-44
<PAGE>
                           JDS MANUFACTURING CO., INC.

                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                   For the Period
                                                                                   October 1, 1996
                                                 For the Years Ended September 30,      to
                                                 ---------------------------------  November 26,
                                                   1994        1995        1996         1996
                                                 --------    --------    ---------  -------------
<S>                                             <C>         <C>         <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net income (loss)                               $(16,494)  $  8,574   $  68,976    $  45,420
 Adjustments to reconcile net income (loss)
  to net cash used in operating activities-
   Depreciation                                    18,735     15,661      14,628        1,439
   Decrease (increase) in accounts receivable      (4,438)    89,139      16,560     (172,645)
   Decrease (increase) in inventory                14,441    (34,089)     55,207       47,329
   Decrease (increase) in other assets            (33,786)   (35,112)    (26,325)     (19,756)
   Increase (decrease) in accounts payable and
    accrued expenses                                4,263    (47,256)    (15,700)      57,480
                                                 --------   --------   ---------    ---------
      Net cash provided by (used in)
       operating activities                       (17,279)    (3,083)    113,346      (40,733)
                                                 --------   --------   ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                             (10,582)    (8,203)     (3,493)      (1,912)
                                                 --------   --------   ---------    ---------

      Net cash used in investing activities       (10,582)    (8,203)     (3,493)      (1,912)
                                                 --------   --------   ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from (payments to) shareholder notes
   payable, net                                    24,012     (5,692)    (81,990)     (14,748)
                                                 --------   --------   ---------    ---------
      Net cash provided by (used in)
       financing activities                        24,012     (5,692)    (81,990)     (14,748)
                                                 --------   --------   ---------    ---------

NET INCREASE (DECREASE) IN CASH                    (3,849)   (16,978)     27,863      (57,393)

CASH, beginning of period                          78,224     74,375      57,397       85,260
                                                 --------   --------   ---------    ---------

CASH, end of period                              $ 74,375   $ 57,397   $  85,260    $  27,867
                                                 ========   ========   =========    =========
SUPPLEMENTAL DISCLOSURES OF CASH
 FLOW INFORMATION:
  Interest paid                                  $ 36,134   $ 35,589   $  39,030    $      --
                                                 ========   ========   =========    =========

  Income taxes paid                              $  4,090   $  4,571   $   7,000    $  53,896
                                                 ========   ========   =========    =========
EXCHANGE OF OTHER ASSET FOR REDUCTION IN
    SHAREHOLDER NOTES PAYABLE                    $     --   $     --   $      --    $ 136,404
                                                 ========   ========   =========    =========
</TABLE>

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

                                      F-45
<PAGE>

                           JDS MANUFACTURING CO., INC.

                          NOTES TO FINANCIAL STATEMENTS


(1) ORGANIZATION AND BASIS OF PRESENTATION:

         ACQUISITION AND BASIS OF PRESENTATION

Effective  November 26, 1996,  shareholders of JDS Manufacturing  Co., Inc. (the
Company) sold all of its outstanding stock to Styling Technology Corporation for
consideration of approximately  $4,400,000.  These financial  statements present
the  historical  financial  position and results of  operations  of the acquired
business  for periods  prescribed  by  applicable  rules of the  Securities  and
Exchange Commission.

         ORGANIZATION AND NATURE OF OPERATIONS

The  Company  was  incorporated  in 1987.  Since  1989,  the  Company has been a
manufacturer  and  distributor  of  several  extensive  lines  of high  quality,
brand-recognized nail enhancement application products and nail accessories. Its
products are sold  throughout  the United States,  principally  to  professional
supply outlets,  beauty distributors,  professional nail salons and professional
manicurists.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with original maturities of three months
or less are considered to be cash equivalents.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash, receivables,  accounts payable and accrued expenses
approximate fair values due to the short-term  maturities of these  instruments.
The carrying amount on the long-term debt is estimated to approximate fair value
as the actual interest rates are consistent with rates estimated to be currently
available for debt with similar terms and remaining maturities.

         INVENTORY

Inventory is valued at the lower of cost (first-in, first-out) or net realizable
value.  Reserves are established  against inventory for excess,  slow-moving and
obsolete items and for items where the net realizable value is less than cost.


                                        F-46
<PAGE>

Inventories consist of the following:

                                                  September 30,  September 30,
                                                      1995           1996
                                                  -------------  -------------
     Raw material and work-in process               $ 31,722        $ 25,097
     Finished goods                                  232,625         184,043
                                                    --------        --------
                                                    $264,347        $209,140
                                                    ========        ========

         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.  For the years ended
September 30, 1994,  1995,  1996 and for the period  October 1, 1996 to November
26, 1996,  maintenance  and repair  expenses  charged to cost of operations were
$5,452, $4,507, $2,509 and $598, respectively.

         CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit  risk  consist  principally  of  temporary  cash  investments  and  trade
receivables.  The Company places its temporary cash  investments in high quality
credit  institutions.  Concentrations  of  credit  risk  with  respect  to trade
receivables are limited due to the number of customers  comprising the Company's
customer base. The Company  establishes an allowance for doubtful accounts based
upon  factors  surrounding  the credit  risk of specific  customers,  historical
trends and other information.

         REVENUE RECOGNITION

The Company recognizes revenue from sales at the time product is shipped.

         USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,  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.  Final settlement
amounts could differ from those estimates.

         RECLASSIFICATIONS

Certain  prior  year  amounts  have been  reclassified  to  conform  to the 1996
presentation.

                                        F-47
<PAGE>
(3) PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

                                                 September 30,     September 30,
                                                      1995              1996
                                                 -------------     -------------

     Furniture and equipment                       $  98,490         $ 101,984
     Automobiles                                      13,976            13,976
     Leaseholds and other                             17,857            17,857
                                                   ---------         ---------
                                                     130,323           133,817
     Less: accumulated depreciation                 (100,031)         (114,660)
                                                   ---------         ---------
                                                   $  30,292         $  19,157
                                                   =========         =========
(4) NOTES PAYABLE TO RELATED PARTIES:

As of September 30, 1995 and 1996,  the Company had notes payable due to its two
principal  shareholders  of $516,200  and  $434,210,  respectively.  These notes
originated  in  October  1994,  and  bear  interest  at 8%.  Loan  advances  and
repayments  are made at the  shareholders'  discretion,  with the entire balance
becoming due on September 30, 1997. As such, the entire balance is classified as
long-term.

(5) INCOME TAXES:

The Company  accounts for income taxes using  Statement of Financial  Accounting
Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 requires the
use of an asset and liability approach in accounting for income taxes.  Deferred
tax assets and  liabilities  are recorded based on the  differences  between the
financial statement and tax bases of assets and liabilities and the tax rates in
effect  when these  differences  are  expected to  reverse.  These  differences,
resulting  principally from use of accelerated  depreciation  methods for income
tax reporting, were not material at the balance sheet dates.

(6) COMMITMENTS AND CONTINGENCIES:

In the normal course of business, the Company is named as a defendant in various
litigation  matters. In management's  opinion,  the ultimate resolution of these
matters will not have a material impact on the Company's financial statements.

Total future  commitments for operating leases are $12,459 through September 30,
1997.

(7) SIGNIFICANT CUSTOMER:

The Company's  strategy includes  providing nail care and accessories to a major
U.S.  beauty  distribution  company.  Sales to this  customer as a percentage of
total sales were  approximately  11%,  14%, 26% and 26% for  September 30, 1994,
1995,   1996  and  for  the  period  October  1,  1996  to  November  26,  1996,
respectively.

                                        F-48
<PAGE>
                          KOTCHAMMER INVESTMENTS, INC.

                              FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 1995
                             TOGETHER WITH REPORT OF
                         INDEPENDENT PUBLIC ACCOUNTANTS




                                   F-49
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



To the Board of Directors of
Styling Technology Corporation:


We have audited the accompanying balance sheet of KOTCHAMMER  INVESTMENTS,  INC.
(a California  corporation) as of December 31, 1995, and the related  statements
of operations,  stockholders' equity, and cash flows for the year ended December
31,  1995,  and for the  period  January 1, 1996 to  November  26,  1996.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Kotchammer Investments, Inc. as
of December 31, 1995,  and the results of its  operations and its cash flows for
the year ended December 31, 1995, and for the period January 1, 1996 to November
26, 1996, in conformity with generally accepted accounting principles.

   
                                              /s/ Arthur Andersen LLP
                                              ----------------------------------
                                                  Arthur Andersen LLP
    
Phoenix, Arizona,
   March 21, 1997.


                                        F-50
<PAGE>

                          KOTCHAMMER INVESTMENTS, INC.

                                  BALANCE SHEET
                                                               December 31,
                                                                   1995
                                                               ------------
                                     ASSETS
CURRENT ASSETS:
   Cash and cash equivalents                                    $  96,364
   Accounts receivable                                            136,971
   Inventory, net                                                 403,730
   Prepaid expenses and other                                      21,799
                                                                ---------
      Total current assets                                        658,864
                                                                ---------

PROPERTY AND EQUIPMENT, net                                        75,472

OTHER ASSETS                                                        1,026
                                                                ---------
                                                                $ 735,362
                                                                =========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
   Accounts payable                                              $ 14,015
   Accrued expenses                                               121,183
   Line of credit                                                 215,000
   Current portion of notes payable to shareholders               270,000
                                                                 --------
      Total current liabilities                                   620,198
                                                                 --------
NOTES PAYABLE TO SHAREHOLDERS, net of current
   portion                                                        340,000
                                                                 --------
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT:
   Common stock, $20 par value, 2,500 shares authorized,
     2,500 shares issued and outstanding                           50,000
   Retained deficit                                              (274,836)
                                                                ---------
        Total stockholders' deficit                              (224,836)
                                                                ---------
        Total liabilities and stockholders' deficit             $ 735,362
                                                                =========

             The accompanying notes to financial statements are an
                      integral part of this balance sheet.


                                        F-51
<PAGE>

                          KOTCHAMMER INVESTMENTS, INC.

                            STATEMENTS OF OPERATIONS

                                                               For the Period
                                                For the        January 1, 1996
                                               Year Ended           to
                                              December 31,      November 26,
                                                  1995             1996
                                              ------------     ---------------
NET SALES                                     $ 1,557,709      $ 1,248,460

COST OF SALES                                     711,925          585,704
                                              -----------      -----------

      Gross profit                                845,784          662,756

SELLING, GENERAL AND ADMINISTRATIVE
   EXPENSES                                       891,146          590,800
                                              -----------      -----------

      Income (loss) from operations               (45,362)          71,956

INTEREST EXPENSE AND OTHER, net                   (89,557)         (74,250)
                                              -----------      -----------

NET LOSS                                      $  (134,919)     $    (2,294)
                                              ===========      ===========


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


                                        F-52
<PAGE>

                          KOTCHAMMER INVESTMENTS, INC.

                       STATEMENTS OF STOCKHOLDERS' DEFICIT


                                  Common Stock                       Total
                               -----------------     Retained     Stockholders'
                               Shares    Amount      Earnings       Deficit
                               ------    -------     ---------    ------------

BALANCE, December 31, 1994     2,500     $50,000     $(139,917)   $ (89,917)
   Net loss                       --          --      (134,919)    (134,919)
                               -----     -------     ---------    ---------
BALANCE, December 31,1995      2,500      50,000      (274,836)    (224,836)
   Net loss                       --          --        (2,294)      (2,294)
                               -----     -------     ---------    ---------
BALANCE, November 26, 1996     2,500     $50,000     $(277,130)   $(227,130)
                               =====     =======     =========    =========


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


                                      F-53
<PAGE>

                          KOTCHAMMER INVESTMENTS, INC.

                            STATEMENTS OF CASH FLOWS


                                                                 For the Period
                                                     For the     January 1, 1996
                                                    Year Ended         to
                                                    December 31,   November 26,
                                                        1995           1996
                                                    -----------  ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
 Net loss                                            $(134,919)   $  (2,294)
 Adjustments to reconcile net loss to net
  cash used in operating activities-
   Depreciation                                         23,436       19,203
   Decrease (increase) in accounts receivable           43,004      (19,111)
   Decrease (increase) in inventory                    (45,278)      51,566
   Decrease in prepaids and other assets                63,372        6,502
   Increase (decrease) in accounts payable and
    accrued liabilities                                (43,234)      89,960
                                                     ---------    ---------
       Net cash provided by (used in)
         operating activities                          (93,619)     145,826
                                                     ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Capital expenditures                                  (17,215)          --
                                                     ---------    ---------
       Net cash used in investing activities           (17,215)          --
                                                     ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from (payments to) shareholder notes
   payable, net                                        100,000           --
   Proceeds from (payments to) line of credit, net      (5,000)    (215,000)
                                                     ---------    ---------
       Net cash (used in) provided by
         financing activities                           95,000     (215,000)
                                                     ---------    ---------

NET DECREASE IN CASH                                   (15,834)     (69,174)

CASH, beginning of period                              112,198       96,364
                                                     ---------    ---------

CASH, end of period                                  $  96,364    $  27,190
                                                     =========    =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
 INFORMATION:
  Interest paid                                      $  72,916    $      --
                                                     =========    =========

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


                                        F-54
<PAGE>

                          KOTCHAMMER INVESTMENTS, INC.

                          NOTES TO FINANCIAL STATEMENTS


(1) ORGANIZATION AND BASIS OF PRESENTATION:

         ACQUISITION AND BASIS OF PRESENTATION

Effective November 26, 1996, shareholders of Kotchammer  Investments,  Inc. (the
Company) sold its assets to Styling Technology  Corporation for consideration of
approximately  $639,000.  These  financial  statements  present  the  historical
financial  position  and results of  operations  of the  acquired  business  for
periods   prescribed  by  applicable   rules  of  the  Securities  and  Exchange
Commission.

         ORGANIZATION AND NATURE OF OPERATIONS

The Company was  incorporated  in December  1993 to acquire a division of Redken
Laboratories,  Inc.  The  Company  distributes  and markets  professional  salon
appliances  and salonwear.  Its products are sold  throughout the United States,
principally  to  professional   supply   outlets,   beauty   distributors,   and
professional hair stylists.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

         CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with original maturities of three months
or less are considered to be cash equivalents.

         FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying values of cash, receivables,  accounts payable and accrued expenses
approximate fair values due to the short-term  maturities of these  instruments.
The carrying amount on the long-term debt is estimated to approximate fair value
as the actual interest rates are consistent with rates estimated to be currently
available for debt with similar terms and remaining maturities.

         INVENTORY

Inventory  consists  of  finished  goods  and are  valued  at the  lower of cost
(first-in,  first-out) or net realizable value. Reserves are established against
inventory for excess, slow-moving and obsolete items and for items where the net
realizable value is less than cost.

                                        F-55
<PAGE>
         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.

         CONCENTRATION OF CREDIT RISK

Financial instruments which potentially subject the Company to concentrations of
credit  risk  consist  principally  of  temporary  cash  investments  and  trade
receivables.  The Company places its temporary cash  investments in high quality
credit  institutions.  Concentrations  of  credit  risk  with  respect  to trade
receivables are limited due to the number of customers  comprising the Company's
customer base.

         REVENUE RECOGNITION

The Company recognizes revenue from sales at the time product is shipped.

         USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities,  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.  Final settlement
amounts could differ from those estimates.

(3) PROPERTY AND EQUIPMENT:

Property and equipment consist of the following:

                                         Useful Life      1995
                                         -----------   ---------
        Machinery and equipment            5 years     $  76,803
        Furniture and fixtures             7 years        22,458
        Computer equipment                 5 years        16,652
                                                       ---------
                                                         115,913
        Less- Accumulated depreciation                   (40,441)
                                                       ---------
                                                       $  75,472
                                                       =========
(4) LINE OF CREDIT:

At December 31, 1995, the Company had a $220,000 line of credit with a bank
which expired in August of 1996 and carried an interest rate of 9.75%. During
1996, the line of credit was repaid.

                                        F-56
<PAGE>

(5) NOTES PAYABLE TO SHAREHOLDERS:

Notes payable to shareholders consisted of the following:
                                                                    December 31,
                                                                        1995
                                                                    ------------
  Note payable  dated  December 8, 1993,  interest at a 
  bank's  reference rate plus 1.25% (11% at December 31, 1995),  
  maturing  January 15, 2004                                        $  120,000

  Note payable dated December 8, 1993, interest at a 
  bank's reference rate plus 1.25% (11% at December 31, 1995),
  maturing January 15, 2004                                            120,000

  Note payable dated December 8, 1993, interest at a 
  bank's reference rate plus 1.25% (11% at December 31, 1995),
  maturing January 31, 2004                                            270,000

  Note payable dated May 3, 1995, interest at a 
  bank's reference rate plus 1.25% (11% at December 31, 1995),
  maturing January 31, 2004                                             70,000

  Note payable, dated June 5, 1995, interest at a 
  bank's reference rate, plus 1.25% (11% at December 31, 1995), 
  maturing January 31, 2004                                             30,000
                                                                     ---------
                                                                       610,000
  Less: current maturities                                            (270,000)
                                                                     ---------
                                                                     $ 340,000
                                                                     =========

As of December 31, 1995, one of the notes payable to shareholders was classified
as current as a result of the  Company  incurring  a  technical  default  with a
certain financial covenant.

(6) INCOME TAXES:

The Company has elected S Corporation  status under Subchapter S of the Internal
Revenue Code. This election  results in  substantially  all U.S. federal taxable
income being taxed to the stockholders.  Accordingly,  there is no provision for
income taxes reflected in these financial statements for the year ended December
31, 1995, and for the period January 1, 1996 to November 26, 1996.

(7) COMMITMENTS AND CONTINGENCIES:

In the normal course of business, the Company is named as a defendant in various
litigation  matters. In management's  opinion,  the ultimate resolution of these
matters will not have a material impact on the Company's financial statements.

                                        F-57
<PAGE>


Total future  commitments  for operating  leases are $45,851  through July 1997.
Rent expense  incurred under operating  leases was $35,363,  and $26,173 for the
year ended  December 31, 1995 and for the period January 1, 1996 to November 26,
1996, respectively.

                                        F-58