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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   ----------

                                   FORM 10-K/A

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

For the fiscal year ended December 31, 1998       Commission file number 0-21703


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

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

                            7400 E. Tierra Buena Lane
                            Scottsdale, Arizona 85260
                                 (480) 609-6000
          (Address, including zip code, and telephone number, including
                   area code, of principal executive offices)

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

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

                    Common Stock, par value $.0001 per share
                         Preferred Stock Purchase Rights

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

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

     As of March 29, 1999,  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
$41,640,001.  Shares of Common Stock held by each officer and director have been
excluded in that such persons may be deemed to be affiliates.  The determination
of affiliate status is not necessarily conclusive.

     As of March 29, 1999,  there were 4,067,503  shares of registrant's  Common
Stock outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions  of  the   registrant's   definitive   Proxy   Statement  for  the
registrant's  1999 Annual Meeting of Stockholders  are incorporated by reference
into Part III hereof.

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<PAGE>
                         STYLING TECHNOLOGY CORPORATION

                          ANNUAL REPORT ON FORM 10-K/A

                       FISCAL YEAR ENDED DECEMBER 31, 1998

                                TABLE OF CONTENTS

                                                                            PAGE
                                     PART I

ITEM 1. BUSINESS...........................................................    1
ITEM 2. PROPERTIES.........................................................   21
ITEM 3. LEGAL PROCEEDINGS..................................................   21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................   21

                               PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
        RELATED STOCKHOLDER MATTERS........................................   22
ITEM 6. SELECTED FINANCIAL DATA............................................   22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS (AS RESTATED)..................   24
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
        MARKET RISK........................................................   39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE................................   40

                              PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................   40
ITEM 11.EXECUTIVE COMPENSATION.............................................   40
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
        AND MANAGEMENT.....................................................   40
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................   40

                               PART IV

ITEM 14.EXHIBITS FINANCIAL STATEMENT SCHEDULES, AND REPORTS
        ON FORM 8-K........................................................   40
SIGNATURES    .............................................................   42
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................

                                   ----------

                 STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     THE STATEMENTS  CONTAINED IN THIS REPORT ON FORM 10-K/A THAT ARE NOT PURELY
HISTORICAL  ARE  FORWARD-LOOKING  STATEMENTS  WITHIN THE  MEANING OF  APPLICABLE
SECURITIES LAWS.  FORWARD-LOOKING  STATEMENTS INCLUDE  STATEMENTS  REGARDING THE
COMPANY'S "EXPECTATIONS," "ESTIMATES," "ANTICIPATION,"  "INTENTIONS," "BELIEFS,"
"PLANS," OR "STRATEGIES" REGARDING THE FUTURE.  FORWARD-LOOKING  STATEMENTS ALSO
INCLUDE STATEMENTS REGARDING OPERATING RESULTS, CAPITAL RESOURCES, AND LIQUIDITY
OR STATEMENTS  WITH RESPECT TO THE MARKETS IN WHICH THE COMPANY  COMPETES OR THE
BEAUTY CARE INDUSTRY IN GENERAL. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS
REPORT ARE BASED ON  INFORMATION  AVAILABLE TO THE COMPANY AS OF THE FILING DATE
OF THIS  REPORT,  AND THE  COMPANY  ASSUMES  NO  OBLIGATION  TO UPDATE  ANY SUCH
FORWARD-LOOKING STATEMENTS. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE FORWARD-LOOKING  STATEMENTS.  AMONG THE FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER  MATERIALLY  ARE THE FACTORS  DISCUSSED IN ITEM 1, "BUSINESS -
SPECIAL CONSIDERATIONS."

                                   ----------

     "ABBA," "Alpha 9,"  "Biogenol,"  "Body Drench,"  "Clean + Easy,"  "Cosmic,"
"European  Touch,"  "Framesi,"  "Gena,"  "Kizmit,"  "Maiko,"  "One  Touch," "Pro
Finish,"  "Revivanail,"  "Roffler,"  "SRC,"  and  "Suntopia"  are the  Company's
principal registered  trademarks.  This Report also includes other trademarks of
the Company.
<PAGE>
                                EXPLANATORY NOTE

                      AMENDED FILING OF FORM 10-K FOR 1998
                       RESTATEMENT OF FINANCIAL STATEMENTS
                       AND CHANGES TO CERTAIN INFORMATION

     In  November   1999,   we  announced   that  as  a  result  of  errors  and
irregularities primarily discovered in the Body Drench division in the recording
of net  sales  and  income  the  Company  anticipated  restating  its  financial
statements.  The  procedures  we have  undertaken to determine the extent of the
restatement  have resulted in the  restatement  of our financial  statements for
1997 and 1998 (see Note 1 and 13 to the Consolidated  Financial Statements filed
with this Report).

     General  information in the originally  filed Form 10-K was presented as of
the March 31,  1999  filing  date or earlier,  as  indicated.  Unless  otherwise
stated, such information has not been updated in this amended filing. Concurrent
with the filing of this report,  we have filed with the  Securities and Exchange
Commission  (SEC) the 1999 Form 10-K,  which discusses  recent  developments and
contains updated general information.

     Financial  statements  and  related  disclosures,   including  Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations,
contained in this amended filing reflect, where appropriate,  changes to conform
to the restatement.

                                     PART I

ITEM 1. BUSINESS

INTRODUCTION

     The Company is a leading developer,  producer, and marketer of a wide array
of  professional  salon  products,  including hair care, nail care, and skin and
body care products,  as well as salon  appliances and sundries.  The Company has
well-recognized  brand  names,  a  strong  distribution   network,   established
marketing and salon industry education programs,  and significant production and
sourcing capabilities.

     The Company  believes it is the only company that develops,  produces,  and
markets  products in each category of the professional  salon products  industry
and that its  ability  to offer  customers  a  "one-stop  shop"  for  brand-name
professional  salon  products  creates  a  competitive  advantage.  The  Company
currently sells more than 550 products under 17 principal brand names, including
ABBA Pure and Natural Hair Care products, AquaTonic hair care products, Biogenol
hair  products,  Body  Drench  skin and body  care  products,  Clean + Easy hair
removal  products,  European Touch II pedicure spa equipment,  Framesi hair care
products,  Gena nail and pedicure  products,  Kizmit acrylic nail  enhancements,
Revivanail  nail  treatments,  and  Roffler  hair care  products.  In the United
States,  the Company  markets  its  product  lines  through  professional  salon
industry  distribution  channels  to  more  than  2,300  customers,   consisting
primarily of salon  product and tanning  supply  distributors  (which  resell to
beauty and tanning salons), beauty supply outlets, and salon chains. The Company
also markets its products directly to more than 3,000 spas, resorts,  and health
and country clubs through its in-house sales force. Internationally, the Company
sells its products primarily through international salon product distributors.

     The Company was founded in June 1995 and  commenced  operations on November
26, 1996. On that date, the Company simultaneously  completed its initial public
offering and acquired four professional salon products  businesses (the "Initial
Businesses").  Since that time,  the  Company  has  completed  seven  additional
acquisitions.

     The following table sets forth information  regarding each of the Company's
acquisitions:

                                       1
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION                                     ACQUISITION DATE   BRAND NAME (PRODUCT DESCRIPTION)
-----------                                     ----------------   --------------------------------
<S>                                            <C>                 <C>
Gena Laboratories, Inc. ("Gena")                 November 1996     Gena (professional natural nail care, pedicure,
                                                                   skin care, and hair care products)

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

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

Kotchammer Investments, Inc. (dba Styling        November 1996     SRC (high-end salon appliances and salonwear)
Research Company) ("KII")

Suntopia  Division of Creative  Laboratories,    March 1997        Suntopia (high-end tanning products)
Inc. ("Suntopia")

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

One Touch and Clean + Easy Division of           December 1997     Clean + Easy and One Touch  (salon and retail hair
  Inverness  Corporation  and Inverness (UK)                       removal products)
  Limited (together, "Inverness")

Pro Finish USA, Ltd. ("Pro Finish")              May 1998          Pro Finish, Kizmit, and Cosmic (nail care
                                                                   products)

European Touch Co., Incorporated, and            June 1998         European Touch  (professional nail enhancement and
  two related nail companies ("European                            treatment products)
  Touch")

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

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

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

INDUSTRY OVERVIEW

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

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

                                       2
<PAGE>
Professional  salon appliances and sundries include hair dryers,  curling irons,
brushes, pedicure spas, furniture, and salon wear (such as capes).

     The professional salon products industry has grown significantly during the
last several years.  According to industry sources,  professional salon industry
revenue  (which  includes  revenue  from  salon  services  and the sale of salon
products)  for 1998 was  approximately  $40 billion in the United States and $80
billion  worldwide.  Industry sources estimate that there are  approximately 127
million  client visits to salons each month and that there are more than 200,000
beauty  salons and 1.8 million  licensed  cosmetologists  in the United  States.
Professional salon products companies sell their products primarily to regional,
full-service  salon  product  distributors  that resell  products  from multiple
manufacturers to salons and salon professional.  The professional salon products
industry  is highly  fragmented.  Of the  approximately  700  companies  selling
professional  salon products in the United  States,  most generate less than $10
million  in sales and focus on a single  product  category.  For  example,  most
companies offering  professional salon hair care products do not also offer nail
or skin care products.

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

STRATEGY

     The Company's  objective is to be the leading  professional  salon products
company  in the  United  States and  internationally.  In order to achieve  this
objective,  the  Company is  pursuing a strategy  of  continued  growth  through
internal  business  expansion  and  acquisitions.  Key elements of this strategy
include the following:

INTERNAL GROWTH STRATEGY

     The Company  intends to increase  revenue  and improve  margins  within its
existing  product  lines and to  develop  new  product  lines.  Elements  of its
internal growth strategy include the following:

     *    LEVERAGE  WELL-ESTABLISHED  DISTRIBUTION CHANNELS. The Company intends
          to leverage its distribution  channels by providing  distributors with
          an increasingly  comprehensive array of products through  acquisitions
          and internal development of new brands.  Through management's existing
          relationships  and  those  of  acquired  companies,  the  Company  has
          developed  and  integrated  an  increasingly   extensive  distribution
          network.  The  Company  believes  that  offering  a  growing  array of
          well-known brands in all salon product categories will further enhance
          its position as a key supplier to many of its customers.

     *    CAPITALIZE ON BRAND NAME  RECOGNITION;  LINE  EXTENSIONS.  The Company
          believes the strong brand name  recognition of its product lines lends
          itself to line extension.  For example, ABBA, one of the top brands in
          the  aromatherapy   segment  of  the  hair  care  category,   recently
          introduced  its  Botanical  High  line of  volume  therapy  hair  care
          products.  The Company  believes  that the loyalty of salons and salon
          professionals  to strong brands generally makes them receptive to line
          extensions that capitalize on the credibility of those brands.  Strong
          brand names also provide the Company the  opportunity to  cross-market
          established and developing brands and products.

     *    EXPAND  DISTRIBUTION  TO SALON  CHAINS.  The  Company is  aggressively
          targeting sales directly to salon chains,  which the Company  believes
          are underserved by distributors and other salon product companies. The
          Company believes that its increasingly  diverse product offerings will
          enable it to offer salon  chains the  benefits  of one-stop  shopping,
          centralized single-source ordering, tailored promotional programs, and
          dedicated  customer  service.  The  Company  has  formed  a sales  and
          marketing  team  focused   exclusively  on  further  penetrating  this
          underserved segment of the salon product market.

                                       3
<PAGE>
     *    EXPAND DISTRIBUTION OF EXISTING PRODUCTS INTERNATIONALLY.  The Company
          believes significant opportunities exist to increase sales and profits
          through  the  expansion  of  the  international  distribution  of  its
          products.  Currently,  the  non-U.S.  market  for  professional  salon
          products  represents  approximately 50% of the worldwide  market.  The
          Company,  however,  generated only  approximately  6% of its pro forma
          1998 net sales outside of the United States.  The Company is expanding
          its international distribution, which currently includes 37 countries.
          The Company will  continue to focus on  introducing  its products into
          its  recently  expanded  international  distribution  channels,  which
          provide access to most international beauty markets.

     *    ENHANCE OPERATIONAL  EFFICIENCIES OF ACQUIRED BUSINESSES.  The Company
          focuses   on   integrating   acquired   businesses.   Following   each
          acquisition,  the  Company  enhances  operational  efficiency  by  (1)
          eliminating  duplicative  administrative  functions,  thereby lowering
          overhead expenses, (2) expanding distribution channels, and (3) adding
          and disseminating  further market and product knowledge throughout the
          Company's operations. The Company plans to further enhance operational
          efficiency  through its new  corporate  headquarters  and  centralized
          operations  center in Scottsdale,  Arizona.  The Company believes that
          the continued  realization  of  operational  efficiencies  through its
          centralization and business process reengineering efforts will enhance
          internal growth and profitability.

     *    CAPITALIZE  ON LIFESTYLE  TRENDS.  The Company  intends to continue to
          capitalize  on current  lifestyle  trends  that are  favorable  to the
          professional salon industry.  Growing consumer focus on healthy living
          and  personal  indulgences  will  continue  to fuel  expansion  in the
          salon/spa industry, as the demand for services such as body treatments
          and massages increases. Additionally, the aging of the "baby boomers,"
          those born  between  1945 and 1964,  is  expected to benefit the salon
          industry.

     During 1999, the Company will be implementing  new  centralized  management
and  information   systems,   which  the  Company   believes  will  enhance  the
productivity of its existing operations and future acquisitions. The system will
permit the Company to improve economies of scale through centralized systems for
accounting,  purchasing, inventory management, financial reporting, and customer
service.  The  Company  believes  that  its  investment  in its  management  and
information systems will create a platform for long-term growth. The new systems
will assist the Company to access  real-time  information  regarding  customers,
distributors,  purchase orders, inventory availability, sales order history, and
other  information.  The systems will  facilitate  the Company's  integration of
future acquired businesses and improve operations by allowing the Company to:

     *    provide greater  customer  service by providing sales  representatives
          with  product   information,   promotions,   and  individual  customer
          purchasing patterns;

     *    improve sales and marketing functions by tracking fast and slow moving
          products and creating customized sales reports;

     *    facilitate improved inventory management and purchase forecasting; and

     *    transition   acquired   businesses  onto  the  Company's   centralized
          management  and  information  systems more  efficiently by providing a
          more flexible platform for data conversion.

ACQUISITION STRATEGY

     The  Company  seeks  to  acquire   professional  salon  product  businesses
possessing  complementary  salon products with  well-recognized  brand names and
strong distribution networks and to capitalize on the substantial  fragmentation
and growth potential existing in the professional  salon products industry.  The
Company  believes that there are many attractive  acquisition  candidates in the
professional  salon  products  industry,  primarily  as a result  of the  highly
fragmented  nature of the industry and the desire of owners for exit strategies.
The Company maintains a disciplined  approach to acquisitions and evaluates each
potential acquisition based on the following acquisition goals:

     *    CONTINUE TO ACQUIRE LEADING BRANDS.  The Company plans to continue its
          strategy  of  acquiring   leading  brand  names  that  complement  its
          portfolio of brands and command strong customer loyalty.  By following
          this strategy, the Company plans to solidify its position as a leading
          supplier  of  professional  salon  products  and  further  enhance its

                                       4
<PAGE>
          relationships   with   distributors.   Additionally,   well-known  and
          well-respected  professional  brands are able to command  consistently
          higher  prices than  mass-marketed  retail  brands and lesser known or
          respected professional brands.

     *    DIVERSIFY AND STRENGTHEN  PRODUCT  OFFERINGS.  The Company  intends to
          acquire  companies and product lines that diversify and strengthen its
          portfolio  of salon  products.  In this regard,  the Company  seeks to
          acquire  complementary  products that will enable it to offer multiple
          brands in each salon product  category and a broader range of products
          addressing  the various  niches within these  categories.  The Company
          believes that this approach will enable it to offer  distributors  and
          beauty supply  outlets,  which typically carry multiple brands in each
          category,  a more complete  "one-stop  shop" for the majority of their
          salon products.

     *    STRENGTHEN  DISTRIBUTION  NETWORK.  The  Company  intends  to  acquire
          companies and product lines that  strengthen  its  relationships  with
          domestic and international  distributors.  By acquiring companies with
          strong  distribution  networks,  the Company  will be in a position to
          increase  sales  by  introducing   its  existing   products  into  new
          distribution  channels and newly  acquired or developed  products into
          existing distribution channels.

     *    CONTINUE TO PURSUE ACQUISITIONS AT ATTRACTIVE CASH FLOW MULTIPLES. The
          Company  plans  to  continue  to  pursue  acquisition   candidates  at
          attractive  cash flow  multiples.  To achieve  this goal,  the Company
          evaluates each acquisition  candidate's  historical  operating results
          and future earnings potential,  the size and anticipated growth of the
          market it  serves,  and its  relative  position  in that  market.  The
          Company  typically  seeks to acquire  companies  and product  lines at
          acquisition  multiples of three to six times earnings before interest,
          taxes, depreciation, and amortization "EBITDA."

PRODUCTS

     The Company offers  products in all salon product  categories.  The Company
sells more than 550  professional  salon hair care,  natural  nail care and nail
enhancement  products,  skin and body care products,  and salon  accessories and
sundries,  representing  approximately  1,500 stock keeping units ("SKUs").  The
Company believes that the strength of its brand names is based on the reputation
of its products for quality among salon  professionals,  the  performance of its
products,  and its focused  commitment to the needs of salon  professionals  and
their clientele. The Company believes these brand names are widely recognized by
salon  product  distributors  and  salon  professionals  and  their  clients  as
high-quality,  effective  products.  In addition,  the Company believes that the
strength of the brand names of its existing  products and its reputation  within
the  industry  will assist it to  successfully  develop and market  product line
extension and new brands.

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

<TABLE>
<CAPTION>
                                                                                                 %         % RETAIL
                                                                                               SALON       SALES BY
PRODUCT CATEGORY                 PRODUCT DESCRIPTION                  BRAND NAMES              USE(1)      SALONS(1)
----------------                 -------------------                  -----------              ------      ---------
<S>                          <C>                                  <C>                          <C>          <C>
Hair Care                    Shampoo,    conditioner,    hair     ABBA,        AquaTonic,         40%          60%
                             color,     and    styling    and     Biogenol,  Body Drench,
                             finishing aids                       Framesi, Gena, Roffler

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

                                       5
<PAGE>
<TABLE>
<CAPTION>
<S>                          <C>                                  <C>                          <C>          <C>
Skin and Body Care           Moisturizing lotion,  indoor and     Body  Drench,  Clean  +         35         65
                             outdoor    tanning     products,     Easy,  Gena, One Touch,
                             personal     care      products,     Suntopia
                             paraffin  waxes,  thermo-therapy
                             treatments,   and  hair  removal
                             systems and depilatory products

Salon Equipment              Hairdryers,    curling    irons,     European    Touch   II,        100          0
Appliances and Sundries      salon   pedicure   spas,   salon     Maiko, SRC
                             furniture,     and     salonwear
                             (capes/aprons)
</TABLE>

----------
(1)  Company estimates

HAIR CARE PRODUCTS

     The Company  offers a variety of hair care products at various price points
under the ABBA, AquaTonic,  Biogenol,  Body Drench,  Framesi,  Gena, and Roffler
brands.  The ABBA  line,  which is  marketed  under  the ABBA  Pure and  Natural
trademark, consists of highly concentrated, high-quality products. The ABBA line
consists of 100% vegan,  aromatherapy inspired,  herbal hair care products using
botanical  ingredients.  The ABBA line includes shampoo,  conditioner,  gel, and
hair  spray  made  using a blend of  herbal  therapy  botanicals,  tri-molecular
proteins,  panthenol, and neutral henna designed to produce fuller, thicker, and
shinier  hair.  The  Company  recently  introduced  AquaTonic,   its  internally
developed,  pure and natural  hair care line,  which is designed to protect hair
against the negative  effects of hard and soft water and  variances in humidity.
The Company's  Framesi product line features premium quality hair color products
marketed  exclusively  for use in salons.  The Company  also  markets  under the
Biogenol brand name a complementary line of shampoos,  conditioners, and styling
aids specifically  formulated for color-treated  hair. The Roffler line includes
high-quality,   salon-distributed  shampoos,   conditioners,  and  styling  aids
designed  primarily  for men  between  the  ages of 18 and 40.  ABBA,  Biogenol,
Framesi,  and Roffler products are used widely throughout the hair care industry
and generate significant salon retail sales.

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

NAIL CARE PRODUCTS

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

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

     The Gena line of  natural  nail care  products  features  Warm-O-Lotion,  a
collagen-enriched  manicure  lotion  that  is  prominently  featured  in  salons
throughout the United States. The Gena line also includes  professional pedicure
products, such as Pedi Soft, a collagen-enriched  conditioning lotion; Pedi Care
dry skin lotion;  and Pedi Soak foot bath.  The Gena product line also  includes
paraffin therapy products, such as Paraffin Springs Therapy Spa, a paraffin bath

                                       6
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for  conditioning  heat  therapy  treatments;  the  Healthy  Hoof  nail and skin
treatment line to strengthen,  moisturize,  and condition nail and cuticles; and
MRX antiseptics and lotions for use by salon professionals.

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

     The Company's European Touch brand features nail treatment  products,  such
as Revivanail and  Theracreme.  The Company also offers  Momentum,  a three-step
nail overlay system that offers simplicity, speed, and strength.

SKIN AND BODY CARE

     The  Company  sells a broad  range of  professional  skin and body care and
tanning  products,  including  moisturizers,  lotions,  depilatories,  and  hair
removal  products,  under its Body Drench,  Clean + Easy,  Gera, One Touch,  and
Suntopia brands.

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

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

     Clean + Easy  and One  Touch  brands  include  patented  professional  hair
removal products.  The Clean + Easy brand serves the professionals  salon market
with an extensive  line of hair removal  products and related  sundries  used by
salon professional.  The Clean + Easy Roll-On Wax System is one of the Company's
top selling hair removal products. The One Touch line serves the retail consumer
in the  personal  care  market.  One  Touch  products  include  roll-on  waxers,
depilatories, and electrolysis products.

SALON EQUIPMENT, APPLIANCES, AND SUNDRIES

     The Company sells salon  equipment,  appliances,  and  sundries,  including
pedicure spa  equipment,  hairstyling  appliances,  and  salonwear.  The Company
markets under the European Touch II name various salon equipment products,  such
as  whirlpool  footspas,  salon  chairs  designed  for clients and  technicians,
manicure and pedicure tables and footrests,  and portable salon accessory carts.
These  products are intended to  capitalize on the growing trend among salons to
offer services  beyond the basic salon  services.  The SRC line of  professional
curling irons and blow dryers are recognized  within the salon industry as among
the finest  quality in salon  appliances.  The  appliances are designed for high
usage and  durability and feature quick startup and recovery  capabilities.  All
SRC  professional  curling irons are backed by the  industry's  only  three-year
warranty.  The Company's  Maiko salonwear line features capes and aprons for the
stylist and the stylist's clientele.

PRODUCT DEVELOPMENT

     The Company seeks to leverage the significant brand-name recognition of its
existing  product lines by introducing new products and  formulations  under its
core brand names as well as under newly developed  brands.  The Company believes
that its diverse product offerings provide it with greater capacity and know-how
to  develop,  test,  and  market  new  products  in each of its  product  lines,
including the expanded  application  of  proprietary  technologies.  The Company
contracts with third-party  manufacturers to develop new formulations  that meet
the Company's specifications and quality standards. The Company has not incurred
and does not expect to incur significant capital expenditures in connection with
its product development efforts. The Company's management, working together with
its sales and marketing and product development personnel, continuously monitors
shifts in the salon  industry to identify  new product  opportunities.  Feedback

                                       7
<PAGE>
from salon  professionals  and the Company's  educators  also play a significant
role in product  development.  The Company  believes the  experience  of its key
managers,  their  relationships  within the industry,  and the Company's product
line orientation enable it to quickly recognize and respond to salon innovations
and industry trends.

MARKETING

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

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

SALON AND DISTRIBUTION

     The  Company  believes  that  it has  strong  relationships  in each of the
professional salon distribution channels, including exclusive and open channels.
Products sold through  exclusive  channels are available to a limited  number of
distributors  in each  region,  while  those  sold  through  open  channels  are
available to all distributors.  See Item 1, "Business -Special  Considerations -
Dependence on Major Customers." (As Restated)

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

     A  professional  outside  sales  force  of  24  representatives  sells  the
Company's   nail  care  product  lines   nationally   and   internationally   to
approximately  500 salon product  distributors.  This distribution base includes
Sally  Beauty  Company,  Inc.  ("Sally"),  the  largest  wholesale  supplier  of
professional supply products with more than 1,900 supply stores worldwide.

     A sales force of seven marketing representatives,  telemarketers, and field
sales   personnel  as  well  as   approximately   25  independent   manufacturer
representatives  sell Body Drench  products to  approximately  155 salon product
distributors,  75 tanning supply  distributors,  and directly to more than 3,000
spas, resorts,  and health and country clubs throughout the United States and in
Canada, Europe, Latin America, and Australia.

     A  sales  force  of  two  employees  and   approximately   30  manufacturer
representatives  sell  SRC  salon  appliances  and  salonwear  nationally  on an
exclusive basis to more than 50 salon product  distributors,  14 beauty schools,
and six salon  chains.  One sales  manager  and  approximately  25  manufacturer
representatives sell Clean + Easy products to approximately 1,000 customers. Two
sales managers and approximately 25 manufacturer  representatives sell One Touch
products to approximately  400 customers.  Together,  Clean + Easy and One Touch
products are sold  internationally  to approximately 100 customers by a director
of international sales. An internal sales force of six marketing representatives
sells the Company's European Touch II pedicure spa products to approximately 700
salon product distributors and three salon chains.

                                       8
<PAGE>
PRODUCTION

     The Company has developed  relationships  with third parties to manufacture
most  of its  products.  Two  manufacturers  in  China  produce  certain  of the
Company's hair removal appliances.  Although the Company generally does not have
long-term  contracts  with  its  manufacturers,  the  Company  owns  most of the
formulations,  tools, and molds utilized in the  manufacturing  processes of its
products and believes it could substitute other manufacturers if necessary.  See
Item 1,  "Business - Special  Considerations  - Dependence  on Third Parties for
Manufacturing" and "Special Considerations - Risk of International Operations."

     The Company  produces  certain of its Clean + Easy and One Touch depilatory
products at its 32,000 square foot facility in Fair Lawn, New Jersey.  The 8,600
square foot manufacturing area in the Company's Fair Lawn facility is devoted to
the production of wax and the packaging of a variety of hair removal  appliances
for domestic and export  markets.  The wax production area consists of automatic
and manual batching and filling operations.  The Company maintains raw materials
and work-in-process  inventories in a 10,000 square foot warehouse and maintains
finished goods in the 5,000 square foot shipping and receiving area.

     The  Company  produces  certain  of its  Biogenol  and  Roffler  hair  care
products,   including   shampoos,   conditioners,   and  styling   aids  in  its
approximately  47,000  square  foot  facility  in  Corapolis,  Pennsylvania.  In
addition,  the Company  assembles  and  upholsters  its European  Touch II salon
furniture and appliances in its 15,000 square foot manufacturing and warehousing
facility in Butler, Wisconsin.

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

     The Company continually  monitors the quality of its products.  The Company
also carries product liability insurance at levels it believes to be adequate.

COMPETITION

     The Company's  products  compete directly  against  professional  salon and
other similar products sold through  distributors and professional  salons.  The
Company  competes  on the  basis of  brand  recognition,  quality,  performance,
distribution, and price.

     The Company's  principal  competitors in the  professional  salon hair care
products  market include  Nexxus  Products Co., Paul Mitchell  Systems,  Matrix,
Redken,  and  Sebastian   International.   The  Company's   competitors  in  the
professional  salon nail care market  include  Creative Nail Design,  Inc.,  OPI
Products, Inc., Star Nail Products, Inc., and Backscratchers, Inc. The Company's
largest competitors in the professional salon skin and body care products market
include  California  Suncare,  Inc., Supre Inc.,  Swedish Beauty  Manufacturing,
Inc.,   Australian   Gold,   Inc.,   American   International,   Inc.  and  Divi
International.  The Company's  largest  competitors  in the  professional  salon
appliances  and sundries  market are Helen of Troy Limited,  Belson  Products (a
division of Windmere Corporation),  Conair Corporation, Cricket Brush Company (a
division  of  West  Coast  Beauty  Supply  Co.),  Andre  (a  division  of  Fromm
International,  Inc.), and Betty Dain Creations, Inc. In addition, the Company's
professional salon products compete indirectly against hair care, nail care, and
skin and body  care  products  as well as salon  appliances  and  sundries  sold
through a variety of non-salon retail  channels,  including  department  stores,
mall-based specialty stores and, to a lesser extent, mass merchants, drugstores,
supermarkets,  telemarketing programs,  television "infomercials," and catalogs.
See Item 1, "Business - Special Considerations - Competition."

                                       9
<PAGE>
INTELLECTUAL PROPERTY

     The Company has registered,  or has pending  applications  for registration
for,  its  principal  trademarks  and brand  names in the  United  States and in
foreign countries.  Principal  trademarks and brand names of the Company include
ABBA Pure and Natural  Hair Care,  Alpha 9,  AquaTonic,  Biogenol,  Body Drench,
Clean + Easy,  Cosmic,  European Touch,  Gena,  Kizmit,  One Touch,  Pro Finish,
Revivanial, Roffler, SRC, and Suntopia.

     The  Company  believes  its  position  in  the  marketplace  depends  to  a
significant  extent upon the goodwill  engendered  by its  trademarks  and brand
names and,  therefore,  considers  trademark  protection  to be important to its
business. The Company will seek to register or otherwise protect all significant
trademarks and brand names in all active geographic markets.

     While the Company  currently  holds certain  patents,  the Company does not
consider any single  patent to be material to the conduct of its  business.  The
Company  relies on all  facets  of  intellectual  property  law to  protect  its
proprietary  information.  See Item 1,  "Business  -  Special  Considerations  -
Intellectual Property."

GOVERNMENT REGULATION

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

EMPLOYEES

     As of March 1, 1999,  the Company  employed 346 persons,  consisting of 135
administrative  employees,  139 warehouse and production employees, and 72 sales
and marketing employees. Framesi USA, a subsidiary of the Company, is a party to
a collective bargaining agreement relating to certain production employees.  The
Company believes that its relations with its employees are good.

   NAME                   AGE                               POSITION
   ----                   ---                               --------
Sam L. Leopold.........    45        Chairman of the Board, President, and Chief
                                     Executive Officer

Richard R. Ross........    32        Executive  Vice  President, Chief Financial
                                     Officer, Treasurer, and Director

N. Bruce Cowgill.......    52        Executive Vice President - Operations

Michael L. Kaplan......    30        Executive Vice President, General Counsel,
                                     and Secretary

J. Timothy Montrose....    32        Chief Accounting Officer

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

                                       10
<PAGE>
more than 50 retail  salons.  From 1989 to 1991, Mr. Leopold served as President
of Avanti International, Inc. and developed a line of hair care products.

     RICHARD R. ROSS has served as Chief Financial  Officer and Treasurer of the
Company since April 1997 and as Executive  Vice  President and a director of the
Company since May 1998. Mr. Ross served in the audit and business advisory group
of Arthur  Andersen  LLP from  June 1989 to April  1997,  most  recently  in the
position of Manager.  In his  capacity at Arthur  Andersen  LLP, Mr. Ross worked
with  the  Company  from  its  inception  in June  1995,  as well as with  other
acquisition-oriented  public companies, until joining the Company in April 1997.
Mr. Ross is a certified public accountant.

     N. BRUCE COWGILL has served as Executive Vice President - Operations of the
Company since July 1998. Mr. Cowgill  served as Vice  President,  North American
Sales of Sebastian International,  a professional hair care company, from August
1995 to July 1998. In 1989, Mr. Cowgill founded Environmental  Solutions Labs, a
consulting firm serving health and beauty aid manufacturers.  Mr. Cowgill served
as President of  Environmental  Solutions Labs until 1995. Mr. Cowgill served as
President and Chief Executive Officer of State Supply Warehouse Co., the largest
professional  beauty supply distributor in North America,  from December 1986 to
April  1989.  In  addition,  he served as Vice  President  of Global  Marketing,
Advertising and Education,  and International Sales for Redken Laboratories from
July 1978 to August 1983. Mr. Cowgill held marketing  management  positions with
Proctor and Gamble, Warner Lambert, and R.J. Reynolds from 1972 to 1978.

     MICHAEL L. KAPLAN has served as Executive Vice President,  General Counsel,
and  Secretary of the Company  since July 1998.  Mr. Kaplan was an attorney with
the  Phoenix-based  law firm of O'Connor,  Cavanagh,  Anderson,  Killingsworth &
Beshears, P.A. from September 1995 to June 1998, when he specialized in mergers,
acquisitions, and corporate finance and represented  acquisition-oriented public
companies, including the Company. Mr. Kaplan also was an attorney with Fennemore
Craig, P.C. from September 1993 to August 1995.

     J. TIMOTHY MONTROSE has served as Chief  Accounting  Officer of the Company
since  November 1998 and has been employed by the Company since  December  1996.
From November  1995 to December  1996,  Mr.  Montrose  served as the  Accounting
Manager for Cellular World Corporation, a retail chain of wireless communication
products stores. From April 1993 to November 1995, Mr. Montrose served as Senior
Accountant  with the Dallas Stars Hockey Club of the National  Hockey League and
was actively involved in the club's transition from Minneapolis to Dallas.

                                       11
<PAGE>
                             SPECIAL CONSIDERATIONS

     THE FOLLOWING  FACTORS,  IN ADDITION TO THOSE  DISCUSSED  ELSEWHERE IN THIS
REPORT,  SHOULD BE  CAREFULLY  CONSIDERED  IN  EVALUATING  THE  COMPANY  AND ITS
BUSINESS.

CERTAIN FACTORS THAT COULD ADVERSELY AFFECT OPERATING RESULTS

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

     *    the Company's  ability to identify  trends in the  professional  salon
          products industry;

     *    the  Company's  ability to create and  introduce  products on a timely
          basis that take advantage of industry trends;

     *    the continued market acceptance of the Company's  products among salon
          professionals and their clientele;

     *    the Company's ability to arrange for timely production and delivery of
          its products;

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

     *    competition and competitive pressures on prices.

     The success of the Company's  operations depends to an extent upon a number
of factors relating to discretionary  consumer  spending.  These factors include
economic conditions,  such as employment,  business conditions,  interest rates,
and tax  rates,  as well  as the  continued  growth  of the  professional  salon
products industry. General social trends and economic conditions could adversely
affect consumer  spending,  which would impact the Company's growth,  net sales,
and profitability.  In addition,  a decline in the demand for professional salon
products and related  merchandise could adversely affect the Company's business,
financial condition, and operating results.

ACQUISITION STRATEGY

     The Company completed four acquisitions in fiscal 1996, three  acquisitions
in fiscal  1997,  and four  acquisitions  in fiscal  1998.  The  success  of the
Company's  acquisition  strategy depends in large part on its ability to acquire
additional professional salon product businesses.

     The Company may not be able to continue to identify and  complete  suitable
acquisition  opportunities.  In addition,  increased competition for acquisition
candidates may increase  purchase  prices for  acquisitions to levels beyond the
Company's  financial  capability or assessment  of value.  Unforeseen  expenses,
difficulties,  and delays frequently encountered in connection with acquisitions
could inhibit the Company's growth and negatively impact profitability.

     The Company's  ability to complete  acquisitions  successfully  will depend
upon the availability of adequate cash reserves,  the Company's ability to issue
its  securities,  including  Common Stock, in  acquisitions,  and its ability to
raise  additional  cash  through  debt  and  equity  financing.  The  amount  of
securities  that the Company may be required to issue and the terms on which the
Company  can  secure  debt or equity  financing  will  depend  on the  operating
performance  and  financial  condition of the Company,  the trading price of its
Common Stock, and conditions in the debt and equity markets.  The size,  timing,
and integration of any future acquisitions may cause substantial fluctuations in
operating results from quarter to quarter.  Consequently,  operating results for
any quarter may not be  indicative  of the results  that may be achieved for any
subsequent fiscal quarter or full fiscal year.

     In addition,  the Company may issue  shares of Common  Stock in  connection
with  future  acquisitions.  The  issuance of such  shares  would  result in the
dilution of the voting power of the currently  outstanding shares and could have
a dilutive effect on earnings per share.

                                       12
<PAGE>
INTEGRATION OF BUSINESS OPERATIONS

         The  integration  of the  management,  operations,  and  facilities  of
acquired  businesses  could involve  unforeseen  difficulties.  The difficulties
could  have a  material  adverse  effect on the  Company's  business,  financial
condition, and operating results. The Company could encounter difficulties in:

     *    integrating  and  managing  effectively  the  operations  of  acquired
          businesses with the Company's operations;

     *    achieving the Company's  operating  growth  strategies with respect to
          acquired businesses;

     *    obtaining   increased  revenue   opportunities  as  a  result  of  the
          anticipated  synergies  created  by  expanded  product  offerings  and
          additional distribution channels; and

     *    reducing the overall selling,  general,  and  administrative  expenses
          associated with acquired businesses.

     The Company  conducts due diligence  reviews of each acquired  business and
receives  representations and warranties  regarding each acquired business.  The
Company's  acquisition  agreement  with  respect to each  acquisition  generally
contains purchase price  adjustments,  rights of set-off,  and other remedies in
the event that certain unforeseen liabilities or issues arise in connection with
the acquisition. However, these remedies may not be sufficient to compensate the
Company in the event that any unforeseen liabilities or other issues arise.

     The Company has begun to use the  opportunities  created by the combination
of acquired businesses to effect substantial cost savings, including a reduction
in  operating   expenses  as  a  result  of  the   elimination   of  duplicative
administrative,   warehouse,   and  distribution   facilities,   functions,  and
personnel.  During  fiscal 1998,  the Company  began to implement a new computer
system to assist with the integration of acquired  businesses.  The new computer
system  will  assist  Company  personnel  in  accessing   information  regarding
customers, distributors, purchase orders, inventory levels, sales order history,
and other  information.  See Item 1,  "Business  - Strategy  -  Internal  Growth
Strategy."   Significant   uncertainties,   however,   accompany   any  business
combination, and the Company may not always be able to integrate the facilities,
functions,  and personnel of an acquired  business in order to achieve operating
efficiencies  or otherwise  realize cost  savings.  The inability to achieve the
anticipated  cost savings could have a material  adverse effect on the Company's
business, financial condition, and operating results.

CONSUMER PREFERENCES AND NEW PRODUCT INTRODUCTIONS

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

DEPENDENCE ON DISTRIBUTION CHANNELS

     The Company  sells a  significant  portion of its products to  professional
salon product  distributors  and salon chains.  Distributors and salon chains in
the  United  States  and  in  foreign  markets  have  periodically   experienced
consolidation  and other  ownership  changes and in the future may  consolidate,
restructure,  or realign their ownership or affiliations.  Some distributors and
salons may be thinly  capitalized  and unable to  withstand  changes in business
conditions.  These  circumstances  could decrease the number of distributors and
salons that sell the Company's products or increase the ownership  concentration
within the professional salon products industry.

     If a significant  distributor or salon chain discontinues  selling or using
the Company's products,  performs poorly,  cannot pay for purchased products, or
reorganizes  or  liquidates  and is unable to  continue  selling  the  Company's
products,  the Company's business,  financial  condition,  and operating results
could  be  materially  and  adversely  affected.  In  addition,   the  laws  and
regulations  of various  states may limit the  ability of the  Company to change

                                       13
<PAGE>
distributors  under  certain  circumstances,  making it difficult to terminate a
distributor  without good or just cause,  as defined by  applicable  statutes or
regulations. The resulting difficulty or inability to replace distributors, poor
performance of  distributors,  or the inability to collect  accounts  receivable
from major  distributors  could have a material  adverse effect on the Company's
business, financial condition, and operating results.

DEPENDENCE ON THIRD PARTIES FOR MANUFACTURING

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

     The  Company   generally  does  not  have  long-term   contracts  with  its
third-party  manufacturers.  Although  the Company  believes it would be able to
secure other third-party manufacturers to produce its products,  particularly as
a result of its ownership of many of the formulations,  tools, and molds used in
the manufacturing  process, the Company's operations would be adversely affected
if it  lost  its  relationship  with  any of its  current  suppliers  (including
particularly two  manufacturers  of hair removal  appliances in China) or if the
operations  of its  current  suppliers  or sea or air  transportation  with  its
China-based  manufacturers  were  disrupted or terminated  even for a relatively
short period of time. See Item 1, "Business  --Special  Considerations - Risk of
International  Operations."  The  Company's  tools and molds are  located at the
facilities of its domestic and offshore third-party manufacturers.  Accordingly,
significant  damage to these facilities could result in the loss of or damage to
a material portion of the Company's key tools and molds,  and production  delays
could result while new facilities are being arranged and  replacement  tools and
molds are being produced.

     The Company does not maintain an  inventory of  sufficient  size to provide
protection  for any  significant  period  against  an  interruption  of  supply,
particularly  if it were  required  to obtain  alternative  sources  of  supply.
Although  the Company  does not  purchase  directly  the raw  materials  used to
manufacture  the  majority  of  its  products,  it  is  potentially  subject  to
variations  in the prices it pays its  third-party  manufacturers  for  products
depending on their cost for raw materials.

DEPENDENCE ON FRAMESI S.P.A.

     The Company holds exclusive license rights to sell Framesi brand hair color
and hair care products in the majority of the Western Hemisphere,  including the
United  States and most of Latin  America.  The  Company  sells  these  products
pursuant to an exclusive  40-year  license with Framesi  S.p.A.  that expires in
2036. In addition,  the Company manufacturers and sells hair care products under
the  Framesi  and  Biogenol  brand  names  pursuant  to the  license.  Under the
agreement,  the Company  imports  hair color  products  manufactured  by Framesi
S.P.A.  Any difficulties  encountered by Framesi S.p.A.  with respect to product
defects, production delays, cost overruns, or the inability to fulfill orders on
a timely basis or the termination or breach of the license  agreement could have
a material adverse effect on the Company's business,  financial  condition,  and
operating results.

DEPENDENCE ON MAJOR CUSTOMERS

     The Company  depends upon salon  product and tanning  supply  distributors,
beauty  supply  outlets,  and  salon  chains to  distribute  its  products.  The
Company's  largest  customer,  Sally,  a  division  of  Alberto-Culver  Company,
accounted for  approximately 14% of the net sales of the Company during 1997 and
9% of the net sales of the Company  during 1998.  Sally would have accounted for
approximately  9% of the pro forma  consolidated net sales of the Company during
1997 and 7% of the pro forma  consolidated net sales of the Company during 1998.
The Company currently  maintains more than 5,300 active customer  accounts.  The
Company,  however,  does not have long-term contracts with any of its customers.
An adverse change in, or termination of, the Company's  relationship with, or an
adverse  change  in the  financial  viability  of,  one  or  more  of its  major
customers,  including  Sally,  could  have  a  material  adverse  effect  on the
Company's business, financial condition, and operating results.

                                       14
<PAGE>
MANAGEMENT OF GROWTH

     Since  its  initial  public   offering  in  November  1996,  the  Company's
operations have undergone significant changes and growth. These changes include:

     *    the acquisition and integration of 11 professional salon businesses;

     *    the expansion of its product lines and distribution channels; and

     *    the restructuring of its third-party manufacturing arrangements.

     The  Company's  growth and  expanding  operations  may place a  significant
strain on the Company's management,  administrative,  operational, and financial
resources  as well  as  increased  demands  on its  systems  and  controls.  The
Company's ability to manage its growth will require it to:

     *    integrate  successfully the operations of acquired businesses with the
          Company's operations;

     *    enhance further its operational, financial, and management systems and
          its marketing programs;

     *    motivate, manage, and retain its current employees; and

     *    identify, hire, and train additional employees.

The  failure of the  Company  to  effectively  manage  its  growth  could have a
material  adverse effect on the Company's  business,  financial  condition,  and
operating results.

LEVERAGE

     The Company is highly  leveraged.  On December  31,  1998,  the Company had
total indebtedness of approximately  $143.1 million and stockholders'  equity of
approximately $29.2 million.  This indebtedness included $100 million of 10 7/8%
senior  subordinated notes due 2008 (the "Notes"),  approximately $37 million of
debt under its  five-year  senior  credit  facility with a group of banks ("1998
Credit Facility"),  and approximately $6.1 million of indebtedness in connection
with one  acquisition.  Subject  to  certain  conditions,  the  Company  and its
subsidiaries will be permitted to incur additional indebtedness in the future.

     The Company  intends to raise  additional  capital  through  debt or equity
financings beginning in the second quarter of 1999 to fund its continued growth.
At this time,  it is not possible to assess the type of  financings  the Company
will pursue or the terms or  availability of such  financings.  The inability to
secure such  financing on acceptable  terms could have an adverse  effect on the
Company's  business,  operations,  and financial  position.  In addition,  it is
possible that such financing will further increase the Company's leverage.

     The Company's ability to service,  repay, or refinance its indebtedness and
to fund planned  capital  expenditures  and product  development  expenses  will
depend on its future performance. To a certain extent, the Company's performance
will be  subject  to  general  economic,  financial,  competitive,  legislative,
regulatory,  and other factors that are beyond its control.  The Company may not
be able to generate  sufficient cash flow from operations,  or future borrowings
may not be available under the 1998 Credit  Facility in an amount  sufficient to
enable the  Company to  service or repay its  indebtedness  or to fund its other
liquidity  needs.  In  addition,  the Company may not be able to  refinance  its
indebtedness on commercially reasonable terms or at all if it desires to do so.

     The  degree  to  which  the  Company  is  leveraged  could  have  important
consequences, including the following:

     *    making it more difficult for the Company to raise  additional funds to
          finance desired acquisitions;

     *    increasing the Company's vulnerability to general adverse economic and
          industry conditions;

                                       15
<PAGE>
     *    limiting the Company's ability to obtain other funds to finance future
          working capital, capital expenditures,  product development, and other
          general corporate requirements;

     *    limiting the  Company's  flexibility  in planning for, or reacting to,
          changes in its business and the industry; and

     *    placing the Company at a competitive  disadvantage as compared to less
          leveraged competitors.

RESTRICTIVE DEBT COVENANTS

     The Company's  1998 Credit  Facility and the  agreement  covering the Notes
contain  certain  restrictive  financial and operating  covenants that limit the
Company's  discretion with respect to certain business matters.  These covenants
place  significant  restrictions  on,  among  other  things,  the ability of the
Company to:

     *    incur additional indebtedness;

     *    create liens or other encumbrances;

     *    make certain payments and investments; and

     *    purchase,   sell,  or  otherwise   dispose  of  assets  and  merge  or
          consolidate with other entities.

     The 1998 Credit  Facility  requires the Company to meet  certain  financial
ratios and tests. A failure to comply with the obligations contained in the 1998
Credit  Facility or the  agreement  covering the Notes,  if not cured or waived,
could result in the  acceleration  of the related debt and the  acceleration  of
debt under other  instruments that contain  cross-acceleration  or cross-default
provisions.  If the Company were obligated to repay all or a significant portion
of its  indebtedness,  the Company may not have sufficient cash to do so and may
not be able to refinance such indebtedness.  Other indebtedness that the Company
may  incur  in  the  future  may  contain  financial  or  other  covenants  more
restrictive than those of the 1998 Credit Facility or the Notes.

POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER

     Upon a  change  of  control,  the  Company  will be  required  to  offer to
repurchase all outstanding  Notes at 101% of their principal amount plus accrued
and  unpaid  interest  to the  date of  repurchase.  The  Company  may not  have
sufficient  funds  available  at the time of any  change of  control to make any
required  repurchases of Notes tendered.  In addition,  restrictions in the 1998
Credit Facility may not allow the Company to make such required repurchases.

RISK OF INTERNATIONAL OPERATIONS

     International  sales  constituted  approximately  14% of the  Company's pro
forma  consolidated net sales during 1997 and  approximately 6% of the Company's
pro forma  consolidated  net sales  during  1998.  In  addition,  certain of the
Company' s products are  manufactured in China.  See Item 1, "Business - Special
Considerations  - Dependence  on Third Parties for  Manufacturing."  The Company
intends to expand its  international  sales  through  acquisitions  and internal
growth.

     The Company's international operations require it to maintain equipment and
inventories abroad, manufacture and sell products internationally,  and purchase
raw materials and components from foreign suppliers.  The Company also relies on
its third-party  manufacturers to provide personnel and facilities in China. The
Company's  international  operations expose it to certain economic and political
risks, including the following:

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

     *    foreign currency exchange rate fluctuations;

     *    restrictions on the repatriation of funds;

                                       16
<PAGE>
     *    overlap of tax issues;

     *    the business and financial condition of the third-party manufacturers;

     *    political and economic conditions abroad; and

     *    the possibility of:

          -    expropriation or nationalization of assets

          -    supply disruptions

          -    currency controls

          -    changes in tax laws, tariffs, and freight rates.

     These factors could disrupt or adversely affect the Company's relationships
with  its  third-party   manufacturers  in  China.   Based  on  existing  market
conditions,  the Company  believes that it could  establish  alternative  supply
relationships  if its supply sources in China were disrupted.  However,  because
establishing these  relationships  involves numerous  uncertainties  relating to
delivery requirements, price, payment terms, quality control, and other matters,
the Company is unable to predict  whether such  relationships  would be on terms
satisfactory to the Company.

     The Company's relationships with its third-party manufacturers in China are
also  subject  to  risks  associated  with  changes  in  U.S.   legislation  and
regulations  relating to imports,  including  quotas,  duties,  taxes, and other
charges or restrictions on imports. Products that the Company imports from China
currently receive preferential tariff treatment accorded to goods from countries
granted "most favored nation" status. Under the Trade Act of 1974, the President
of the United States has the authority, upon making specified findings, to waive
certain  restrictions  that would  otherwise  render China  ineligible  for most
favored nation  treatment.  The President has waived these  provisions each year
since 1979. Most favored nation status was  accordingly  renewed in 1998 despite
opposition by certain members of Congress. In the future, Congress may encourage
the President to reconsider the renewal of most favored nation status for China.
China may not continue to enjoy most favored  nation  status.  Raw materials and
finished  products  entering the United States from China without the benefit of
most favored  nation  treatment  would be subject to  significantly  higher duty
rates.

DEPENDENCE ON KEY PERSONNEL

     The Company's  success  depends to a significant  degree upon the skills of
its  current  key  employees  and its  ability  to  identify,  hire,  and retain
additional sales, marketing, and financial personnel. The Company cannot provide
assurance  that it will be able to retain its existing key  personnel or attract
and retain  additional  key  personnel.  The loss of services of key  personnel,
particularly Sam Leopold (the Company's  chairman of the Board,  President,  and
Chief  Executive  Officer),  or the  inability to attract and retain  additional
qualified  personnel  could have a material  adverse  effect upon the  Company's
business,  financial  condition,  and  operating  results.  The  Company  has an
employment agreement with Mr. Leopold that extends through September 2001.

INTELLECTUAL PROPERTY

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

                                       17
<PAGE>
     While the Company  currently  holds certain  patents,  the Company does not
consider any single  patent to be material to the conduct of its  business.  The
Company  relies  primarily  on  trade  secret  protection  for  its  proprietary
information.  The Company faces risks associated with its intellectual property,
including the following:

     *    the  Company's   intellectual   property  rights  may  be  challenged,
          invalidated, or circumvented;

     *    the Company's  intellectual  property rights may not provide  adequate
          protection;

     *    the  Company  may  not  have   sufficient   resources   to   prosecute
          infringements of its intellectual property rights;

     *    the Company may not be able to protect its intellectual property; and

     *    third parties may assert  intellectual  property  infringement  claims
          against the Company

See Item 1, "Business - Intellectual Property."

COMPETITION

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

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

     Increased  competition  and any  reductions  in  competitors'  prices  that
require the Company to implement price reductions in order to remain competitive
could  have a  material  adverse  effect on the  Company's  business,  financial
condition, and operating results.

GOVERNMENT REGULATION AND POTENTIAL CLAIMS

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

     The  operations  of the  Company  subject it to federal,  state,  and local
government regulations related to the use, storage,  discharge,  and disposal of
hazardous  chemicals.  The  Company's  failure to comply with  current or future
environmental regulations could result in the imposition of fines, suspension of
production, or a cessation of operations. Compliance with such regulations could
require the Company to acquire  costly  equipment or to incur other  significant
expenses.  Any failure by the Company to control the use, or adequately restrict
the discharge,  of hazardous  substances could subject it to future liabilities.
The  Company  believes  that it is in  substantial  compliance  with  applicable

                                       18
<PAGE>
federal,  state,  and local rules and  regulations  governing  the  discharge of
hazardous  materials into the environment.  The Company does not anticipate that
it will make significant capital expenditures for environmental  control matters
in the near future.

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

CONTROL BY MANAGEMENT

     Sam Leopold  (the  Chairman of the Board,  President,  and Chief  Executive
Officer of the Company)  beneficially owns  approximately 25% of the outstanding
shares of the Company's Common Stock. Consequently,  Mr. Leopold has the ability
to  influence  the  election of all of the  directors of the Company and thereby
control the business,  affairs, and management of the Company. In addition,  Mr.
Leopold has the ability to influence most matters requiring stockholder approval
including  significant  corporate  matters,  such as amendments to the Company's
Certificate of Incorporation  and any merger,  consolidation,  or sale of all or
substantially  all of the assets of the Company.  Such a high level of ownership
may have the  effect  of  delaying,  deterring,  or  preventing  a change in the
control of the Company,  even when such a change would be in the best  interests
of the other stockholders,  and may adversely affect the voting and other rights
of the other holders of the Company's Common Stock.

POSSIBLE VOLATILITY OF MARKET PRICE OF COMMON STOCK

     The market price of the Company's Common Stock has fluctuated significantly
since the Company's  initial  public  offering in November  1996. The period was
marked  by  generally  rising  stock  prices,   extremely   favorable   industry
conditions,  and substantially  improved operating results by the Company. These
favorable conditions may not continue. The trading price of the Company's Common
Stock in the future could be subject to a variety of factors, including:

     *    wide  fluctuations  in response to quarterly  variations  in operating
          results of the Company;

     *    actual or anticipated  announcements of new products by the Company or
          its competitors;

     *    changes in analysts' estimates of the Company's financial performance;

     *    general conditions in the markets in which the Company competes; and

     *    worldwide economic and financial conditions.

     The stock market also has experienced extreme price and volume fluctuations
that have  particularly  affected the market  prices for many rapidly  expanding
companies  and that often have been  unrelated to the operating  performance  of
such companies.  These broad market fluctuations and other factors may adversely
affect the market price of the  Company's  Common  Stock.  Any  reduction in the
trading price of the Company's Common Stock could adversely affect the Company's
ability to raise capital in the public market and adversely affect the Company's
ability to complete acquisitions. The market price of the Company's Common Stock
may affect the  willingness  of the  Company to use its Common  Stock to acquire
other  companies and the  willingness of potential  acquired  companies or their
owners to accept the Company's Common Stock. Declines in the market price of the
Company's  Common  Stock may cause  acquired  companies to seek  adjustments  to
purchase prices or other remedies to offset any decline in value.

SHARES ELIGIBLE FOR FUTURE SALE

     Sales  of  substantial  amounts  of  Common  Stock by  stockholders  of the
Company,  or even the potential for such sales,  are likely to adversely  affect
the market price of the Common Stock and could impair the  Company's  ability to
raise capital by selling equity  securities.  Of the 4,067,503  shares of Common
Stock  outstanding  as of March 29, 1999,  approximately  3,203,077  were freely

                                       19
<PAGE>
tradeable without restriction or further registration under the securities laws.
An aggregate of 864,426 shares held by certain officers and directors  currently
are  available  for sale.  Shares  held by these  affiliates  of the Company are
subject to the resale limitations of Rule 144 described below.

     Generally,  under Rule 144, an  affiliate  of the Company or any person who
beneficially owns restricted  securities with respect to which at least one year
has  elapsed  since  the later of the date the  shares  were  acquired  from the
Company may, every three months,  sell in ordinary brokerage  transactions or to
market  makers and amount of shares equal to the greater of 1% of the  Company's
then-outstanding  Common Stock or the average weekly trading volume for the four
weeks prior to the proposed sale of such shares.

     The Company also has authority to issue  additional  shares of Common Stock
and shares of one or more  series of  preferred  stock.  The  Company  may issue
shares  of  Common  Stock  or  preferred  stock  for  use  as a  portion  of the
consideration in future  acquisitions.  These shares may be registered under the
Securities Act, in which case they generally will be freely tradeable upon their
issuance.

RIGHT TO ACQUIRE SHARES

     A total of 891,200  shares of Common Stock have been  reserved for issuance
upon  exercise of options  granted or which may be granted  under the  Company's
stock option plans.  Options to acquire 794,381 shares of Common Stock currently
are outstanding,  including options to purchase 785,381 shares granted under the
Company's  stock option plans. In addition,  there are  outstanding  warrants to
acquire 203,000 shares of Common Stock at an exercise price of $12.00 per share,
warrants  to acquire  150,000  shares of Common  Stock at an  exercise  price of
$10.18 per share,  and warrants to acquire  10,000  shares of Common Stock at an
exercise  price of $11.38  per share,  in each case  subject  to  adjustment  in
accordance  with  the  anti-dilution  and  other  provisions  set  forth  in the
warrants.  During the terms of such options and warrants,  the holders will have
the  opportunity  to profit from an  increase in the market  price of the Common
Stock. The existence of such stock options and warrants may adversely affect the
terms on which the Company can obtain additional  financing,  and the holders of
such  options and  warrants  can be expected to exercise or convert such options
and warrants at a time when the  Company,  in all  likelihood,  would be able to
obtain  additional  capital by offering shares of its Common Stock on terms more
favorable to the Company than those provided by the exercise of such options and
warrants.

LACK OF DIVIDENDS

     The Company has never paid any cash  dividends on its Common Stock and does
not currently  anticipate that it will pay dividends in the foreseeable  future.
Instead,  the  Company  intends  to apply  its  earnings  to the  expansion  and
development of its businesses.

CHANGE IN CONTROL PROVISIONS

     The Company's  First  Amended and Restated  Certificate  of  Incorporation,
Bylaws,  and the  Shareholder  Rights Plan contain  provisions that may have the
effect of making more difficult or delaying attempts by others to obtain control
of the  Company,  even  when  these  attempts  may be in the best  interests  of
stockholders.

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

                                       20
<PAGE>
     The rights  have  certain  anti-takeover  effects.  The  rights  will cause
substantial  dilution to a person or group that  attempts to acquire the Company
on terms not approved by the Company's Board of Directors, except pursuant to an
offer conditioned on a substantial  number of rights being acquired.  The rights
should not interfere with any merger or other business  combination  approved by
the Board of  Directors  since the rights may be redeemed by the Company at $.01
per right at any time before a Stock Acquisition Date.

YEAR 2000 COMPLIANCE

     Many currently  installed  computer systems and software products are coded
to accept only two-digit  entries in the date code field.  Beginning in the year
2000,  these  date  code  fields  will  need to  accept  four-digit  entries  to
distinguish  21st century dates from 20th century dates.  As a result,  computer
systems and software  used by many  companies  may need to be upgraded to comply
with such "Year 2000"  requirements.  Significant  uncertainty exists concerning
the potential  effects  associated with the impact the Year 2000 issue will have
on the reporting and operating systems maintained by the Company,  its customers
and  suppliers,  and other  service  providers.  Although  the Company  does not
anticipate  that the Year  2000  issue  will  have a  significant  impact on its
business,  any significant  Year 2000 compliance  problem of any of the Company,
its customers, or its third-party contract manufacturers or suppliers could have
a material adverse effect on the Company's business,  financial  condition,  and
operating  results.  See  Item  7,  "Management's  Discussion  and  Analysis  of
Financial  Condition  and  Results  of  Operations  (as  restated)  - Year  2000
Compliance."

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     Certain  statements  and  information  contained  in this Report  under the
headings "Business - Special  Considerations," and "Management's  Discussion and
Analysis  of  Financial  Condition  and  Results of  Operations"  (as  restated)
concerning future,  proposed, and anticipated activities of the Company; certain
trends  with  respect  to the  Company's  revenue,  operating  results,  capital
resources,  and  liquidity  or with  respect to the markets in which the Company
competes or the beauty care industry in general;  and other statements contained
in  this  Report   regarding   matters  that  are  not   historical   facts  are
forward-looking statements, as such term is defined in the applicable securities
laws.  Forward-looking  statements,  by their  very  nature,  include  risks and
uncertainties,  many of which are beyond  the  Company's  control.  Accordingly,
actual  results may  differ,  perhaps  materially,  from those  expressed  in or
implied by such  forward-looking  statements.  Factors  that could cause  actual
results to differ materially include those discussed elsewhere under "Business -
Special Considerations."

ITEM 2. PROPERTIES

     The Company leases its corporate headquarters and operations center located
in a 66,000 square-foot  facility in Scottsdale,  Arizona. The facility includes
approximately  43,000  square  feet of  executive  and  administrative  offices;
approximately  20,000  square fee utilized for  warehousing;  and  approximately
3,000  square feet  utilized  for a test salon and a retail  store.  The Company
believes the facility will be adequate for its needs for the foreseeable future.
The Company also leases production,  administrative, and warehouse space in Fair
Lawn, New Jersey; Butler,  Wisconsin;  Corapolis,  Pennsylvania;  and the United
Kingdom; as well as administrative space in Lebanon,  Tennessee, and Costa Mesa,
California.

ITEM 3. LEGAL PROCEEDINGS

     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.  The  Company's  insurance  coverage  may not be  adequate to cover all
liabilities  occurring  out of any claims that may be  instituted in the future,
and insurance may not cover some future claims. A lack of insurance coverage may
have an  adverse  effect on the  Company's  business,  financial  condition,  or
operating results.

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

     Not applicable.

                                       21
<PAGE>
                                     PART II

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

     The Company's  Common Stock has been traded on the Nasdaq  National  Market
under the symbol "STYL" since its initial  public  offering on November 21, 1996
at $10.00 per share. The following table sets forth the high and low sale prices
of the Common  Stock for the  calendar  quarters  indicated  as  reported on the
Nasdaq National Market.

                                                        HIGH            LOW
                                                        ----            ---
1996
Fourth quarter (since November 21, 1996)...........    $10 5/8         $ 9 1/4
1997
First quarter......................................    $12 1/4         $10
Second quarter.....................................    $11 1/2         $ 9
Third quarter......................................    $16             $11 3/8
Fourth quarter.....................................    $17 1/2         $14 3/4
1998
First quarter......................................    $24 1/8         $15 3/4
Second quarter.....................................    $26 5/8         $22
Third quarter......................................    $23 3/8         $10 7/8
Fourth quarter.....................................    $18 7/8         $ 8 3/8
1999
First quarter (through March 29, 1999).............    $14 3/4         $ 9 5/8

     On March 29, 1999, the closing sale price of the Company's Common Stock was
$13 per share. On March 29, 1999, there were  approximately 14 holders of record
and approximately 1,142 beneficial owners of the Company's Common Stock.

     The  Company has never paid any cash  dividends  on its Common  Stock.  The
Company  currently  plans to  retain  earnings  to  finance  the  growth  of the
Company's  business  rather  than to pay cash  dividends.  Payments  of any cash
dividends  in the future  will  depend on the  financial  condition,  results of
operations,  and capital  requirements  of the Company as well as other  factors
deemed relevant by the Board of Directors. The Company's credit facility and its
agreement  covering the Notes contain  restrictions on the Company's  ability to
pay cash dividends,  and future borrowing may contain similar restrictions.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations  -  Liquidity  and  Capital  Resources"  contained  in Item 7 of this
Report.

ITEM 6. SELECTED FINANCIAL DATA

     The following selected consolidated financial data as of and for the fiscal
years  ended  December  31,  1998 and 1997 and as of  December  31, 1996 and the
period  from  November  27,  1996 to  December  31,  1996 is  derived  from  the
consolidated  financial  statements  (1997 and 1998 have been  restated)  of the
Company,  which have been audited by Arthur  Andersen  LLP,  independent  public
accountants. The selected historical financial data for Gena and Body Drench for
each of the three years in the periods ended  February 29, 1996 and December 31,
1995, respectively, was derived from their financial statements, which have been
audited by Arthur Andersen LLP,  independent  public  accountants.  The selected
historical  financial  data  for JDS for the  three  years in the  period  ended
September  30, 1996 was derived from its financial  statements,  which have been
audited by Arthur Andersen LLP,  independent  public  accountants.  The selected
historical  financial  data for KII for the year  ended  December  31,  1995 was
derived  from its  financial  statements,  which  have  been  audited  by Arthur
Andersen LLP, independent public accountants.  The selected historical financial
data for KII for the year ended December 31, 1995 was derived from its financial
statements,  which have been audited by Arthur Andersen LLP,  independent public
accountants.  In addition, the selected historical financial data for Gena, Body
Drench, JDS, and KII for the periods March 1, 1996 to November 26, 1996; January
1, 1996 to November 26, 1996;  October 1, 1996 to November 26, 1996; and January
1, 1996 to November  26,  1996,  respectively,  was derived  from the  financial
statements of each of the Initial Businesses,  which have been audited by Arthur
Andersen  LLP,   independent  public  accountants.   The  historical   financial
information  for  earlier  periods  for  Gena,  Body  Drench,  JDS,  and KII not
specifically  referenced  above was derived from each of the Initial  Businesses
unaudited  financial  statements.  The selected  financial  data provided  below

                                       22
<PAGE>
should be read in conjunction with Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements of the Company and related notes thereto appearing  elsewhere in this
Report.

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

<TABLE>
<CAPTION>

                                                     NOVEMBER 27, 1996      YEAR ENDED           YEAR ENDED
                                                             TO          DECEMBER 31, 1997   DECEMBER 31, 1998
                                                     DECEMBER 31, 1996     (AS RESTATED)        (AS RESTATED)
                                                     -----------------     -------------        -------------
<S>                                                  <C>                 <C>                     <C>
STATEMENT OF OPERATIONS DATA - STYLING TECHNOLOGY
CORPORATION:
  Net sales .........................................    $  1,083            $ 36,505            $  83,366
  Gross profit ......................................         512              19,749               44,368
  Selling, general, and administrative expenses......         737              12,201               31,619
  Income (loss) from operations .....................        (225)              7,548               12,327
  Income (loss) before extraordinary item ...........        (151)              3,164                1,651
  Extraordinary item, net of tax benefit ............          --              (1,377)              (1,091)
  Income (loss) after extraordinary item ............        (151)              1,787                  560
  Basic earnings (loss) per share:
    Income (loss) before extraordinary item .........    $  (0.04)           $   0.80            $    0.41
    Extraordinary item, net .........................          --               (0.35)               (0.27)
    Net income (loss) ...............................       (0.04)               0.45                 0.14
  Diluted earnings (loss) per share:
    Income (loss) before extraordinary item .........       (0.04)               0.77                 0.38
    Extraordinary item, net .........................          --               (0.34)               (0.25)
    Net income (loss) ...............................       (0.04)               0.43                 0.13
BALANCE SHEET DATA:
   Working capital ..................................       4,459              13,005               30,566
   Total assets .....................................      32,234              90,886              214,073
   Long-term debt and other, less current portion....       2,316              47,377              140,366
   Total stockholders' equity .......................      25,319              27,525               29,248

STATEMENT OF OPERATIONS DATA - INITIAL BUSINESSES

                                                                              FOR THE PERIOD
                                              YEARS ENDED FEBRUARY 28,         MARCH 1, 1996
                                       ----------------------------------           TO
                                       1993      1994      1995      1996    NOVEMBER 26, 1996
                                       ----      ----      ----      ----    -----------------
STATEMENT OF OPERATIONS DATA - GENA
Net sales ........................... $6,537    $6,426    $7,524    $8,384        $6,708
Gross profit ........................  2,868     3,146     3,360     3,565         2,807
Selling, general, and
  administrative expenses............  2,570     2,744     2,964     3,033         1,984
Income from operations ..............    298       402       396       532           823
Net income ..........................    204       278       232       317           529
</TABLE>

                                       23
<PAGE>
<TABLE>
<CAPTION>
                                                                              FOR THE PERIOD
                                            YEARS ENDED DECEMBER 31,          JANUARY 1, 1996
                                       ----------------------------------           TO
                                       1992      1993      1994      1995    NOVEMBER 26, 1996
                                       ----      ----      ----      ----    -----------------
<S>                                  <C>        <C>        <C>        <C>          <C>
STATEMENT OF OPERATIONS DATA - BODY DRENCH
Net sales ........................... $6,234    $6,653    $11,138   $11,871      $ 9,642
Gross profit ........................  2,667     2,614      4,796     5,444        3,776
Selling, general, and
  administrative expenses............  2,285     2,055      4,076     4,883        4,005

Income (loss) from operations........    382       559        720       561         (229)
Net income (loss) ...................    382       328        446       294         (137)


                                                                             FOR THE PERIOD
                                           YEARS ENDED SEPTEMBER 30,         OCTOBER 1, 1996
                                       ----------------------------------          TO
                                       1993      1994      1995      1996    NOVEMBER 26, 1996
                                       ----      ----      ----      ----    -----------------
STATEMENT OF OPERATIONS DATA - JDS
Net sales ...........................  $3,799    $3,578   $3,368   $3,114        $613
Gross profit ........................   2,054     1,926    1,817    1,707         338
Selling, general, and
  administrative expenses............   2,092     1,982    1,844    1,615         258
Income (loss) from operations........     (38)      (56)     (27)      92          80
Net income (loss) ...................     (29)      (16)       9       69          45

                                                                              FOR THE PERIOD
                                            YEARS ENDED DECEMBER 31,         JANUARY 1, 1996
                                       ---------------------------------            TO
                                       1992     1993      1994      1995     NOVEMBER 26, 1996
                                       ----     ----      ----      ----     -----------------
STATEMENT OF OPERATIONS DATA - KII
  Net sales .........................   --     $ 102     $1,999    $1,558         $1,248
  Gross profit ......................   --        60      1,014       846            663
  Selling, general, and
    administrative expenses .........   --        87      1,040       891            591
  Income (loss) from operations......   --       (27)       (26)      (45)            72
  Net income (loss) .................   --       (32)      (104)     (135)            (2)
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS (AS RESTATED) -

INTRODUCTION

     The  following   discussion  reflects  the  restatement  of  our  financial
statements for the fiscal years 1997 and 1998. The restatement is a result of an
internal   investigation   that   revealed   financial   reporting   errors  and
irregularities  in the Body Drench division.  It was determined that revenue was
recognized improperly on certain transactions where inventory was not shipped to
customers. The restatement resulted in a decrease in revenues from $38.1 million
and $90.4 million,  previously reported,  to $36.5 million and $83.4 million for
the years ended December 31, 1997 and 1998,  respectively.  Net income decreased
from $2.8 million and $4.1  million,  previously  reported,  to $1.8 million and
$560,000 for the years ended December 31, 1997 and 1998, respectively.

                                       24
<PAGE>
     The Company  develops,  produces,  and markets a wide array of professional
salon  products.  The Company  offers a  diversified  line of  well-established,
brand-name  professional  salon  products  across all salon product  categories,
including  hair care,  nail care,  and skin and body care  products,  as well as
salon  appliances  and  sundries.  The Company  sells it products  primarily  to
professional salon industry  distribution  channels,  beauty salon outlets,  and
salon chains, and, to a lesser extent, to spas, resorts,  and health and country
clubs  throughout  the United States as well as in other parts of North America,
Latin America, Europe, and Asia.

     The Company was founded in June 1995 and has grown its  business,  expanded
its product offerings,  and strengthened its distribution  channels  principally
through  acquisitions.  The Company  acquired  four  professional  salon product
businesses in November 1996,  simultaneously  with the Company's  initial public
offering. Prior to that date, the Company had conducted no operations.  The four
professional salon product  businesses  acquired by the Company were (i) Gena, a
producer  and marketer of  professional  natural  nail care  products,  pedicure
products,  skin care products,  including  paraffin  therapy  products and, to a
lesser extent, hair care products;  (ii) Body Drench, a producer and marketer of
high-end professional tanning,  moisturizing,  and personal care products; (iii)
JDS,  a producer  and  marketer  of  acrylic  and  fiberglass  nail  enhancement
products; and (iv) KII, a marketer of high-end salon appliances (such as curling
irons and blow  dryers) and salon wear (such as capes and  aprons).  Gena,  Body
Drench, JDS, and KII collectively are referred to as the "Initial Businesses."

     During  1997,  the  Company  further  expanded  its  product  offerings  by
acquiring  three   professional  salon  product  businesses  to  complement  the
Company's existing operations.  In March 1997, the Company acquired the "Utopia"
line of indoor tanning  products now sold under the  "Suntopia"  brand name from
Creative  Laboratories,  Inc. In June 1997, the Company  purchased  ABBA,  which
produces  a  proprietary  line  of  aromatherapy-based  professional  hair  care
products.  In December 1997, the Company acquired the Clean + Easy and One Touch
product  lines  of  Inverness,  consisting  of salon  and  retail  hair  removal
apparatus and products  marketed  under the "Clean + Easy" and "One Touch" brand
names.  In May 1998, the Company  acquired  substantially  all of the assets and
assumed certain  operating  liabilities of Pro Finish,  a producer of name-brand
professional nail enhancement and nail care products.  In June 1998, the Company
acquired  European  Touch and European  Touch II (together the  "European  Touch
Companies").   European  Touch  is  a  developer,   producer,  and  marketer  of
professional nail enhancement and treatment  products and European Touch II is a
developer,  producer, and marketer of salon pedicure equipment.  In August 1998,
the Company acquired Framesi USA. Framesi holds exclusive license rights for the
sale in the  United  States  and most of Latin  America  of  Framesi  hair color
products along with its complementary  Biogenol line of shampoos,  conditioners,
and styling  products.  Through these  strategic  transactions,  the Company has
acquired an extensive network of strong distribution relationships,  experienced
sales forces,  established  marketing  and salon  industry  education  programs,
significant  production and sourcing  capabilities,  and experienced  management
personnel  with  extensive  relationships  in the  professional  salon  products
industry.

     The  combined  purchase  price of the  acquisitions  in 1997 and 1998  were
approximately  $45.0  million and $63.0  million,  respectively.  On a pro forma
basis, total revenue of the Company would have been approximately $109.4 million
and $108.6  million in 1997 and 1998,  respectively,  assuming the  acquisitions
described above had taken place on January 1, 1997.

     The  following  discussion  has been divided into ten  sections.  The first
section  presents the restated results of operations of the Company for the year
ended  December 31, 1998; the second  section  presents the restated  results of
operations  of the Company for the year ended  December 31, 1997;  the next four
sections  contain a discussion of the historical  results of operations for each
of the four Initial Businesses,  and the last three sections contain discussions
of the  Company's  seasonality  and  quarterly  results,  liquidity  and capital
resources, and its Year 2000 compliance.  The information presented for the four
Initial Businesses is based on each Company's historical fiscal year end and the
period from the most  recently  completed  fiscal year to November 26, 1996 (the
closing date of the acquisitions of the Initial Businesses).

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

                                       25
<PAGE>
RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1998 (AS RESTATED)

     NET SALES

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

     COST OF SALES

     Cost of sales  amounted to $39.0  million,  or 46.8% of net sales,  for the
year ended  December  31, 1998,  up slightly on a percentage  basis from cost of
sales of $16.8  million,  or 46.0% of net sales,  during the year ended December
31, 1997.

     GROSS PROFIT

     As a result of the  foregoing,  the Company  realized gross profit of $44.4
million, or 53.2% of net sales, for the year ended December 31, 1998,  remaining
relatively  constant with gross profit of $19.7 million,  or 54.0% of net sales,
for the year ended December 31, 1997.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

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

     On  November  5,  1998,  the  Company  announced  it would  centralize  its
operations in Scottsdale,  Arizona and outsource  segments of its production and
warehousing functions. These initiatives are part of the further integration and
consolidation  of the Company's  acquired  businesses with the goal of obtaining
additional  operating  efficiencies  and  positioning  the Company for continued
internal  growth and future  acquisitions.  The Company also  announced it would
take advantage of new  capabilities  in computer  technologies  by combining the
reengineering  of its business  processes with an Enterprise  Resource  Planning
information  technology  transformation,  which it expects will drive  operating
efficiencies and improved customer service.

     These  initiatives  took place  during the fourth  quarter of 1998 and will
continue  during the first and second  quarters of 1999. In connection  with the
centralization  and  business  process  reengineering  activities,  the  Company
anticipates  approximately  $1.5 million (before income taxes) in  non-recurring
reengineering  costs,  which will be reflected in the Company's income statement
as incurred.  Over the same period,  the Company will invest  approximately $3.0
million  in  capital   expenditures   related  to  its  information   technology
transformation.  The costs of reengineering  and information  technology will be
accounted for under recently issued accounting  pronouncements,  Emerging Issues
Task Force Issue No. 97-13,  "Accounting for Costs Incurred In Connection With a
Consulting  Contract or an  Internal  Project  that  Combines  Business  Process
Reengineering and Information Technology  Transformation," Statement of Position
98-1,  "Accounting for the Costs of Computer Software  Developed or Obtained for
Internal  Use," and Statement of Position 95-3,  "Recognition  of Liabilities In
Connection with a Purchase Business Combination."

                                       26
<PAGE>
     EXTRAORDINARY ITEM

     In  June  1998,   the  Company  issued  $100  million  of  10  7/8%  Senior
Subordinated  Notes due 2008 in an offering exempt from  registration  under the
Securities  Act. A portion of the  proceeds  from the offering was used to repay
the Company's $75.0 million credit facility  ("December 1997 Credit  Facility").
The Company reported an extraordinary,  non-cash charge during the quarter ended
June 30,  1998 of  approximately  $1.1  million,  net of taxes,  or $(0.25)  per
diluted  share,  related to  unamortized  financing  costs  associated  with the
December 1997 Credit Facility.

     NET INCOME

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

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

     Income from  operations  was $12.3 million for the year ended  December 31,
1998, an increase of $4.8 million, or 64.0%, over income from operations of $7.5
million for the year ended December 31, 1997.  Earnings before interest,  taxes,
depreciation,  and amortization  ("EBITDA") was $17.5 million for the year ended
December 31, 1998,  an increase of $8.1 million,  or 86.2%,  over EBITDA of $9.4
million  for the year  ended  December  31,  1997.  EBITDA  is not  intended  to
represent  net cash  provided by  operating  activities  as defined by generally
accepted accounting principles and should not be considered as an alternative to
net income as an indicator of operating  performance  or to net cash provided by
operating activities as a measure of liquidity. The Company believes EBITDA is a
measure  commonly  reported  and widely used by analysts,  investors,  and other
interested parties who monitor business  performance.  Accordingly,  the Company
has disclosed this information to permit a more complete comparative analysis of
its operating performance.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 1997 (AS RESTATED)

     NET SALES

     Net sales  amounted to $36.5  million for the year ended  December 31, 1997
compared to combined net sales for the Initial  Businesses  of $23.0 million for
the year ended December 31, 1996. The $13.5 million,  or 58.7%,  increase in net
sales was partly the result of increased  sales of the Company's Body Drench and
Gena product lines as compared to the sales achieved by the  individual  Initial
Businesses in the same period  during 1996. In addition,  net sales for the year
ended December 31, 1997 include the operating results of ABBA from June 26, 1997
to  December  31, 1997 and the  operating  results of Clean + Easy and One Touch
from December 1, 1997 to December 31, 1997.

     GROSS PROFIT

     As a result of the  foregoing,  the Company  realized  gross profit for the
year ended  December  31, 1997,  of $19.7  million,  or 54.0% of net sales.  The
improvement  in gross margin  percentage  over that  reported by the  individual
Initial  Businesses prior to their acquisition is attributable  primarily to the
negotiation of reduced product costs in December 1996 with the primary  supplier
of the Company's Body Drench product line and the  consolidation  of warehousing
and  production  functions  of the Gena and Alpha  9/Omni  product  lines at the
Company's  old  facility  in  Duncanville,  Texas.  The  Company  also  achieved
substantial  reduction  in cost of goods  through  negotiation  with third party
suppliers at ABBA and Clean + Easy and One Touch.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general, and administrative expenses were $12.2 million, or 33.4%
of net  sales,  for the  year  ended  December  31,  1997,  which  represents  a
significant  improvement over such expenses  incurred by the individual  Initial

                                       27
<PAGE>
Businesses,  and other  acquired  companies  prior to their  acquisition  by the
Company. This improvement in selling,  general, and administrative expenses as a
percentage  of  net  sales  is  primarily  attributable  to the  elimination  of
duplicative management and other personnel, duplicative selling and distribution
costs, the  consolidation  of certain  accounting,  human  resources,  and other
administrative  functions of the Initial Businesses and the acquired  companies.
This improvement, however, is partially offset by non-cash goodwill amortization
resulting  from  acquisitions  and  increased  costs  of  operating  as a public
company.

     EXTRAORDINARY ITEM

     In connection  with the December 1997  acquisition  of the Clean + Easy and
One Touch product lines discussed  above,  the Company entered into the December
1997 Credit  Facility,  as discussed  under  "Liquidity  and Capital  Resources"
below.  The December 1997 Credit Facility  replaced the previous credit facility
negotiated  in  connection  with the June 1997  acquisition  of ABBA ("June 1997
Credit  Facility").  The Company reported an  extraordinary,  non-cash charge of
approximately  $1.4 million,  net of income taxes, or $(0.34) per diluted share,
related to the write-off of unamortized financing costs associated with its June
1997 Credit Facility.

     NET INCOME

     The Company earned net income of $3.2 million,  or $0.80 per diluted share,
for the year ended  December 31, 1997 before the  extraordinary  item  discussed
above. After the extraordinary  item, net income for the year ended December 31,
1997  was  $1.8  million,  or  $0.43  per  diluted  share.  These  results  mark
significant  improvement  over the operating  results of the Initial  Businesses
prior to their acquisition. The Company attributes the improvement in net income
during  the  year  ended   December  31,  1997   primarily  to  the   successful
implementation of a key component of its business  strategy,  the enhancement of
operating efficiencies of the Initial Businesses,  and subsequent  acquisitions.
Prior year  financial  information  for the  Initial  Businesses  presented  and
discussed  herein  excludes the operating  results of ABBA and the Clean + Easy,
One Touch, and Suntopia product lines, which were acquired during 1997.

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

     Income from  operations  was $7.5  million for the year ended  December 31,
1997. Earnings before interest, taxes, depreciation, and amortization ("EBITDA")
was $9.4 million for the year ended December 31, 1997.

PERIOD FROM NOVEMBER 27, 1996 TO DECEMBER 31, 1996

     NET SALES

     Net sales amounted to $1.1 million for the period from November 27, 1996 to
December 31, 1996.  The level of sales during this period is not  indicative  of
anticipated  future sales levels or historical sales of the Initial  Businesses,
as the Company's  primary focus during this period was the  consolidation of the
four Initial Businesses, which impacted selling efforts at each of the Company's
division that existed at that time.

     COST OF SALES

     Cost of sales  was  $600,000  for the  period  from  November  27,  1996 to
December 31, 1996.  Cost of sales was 52.7% of net sales for this period,  which
is  consistent  with the  combined  cost of sales as a  percentage  of net sales
incurred by the Initial Businesses, prior to their acquisition.

     GROSS PROFIT

     As a result of the  foregoing,  gross  profit  amounted to $500,000 for the
period from November 27, 1996 to December 31, 1996.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general and administrative  expenses were $700,000 for the period
from November 27, 1996 to December 31, 1996, which is generally  consistent with
the level of  selling,  general,  and  administrative  expenses  incurred by the

                                       28
<PAGE>
Initial Businesses on a combined basis, prior to their acquisition.  During this
period,  the Company was focused  primarily  on the process of  integrating  the
operations of the Initial Businesses.

     NET LOSS

     Net loss for the Company was $200,000 for the period from November 27, 1996
to December 31, 1996.

RESULTS OF OPERATIONS - GENA

PERIOD FROM MARCH 1, 1996 TO NOVEMBER 26, 1996

     NET SALES

     Net sales  amounted  to $6.7  million  for the period from March 1, 1996 to
November 26, 1996.  Annualized net sales for this period were approximately $8.9
million,  which  represents  an increase of 6.6% as compared  with $8.4  million
recorded in the fiscal year ended  February 29, 1996.  The increase in net sales
was primarily  attributable  to an increase in sales related to Gena's  paraffin
spa product line.

     COST OF SALES

     Cost of sales amounted to $3.9 million for the period from March 1, 1996 to
November  26,  1996.  Cost of  sales as a  percentage  of net  sales,  increased
slightly  to 58.1% for the period  from March 1, 1996 to  November  26,  1996 as
compared to 57.5% for the 12 months ended  February  29,  1996.  The increase in
cost of sales as a  percentage  of net sales was  primarily  attributable  to an
increase in certain  material  costs,  partially  offset by  increased  sales of
Gena's  paraffin  spa line,  which  generates  higher  margin than Gena's  other
products.

     GROSS PROFIT

     As a result of the foregoing, gross profit amounted to $2.8 million for the
period from March 1, 1996 to November 26, 1996,  which  represents a decrease to
41.9% of net sales as  compared  to 42.5% of net sales for the fiscal year ended
February 29, 1996.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general and  administrative  expenses  were $2.0  million for the
period  from  March  1,  1996  to  November  26,  1996.  Selling,  general,  and
administrative  expenses,  as a percentage  of net sales,  decreased to 29.6% as
compared with 36.2% for the 12 months ended  February 29, 1996.  The decrease in
selling,  general,  and  administrative  expenses was primarily  attributable to
reduced  shareholder  compensation  for the period March 1, 1996 to November 26,
1996 in connection with the sale of Gena to the Company.

     NET INCOME

     Net income for the Company was  $500,000  for the period from March 1, 1996
to November 26, 1996.

TWELVE MONTHS ENDED FEBRUARY 29, 1996

     NET SALES

     Net sales  increased  11.4% to $8.4 million in the 12 months ended February
29,  1996 from $7.5  million  in the 12 months  ended  February  28,  1995.  The
increase in net sales was attributable to growth in sales of existing  products,
which  consisted  primarily of increased  acceptance of the paraffin spa product
line that was introduced in February 1993 and the continued  sales growth of the
MRX product line that was acquired in September 1994.

     COST OF SALES

     Cost of sales,  as a percentage of net sales,  increased to 57.5% in the 12
months  ended  February  29, 1996 as compared  with 55.3% in the 12 months ended
February 28, 1995. The increase was attributable to additional costs incurred to
produce the new paraffin spa equipment,  which has a higher cost of sales,  as a
percentage of net sales, at approximately 64.0%. Additionally, cost of sales, as

                                       29
<PAGE>
a percentage of net sales, on the new MRX product line,  introduced in September
1994, was approximately  60.0%,  which was also higher than Gena's other product
lines.

     GROSS PROFIT

     As a result of the foregoing,  gross profits increased 6.1% to $3.6 million
in the 12 months  ended  February  29,  1996 from $3.4  million in the 12 months
ended February 28, 1995.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general, and administrative  expenses were $3.0 million in the 12
months  ended  February  29,  1996 and 1995.  The slight  increase  in  selling,
general, and administrative  expenses was attributable to an increase in selling
and promotional  costs primarily  related to increased sales of the paraffin spa
product.  Additionally,  Gena was  offering  greater  promotional  incentive  to
generate  additional  sales  resulting in  increased  selling  costs.  The above
increases  were  partially   offset  by  reduced  travel  expenses  and  smaller
management bonuses than had been paid in the previous period.

     NET INCOME

     Net income  increased 36.6% to $300,000 in the 12 months ended February 29,
1996 from $200,000 in the 12 months ended February 28, 1995.

TWELVE MONTHS ENDED FEBRUARY 28, 1995

     NET SALES

     Net sales  increased  17.1% to $7.5 million in the 12 months ended February
28,  1995 from $6.4  million  in the 12 months  ended  February  28,  1994.  The
increase  was  primarily  a result of  increased  sales of Gena's  paraffin  spa
product line,  which had been introduced in February 1993, and the February 1994
acquisition of Design Classic, a manufacturer of fiberglass nail products.  Gena
also  acquired the MRX product  line, an  all-purpose  antiseptic  and hydrating
lotion,  in September  1994 and began to ship  substantial  quantities in fiscal
1995.  Total sales  related to the Design  Classic  and MRX  product  lines were
approximately $1.0 million in 1995.

     COST OF SALES

     Cost of sales,  as a percentage of net sales,  increased to 55.3% in the 12
months  ended  February  28, 1995 as compared  with 51.0% in the 12 months ended
February 28, 1994,  as a result of  additional  labor,  machine  retooling,  and
material costs incurred to produce the new paraffin spa product, which has lower
gross margins that Gena's other  products.  In addition,  Gena incurred  certain
one-time  packaging  and other costs to integrate  their newly  acquired  Design
Classic product line. Gena also experienced an increase in certain raw materials
costs.

     GROSS PROFIT

     As a result of the foregoing,  gross profit  increased 6.8% to $3.4 million
in the 12 months  ended  February  28,  1995 from $3.1  million in the 12 months
ended February 28, 1994.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general,  and  administrative  expenses  increased  8.0%  to $3.0
million in the 12 months  ended  February  28, 1995 from $2.7  million in the 12
months  ended  February  28,  1994,  as a result of the  increase in selling and
promotional  costs related to the introduction and promotion of the paraffin spa
product  line.  In addition,  Gena  incurred an increase in costs related to the
acquisition of Design Classic, which includes amortization of intangible assets,
and increased personnel costs required to support the new product.

     NET INCOME

     Net income  decreased 16.5% to $200,000 in the 12 months ended February 28,
1995 from $300,000 in the 12 months ended February 28, 1994.

                                       30
<PAGE>
RESULTS OF OPERATIONS - BODY DRENCH

PERIOD FROM JANUARY 1, 1996 TO NOVEMBER 26, 1996

     NET SALES

     Net sales  amounted to $9.6  million for the period from January 1, 1996 to
November 26, 1996. Annualized net sales for the period were $10.5 million, which
decreased  11.3% as  compared  with the net sales of $11.9  million  recorded in
fiscal year ended December 31, 1995. The decrease in net sales was  attributable
to difficulty in obtaining inventory from third party manufacturers, due to cash
flow difficulties experienced by Body Drench's parent company. Such difficulties
caused  Body  Drench to be unable to  fulfill  certain  sales  orders due to its
inability  to deliver  products to customers in time for the Spring 1996 tanning
season.  In  addition,  sales  of  the  Contemporary  product  line,  which  was
introduced in October 1994,  declined  during 1996, but was partially  offset by
the increased  sales of its new tanning  product  releases:  Tan FX, Tan EX, and
increased sales of the Company's line of moisturizing lotion products.

     COST OF SALES

     Cost of Sales  amounted to $5.9  million for the period  January 1, 1996 to
November 26, 1996. Cost of sales as a percentage of net sales increased to 60.8%
for the period  January 1, 1996 to November 26, 1996 as compared  with 54.1% for
the 12  months  ended  December  31,  1995.  The  increase  in cost of sales was
primarily attributable to a reduction in selling prices for certain products, as
well as increased  cash  discount for certain  customers in an effort to maximum
cash  collections,  related to the cash flow  difficulties  experienced  by Body
Drench's parent company.

     GROSS PROFIT

     As a result of the foregoing, gross profit amounted to $3.8 million for the
period from January 1, 1996 to November 26, 1996.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general,  and  administrative  expenses were $4.0 million for the
period  from  January  1, 1996 to  November  26,  1996.  Selling,  general,  and
administrative  expenses,  as a  percentage  of net sales,  remained  relatively
unchanged  at 41.5% for the  period  January  1, 1996 to  November  26,  1996 as
compared with 41.1% for the 12 months ended December 31, 1995.

     NET LOSS

     As a result of the foregoing,  Body Drench incurred a net loss amounting to
$137,000 for the period from January 1, 1996 to November 26, 1996.

TWELVE MONTHS ENDED DECEMBER 31, 1995

     NET SALES

     Net sales in 1995  increased  6.6% to $11.9  million  compared  with  $11.1
million in 1994.  The  increase  in net sales was due to the  release of the new
Contemporary  product line introduced in October 1994.  During 1995, Body Drench
realized a full year of Contemporary sales as compared to only a partial year in
1994.  The increase in net sales was also  impacted by the release of the Tan FX
and Tan EX products,  and the  Contemporary  products  introduced  in the fourth
quarter of 1994.

     COST OF SALES

     Cost of sales, as a percentage of net sales,  decreased to 54.1% for the 12
months ended  December  31, 1995 as compared  with 56.9% for the 12 months ended
December 31, 1994.  This decrease was due primarily to the  introduction  of the
Contemporary  product line in October  1994,  which carried a lower raw material
cost in relation to net sales as compared to products sold during 1995.

                                       31
<PAGE>
     GROSS PROFIT

     As a result of the foregoing,  gross profit increased 13.5% to $5.4 million
in the 12 months  ended  December  31,  1995 from $4.8  million in the 12 months
ended December 31, 1994.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general,  and  administrative  expenses  increased  19.8% to $4.9
million  in  1995  compared  with  $4.1  million  in  1994.   The  increase  was
attributable to the continued increased of shipping costs in proportion to sales
levels due to the growing  number of backorders  from the  Contemporary  product
line.  Backorders  resulted  primarily  from Body Drench's  inability to produce
sufficient product to meet customer orders due to cash flow shortages at DBN and
Body Drench. Additionally,  advertising expenses increased by approximately 1.0%
of net sales as a result of the heavy promotional  efforts in various magazines,
catalogs and brochures  with the release of the new  Contemporary  product line.
Body Drench also incurred higher personnel costs through the addition of several
marketing and sales professionals.

     NET INCOME

     Net income  decreased 34.1% to $300,000 in the 12 months ended December 31,
1995 compared with $400,000 in the 12 months ended December 31, 1994.

TWELVE MONTHS ENDED DECEMBER 31, 1994

     NET SALES

     Net sales  increased 67.4% to $11.1 million in the 12 months ended December
31, 1994  compared  with $6.7 million in the 12 months ended  December 31, 1993.
The increased in net sales was  attributable to management's  decision to expand
the  distribution  network to include several beauty supply  distributors.  This
expansion of distribution channels included establishing a dedicated sales force
to promote  Body  Drench's  products  to the  tanning  and beauty  industry.  In
addition, Body Drench introduced the Contemporary product line in October 1994.

     COST OF SALES

     Cost of sales, as a percentage of net sales,  decreased to 56.9% for the 12
months ended  December  31, 1994 as compared  with 60.7% for the 12 months ended
December 31, 1993. This decrease was due primarily to lower  purchasing costs as
a result of the higher volume of purchases during 1994. In addition, Body Drench
incurred lower overhead and labor costs as a percentage of revenues, as a result
of increased  production  efficiencies due to higher utilization of prepackaged,
ready to ship products.

     GROSS PROFIT

     As a result of the foregoing,  gross profit increased 83.5% to $4.8 million
in the 12 months  ended  December  31,  1994 from $2.6  million in the 12 months
ended December 31, 1993.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general,  and  administrative  expenses  increased  98.3% to $4.1
million in 1994  compared  with $2.1  million in 1993.  The increase in selling,
general,   and   administrative   expenses   related  to  additional  sales  and
administrative  positions  to support the  corresponding  increase in sales.  In
addition,   Body  Drench  incurred  significant  upfront  costs  of  promotional
literature,  including new catalogs,  brochures and price sheets, related to the
introduction of the  Contemporary  product line introduced in October 1994. Body
Drench also  incurred a higher level of freight  charges in  proportion to sales
levels  due to  significant  number  of  backorders,  resulting  from  inventory
shortages, which caused additional shipment costs to customers.

     NET INCOME

     Net income  increased  36.0% to $400,000 in 1994  compared with $300,000 in
1993.

                                       32
<PAGE>
RESULTS OF OPERATIONS - JDS

PERIOD FROM OCTOBER 1, 1996 TO NOVEMBER 26, 1996

     NET SALES

     Net sales  amounted  to  $600,000  for the period  from  October 1, 1996 to
November 26, 1996.

     COST OF SALES

     Cost of sales  amounted to $300,000  for the period from October 1, 1996 to
November  26,  1996.  Cost of sales,  as a  percentage  of net  sales,  remained
relatively constant at 44.9% for the period October 1, 1996 to November 26, 1996
as compared with 45.2% for the 12 months ended September 30, 1996.

     GROSS PROFIT

     As a result of the  foregoing,  gross  profit  amounted to $300,000 for the
period from October 1, 1996 to November 26, 1996.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general, and administrative expenses were $300,000 for the period
from October 1, 1996 to November 26, 1996. Selling,  general, and administrative
expenses,  as a percentage  of net sales,  decreased  to 42.0% as compared  with
51.8% for the 12 months  ended  September  30,  1996.  The  decrease in selling,
general, and administrative  expenses as a percentage of net sales was primarily
attributable  to reduced  shareholders'  compensation  for the period October 1,
1996 to November 26, 1996, in connection with the sale of JDS to the Company.

     NET INCOME

     As a result of the foregoing,  net income for the Company was approximately
$45,000 for the period October 1, 1996 to November 26, 1996.

TWELVE MONTHS ENDED SEPTEMBER 30, 1996

     NET SALES

     Net sales  decreased 7.5% to $3.1 million in the 12 months ended  September
30, 1996 compared  with $3.4 million in the 12 months ended  September 30, 1995.
The decrease was caused  primarily by a decline in its customer base as a result
of the acquisition of several of JDS' customers by a large beauty supply company
that is not a customer of JDS.

     COST OF SALES

     Cost of sales,  as a  percentage  of net  sales,  for the 12  months  ended
September 30, 1996  decreased to 45.2%,  as compared with 46.0% in the 12 months
ended  September 30, 1995.  The decrease as a percentage of net sales is related
primarily to the  negotiation of more favorable  pricing on its materials  costs
with certain of its vendors.

     GROSS PROFIT

     As a result of the foregoing,  gross profit  decreased 6.1% to $1.7 million
in the 12 months ended  September  30, 1996 compared with $1.8 million in the 12
months ended September 30, 1995.

                                       33
<PAGE>
     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general,  and  administrative  expenses  decreased  12.4% to $1.6
million in the 12 months ended  September 30, 1996 compared with $1.8 million in
the 12 months ended September 30,1995.  The decrease resulted primarily from the
elimination  of  warehouse  personnel,  as a result  of JDS'  efforts  to reduce
overhead costs.

     NET INCOME

     As a result of the foregoing,  net income was approximately  $69,000 in the
12 months ended September 30, 1996 as compared with approximately  $9,000 in the
12 months ended September 30, 1995.

TWELVE MONTHS ENDED SEPTEMBER 30, 1995

     NET SALES

     Net sales  decreased 5.9% to $3.4 million for the 12 months ended September
30, 1995, compared with $3.6 million for the 12 months ended September 30, 1994.
The decrease was  primarily a result of increased  competition  from several new
products in the market that impacted JDS' market share.

     COST OF SALES

     Cost of sales, as a percentage of net sales,  remained  relatively constant
at 46.9% in the 12 months ended September 30, 1995 as compared with 46.2% in the
12 months ended  September 30, 1994. The decrease was a result of obtaining more
favorable freight terms with its shipping contractors.

     GROSS PROFIT

     As a result of the foregoing,  gross profit  decreased 5.6% to $1.8 million
in the 12 months  ended  September  30, 1995 from $1.9  million in the 12 months
ended September 30, 1994.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general,  and  administrative  expenses  decreased  7.0%  to $1.8
million for the 12 months ended  September 30, 1995,  compared with $2.0 million
for the 12 months ended  September 30, 1994. The decrease was primarily a result
of a decrease in promotional  costs, as no new products were  introduced  during
1995, and a decrease in management  salaries  resulting from an effort to reduce
overhead costs.

     NET INCOME

     Net income was $8,574 in the 12 months ended  September  30, 1995  compared
with a net loss of $16,494 in the 12 months ended September 30, 1994.

RESULTS OF OPERATIONS - KII

PERIOD FROM JANUARY 1, 1996 TO NOVEMBER 26, 1996

     NET SALES

     Net sales  amounted to $1.2  million for the period from January 1, 1996 to
November 26, 1996. Annualized net sales for this period were $1.4 million, which
represents  a  decrease  of 12.6% as  compared  with $1.6  million  of net sales
recorded in the fiscal year ended  December 31, 1995.  The decrease in net sales
was  primarily  attributable  to a reduction in the customer  base and decreased
promotional efforts.

     COST OF SALES

     Cost of sales  amounted to $600,000  for the period from January 1, 1996 to
November  26,  1996.  Cost of sales,  as a  percentage  of net  sales,  remained
relatively  unchanged  at 46.9% for the period from  January 1, 1996 to November
26, 1996 as compared with 45.7% for the 12 months ended December 31, 1995.

                                       34
<PAGE>
     GROSS PROFIT

     As a result of the  foregoing,  gross  profit  amounted to $600,000 for the
period from January 1, 1996 to November 26, 1996.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general, and administrative expenses were $600,000 for the period
from January 1, 1996 to November 26, 1996. Selling,  general, and administrative
expenses,  as a percentage of net sales,  decreased to 47.3% for the period from
January 1, 1996 to November 26, 1996,  as compared  with 57.2% for the 12 months
ended December 31, 1995. The decrease in selling,  general,  and  administrative
expenses as a percentage of net sales was primarily  attributable to a reduction
in  commission  expenses  related  to the  decrease  in  sales  as well as lower
promotional costs.

     NET LOSS

     As a result of the foregoing, net loss for the KII was approximately $2,000
for the period from January 1, 1996 to November 26, 1996.

TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED WITH TWELVE MONTHS ENDED DECEMBER
31, 1994

     NET SALES

     Net sales in the 12 months ended December 31, 1995 decreased  22.1% to $1.6
million as compared with $2.0 million in the 12 months ended  December 31, 1994.
As part of its overall  strategy,  KII acquired a division of Redken in December
1993.  During 1994,  Redken reduced its customer base by 17 distributors,  which
had a direct impact on sales for KII.

     COST OF SALES

     Cost of sales,  as a percentage of net sales,  increased to 45.7% in the 12
months  ended  December  31, 1995 as compared  with 49.3% in the 12 months ended
December 31, 1994. The increase was primarily  attributable to increased freight
and duty costs associated with international purchases.

     GROSS PROFIT

     As a result of the foregoing,  gross profit  decreased 16.6% to $800,000 in
the 12 months  ended  December 31, 1995 from $1.0 million in the 12 months ended
December 31, 1994.

     SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

     Selling,  general, and administrative  expenses decreased 14.3% to $900,000
in the 12 months ended  December 31, 1995  compared  with $1.0 million in the 12
months  ended  December  31,  1994.  The  decrease  in  selling,   general,  and
administrative   expenses  was  attributable  to  a  decrease  in  salaries  and
commissions through the elimination of several sales positions.

     NET LOSS

     Net  loss  increased  to  approximately  $135,000  in the 12  months  ended
December 31, 1995 from approximately $72,000 in the 12 months ended December 31,
1994.

SEASONALITY AND QUARTERLY FINANCIAL RESULTS (AS RESTATED)

     The  following  table sets forth  certain  unaudited  quarterly  results of
operations for each of the eight quarters in the fiscal years ended December 31,
1997 and 1998 as restated. All quarterly information was obtained from unaudited

                                       35
<PAGE>
financial  statements not otherwise  contained herein. The Company believes that
all  necessary  adjustments  have  been made to  present  fairly  the  quarterly
information  when read in conjunction with the restated  Consolidated  Financial
Statements and Notes thereto  included  elsewhere in this Report.  The operating
results for any quarter are not  necessarily  indicative  of the results for any
future period (in thousands, except per share data).

<TABLE>
<CAPTION>
                                                                FISCAL 1998
                                                                (AS RESTATED)
                                              ----------------------------------------------------
                                              MARCH 31,     JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                                1998          1998         1998           1998
                                                ----          ----         ----           ----
<S>                                            <C>          <C>            <C>            <C>
Net sales.................................     $14,073      $16,795        $25,400      $27,098
Gross profit..............................       7,488        8,895         14,195       13,790
Selling, general and administrative.......       5,395        6,514          9,689       10,021
Centralization and reengineering costs....          --           --             --          422
Income from operations....................       2,093        2,381          4,506        3,347
Income (loss) before extraordinary item...        (256)        (164)           437        1,634
Extraordinary item, net...................          --       (1,091)            --           --
Net income (loss).........................        (256)      (1,255)           437        1,634
Diluted EPS before extraordinary item.....     $ (0.06)     $ (0.04)        $ 0.10       $ 0.40
Diluted EPS after extraordinary item......       (0.06)       (0.28)          0.10         0.40

                                                                FISCAL 1997
                                                               (AS RESTATED)
                                              ------------------------------------------------------
                                              MARCH 31,     JUNE 30,    SEPTEMBER 30,   DECEMBER 31,
                                                1997          1997         1997           1997
                                                ----          ----         ----           ----
Net sales.................................     $ 7,479      $7,093       $10,210         $11,723
Gross profit..............................       4,245       3,994         5,480           6,030
Selling, general and administrative.......       2,398       2,333         3,574           3,896
Income from operations....................       1,847       1,661         1,906           2,134
Income before extraordinary item..........       1,054         834           506             770
Extraordinary item, net...................          --         --             --          (1,377)
Net income (loss).........................       1,054         834           506            (607)
Diluted EPS before extraordinary item.....      $ 0.26      $ 0.20        $ 0.12          $ 0.19
Diluted EPS after extraordinary item......        0.26        0.20          0.12           (0.15)
</TABLE>

     The Company has  experienced  moderate  seasonality in quarterly  operating
results due mainly to the effect of the seasonality of the indoor tanning season
on the  operating  results of the Body Drench and Suntopia  product  lines.  The
Company  expects  the  seasonal  effect of Body  Drench  and  Suntopia  sales to
diminish in the future due to the substantial acquisition and internal growth of
non-tanning brands, which are less affected by seasonality.

LIQUIDITY AND CAPITAL RESOURCES (AS RESTATED)

     The  Company's  working  capital  position  increased  to $30.6  million at
December 31, 1998 from $13.0 million at December 31, 1997. The increase of $17.6
million is primarily due to increases in accounts  receivable and inventory as a
result of the completion of the acquisitions  during 1998. The Company's working
capital position at December 31, 1997 was primarily the result of the completion
of  the  acquisitions  completed  during  1997  and  the  Company's  results  of
operations for the year ended December 31, 1997.

     During the year ended  December 31, 1998,  the Company used $6.8 million of
cash in operating  activities,  which was  primarily the result of the increased
investment  in  accounts  receivable  and  inventory  of $4.6  million  and $8.6
million,  respectively,  offset by the increase in accounts  payable and accrued
liabilities of $1.8 million. The increased investment in accounts receivable and
inventories at December 31, 1998 is primarily  related to increased  revenue and
inventories  as a result of the  acquisitions,  and sales growth in the existing
businesses  during the fiscal year ended  December  31, 1998.  The  increases in
accounts payable and accrued  liabilities during the period relates primarily to
the liabilities  assumed in the acquisitions,  as well as internal growth of the
Company's business.

                                       36
<PAGE>
     Capital   expenditures  for  the  year  ended  December  31,  1998  totaled
approximately $2.0 million,  primarily related to computer hardware and software
costs in connection  with Company's new  centralized  management and information
systems.

     Effective  June 26,  1997,  the  Company  acquired  all of the  issued  and
outstanding  capital  stock  of  ABBA,  a  producer  of a  proprietary  line  of
aromatherapy-based  professional hair care products. The Company paid a purchase
price of $20.0 million for the stock of ABBA. The  transaction was accounted for
using the purchase method of accounting.

     In connection  with the  acquisition of ABBA, the Company  entered into the
June 1997 Credit Facility. The Company repaid the June 1997 Credit Facility with
the  proceeds  from the  December  1997 Credit  Facility,  discussed  below.  In
connection  with  the  refinancing  of the  June  1997  Credit  Facility,  costs
previously  deferred  resulted  in  an  extraordinary   charge  to  earnings  of
approximately $1.4 million,  net of income taxes, or $0.34 per diluted share, in
the fourth quarter of 1997.

     On December  10,  1997,  the Company  acquired  certain  assets and assumed
certain  liabilities  of  Inverness.  Inverness  produces  salon and retail hair
removal  apparatus  and  products  under lines known as "One Touch" and "Clean +
Easy".  The Company paid a purchase price of $20.0 million,  consisting of $16.5
million in cash and an  additional  $3.5 million in cash held in escrow  pending
release  contingent  upon the  successful  transition  of the  manufacturing  of
certain  hair  removal  appliances  to  offshore  manufacturing.  The  Inverness
acquisition was accounted for using the purchase method of accounting.

     In  connection  with the  acquisition  of the  Clean + Easy  and One  Touch
product lines, the Company entered into the December 1997 Credit Facility with a
group of banks for whom Credit  Agricole  Indosuez  acted as agent.  The Company
used  $50.0  million  of the  December  1997  Credit  Facility  to pay  for  the
acquisition,  acquisition fees, and the payoff of the June 1997 Credit Facility.
The Company repaid the December 1997 Credit  Facility with the proceeds from the
1998 Credit Facility, discussed below.

     In May 1998,  the  Company  acquired  substantially  all of the  assets and
assumed certain  operating  liabilities of Pro Finish,  a producer of name-brand
professional  nail  enhancement  and nail  care  products.  The  Company  paid a
purchase price of  approximately  $5.0 million in cash. The Company financed the
acquisition  with  proceeds  from  the  December  1997  Credit   Facility.   The
acquisition was accounted for using the purchase method of accounting.

     In June 1998,  the Company  issued the Notes.  The Company  used the $100.0
million  proceeds to finance the purchase  price and related  costs of acquiring
all of the issued and outstanding capital stock of the European Touch Companies,
as well as to repay all  amounts  outstanding  under the  December  1997  Credit
Facility. European Touch is a developer,  producer, and marketer of professional
nail  enhancement  and treatment  products and European Touch II is a developer,
producer,  and  marketer  of salon  pedicure  equipment.  These  companies  were
purchased for a purchase price of approximately $25.0 million in cash, using the
purchase method of accounting.

     In connection with the offering of the Notes,  the Company entered into the
1998 Credit Facility, which is a five-year, $50.0 million senior credit facility
with a group of banks for which NationsBank, N.A. and Bank of Boston, N.A. acted
as co-agents.  The 1998 Credit Facility  consists of two separate loans: a $25.0
million  acquisition term loan and a $25.0 million revolving line of credit. The
interest on the 1998 Credit  Facility is paid quarterly and the interest rate is
determined  by the base  rate  (the  "Base  Rate"),  as  defined  in the  credit
agreement. The Base Rate is equal to the higher of (a) the sum of (i) 0.50% plus
(ii) the Federal  Funds Rate plus (iii) the  Applicable  Base Rate Margin or (b)
the sum of (i) the  Prime  Rate  plus  (ii) the  Applicable  Base  Rate  Margin.
Principal payments on the acquisition term loan are paid quarterly  beginning in
March 2000.  Principal  payments on the revolving  line of credit are due on the
maturity date. The acquisition term loan and the revolving line of credit mature
in June 2003.  The  revolving  line of credit will be used for  working  capital
purposes.  The Company has the option to convert the interest  rates relating to
any of the loans to LIBOR plus 150 to 250 basis points.  If the Company converts
to the LIBOR-based  interest rate, interest is paid on the LIBOR-based  maturity
date,  which is generally  three months from the  conversion  date.  The Company
utilized net proceeds of $37.0 million from the 1998 Credit  Facility to finance
acquisitions and working capital requirements during the year ended December 31,
1998.

     In August  1998,  the  Company  acquired  Framesi  USA.  Framesi  USA holds
exclusive  license  rights for the sale in the  United  States and most of Latin
America  of  Framesi  brand hair  color  products  along with its  complementary
Biogenol line of shampoos,  conditioners, and styling products. The Company paid
approximately  $33.0  million  for  Framesi  USA in the form of cash and  seller

                                       37
<PAGE>
carryback  financing of approximately $5.0 million.  Approximately $25.0 million
from the 1998  Credit  Facility  was used to finance  the  purchase  price.  The
acquisition  was accounted for using the purchase  method of  accounting.  As of
December 31, 1998, the Company owned  approximately 85% of Ft. Pitt Acquisition,
Inc.

     As of December  31,  1998,  the Company had  borrowed  approximately  $12.0
million  under  the  revolving  line of credit  for  working  capital  purposes,
including  financing the inventory and receivable  buildup related to the launch
of the new ABBA packaging and funding capital  expenditures  associated with the
centralization and business process  reengineering project undertaken during the
fourth  quarter  of 1998.  In  addition,  the  borrowing  was used to repay debt
created in conjunction  with the acquisition of Gena and JDS as well as to repay
existing debt assumed in the acquisition of Framesi USA.

     The Company  intends to raise  additional  capital  through debt and equity
financings beginning in the second quarter of 1999 to fund its continued growth.
At this time,  it is not possible to assess the type of  financings  the Company
will pursue or the terms or  availability of such  financings.  The inability to
secure such  financing on acceptable  terms could have an adverse  effect on the
Company's  business,  operations,  and financial  position.  In addition,  it is
possible that such financing will further increase the Company's leverage.

     The  Company  plans to drive  internal  growth  through  the  expansion  of
distribution,  new products,  product line extensions,  and brand introductions.
The Company also plans to pursue  strategic  acquisitions  to  capitalize on the
substantial  fragmentation  and growth  potential  existing in the  professional
salon and  personal  care  products  industry.  The Company  intends to fund its
future capital needs through a combination of current cash  resources,  expected
cash flows from operations,  bank financing,  seller notes payable,  issuance of
its Common Stock,  and  additional  public or private debt or equity  financing.
These  capital  resources  may not be available,  and the  availability  of such
capital  depends upon prevailing  market  conditions,  interest  rates,  and the
financial condition of the Company.

YEAR 2000 COMPLIANCE

     Many currently  installed  computer systems and software products are coded
to accept  only  two-digit  entries in the date code field.  Beginning  in 2000,
these date code fields  will need to accept  four-digit  entries to  distinguish
21st century dates from 20th century dates.  As a result,  within the next year,
computer  systems and software used by many companies may need to be upgraded to
comply  with such  "Year  2000"  requirements.  Significant  uncertainty  exists
concerning the potential effects associated with such compliance.

     COMPANY'S STATE OF READINESS

     The  Company  has  completed  an  assessment  of its  internal  systems and
processes with respect to the "Year 2000" issue. The Company's  sales,  accounts
receivable,  inventory management,  accounts payable, general ledger and payroll
systems comprise its critical information technology ("IT") systems. The Company
has assessed its "Year 2000" readiness with regard to these critical IT systems.
Based on  internal  assessments  and upon  vendor  representations,  the Company
believes that its critical IT systems currently in place or being implemented as
part of the centralization  and business process  reengineering plan are or will
be "Year  2000"  complaint.  The  Company  believes  that it will  complete  the
implementation of its new processes and systems  associated with the critical IT
systems by June 30, 1999. The Company intends to assess the potential  impact of
"Year 2000"  failures  from  vendors,  customers,  and outside  parties upon its
business and is  currently  taking steps to assess and minimize the risk of such
"Year 2000"  failures.  Based upon the Company's  current state of readiness and
the steps  currently  being  taken,  the Company does not believe that the "Year
2000" problem will have a material  adverse  effect on the  Company's  business,
financial condition, or results of operations.

     Software  and  hardware,  such as  security  and  telephone  systems,  that
facilitate the operations of its warehouses and operating locations that are not
affected by the  centralization  and  reengineering  plan comprise the Company's
primary  non-IT  systems.  The Company is in the process of assessing  the "Year
2000" compliance of these non-IT systems and expects to conclude this assessment
by June 30,  1999.  The Company has not  incurred,  nor does it expect to incur,
material costs in readying its non-IT systems for the Year 2000.

                                       38
<PAGE>
     COMPANY'S RISKS OF "YEAR 2000" ISSUES

     The Company  procures a significant  amount of raw materials and components
from external  suppliers and relies upon third-party  contract  manufacturers to
manufacture most of its products.  As a result,  the Company may be at risk from
suppliers and manufacturers,  foreign and domestic, that are not taking adequate
measures to ensure "Year 2000"  compliance.  The failure of such  suppliers  and
manufacturers  to be "Year 2000"  compliant  may cause raw  material and product
shortage that would adversely impact the Company's operations.  As a result, the
Company may be at risk with respect to suppliers and manufacturers  that may not
be "Year 2000"  compliant.  The Company  believes that the most likely  negative
effects,  if any, could include disruption in both shipments and receipts of raw
materials,  components,  and  products  by the  Company  and its  customers.  In
addition,  the Company's  customers may experience  "Year 2000" failures,  which
could result in delays in the Company's receipt of payments from customers.

     CONTINGENCY PLANS

     The Company is  developing  contingency  plans with respect to  significant
"Year 2000" issues. For example,  the Company is in the process of assessing and
verifying the "Year 2000" compliance of its international and domestic suppliers
and contract manufacturers. Verification will be accomplished through the use of
"Year 2000"  readiness  inquiries sent to key suppliers and  manufacturers.  The
Company is investigating  transferring supplier and manufacturing  relationships
to alternate  providers if current  suppliers  and  manufacturers  are not "Year
2000" compliant.

ITEM 7A..QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     DERIVATIVE  FINANCIAL  INSTRUMENTS,   OTHER  FINANCIAL   INSTRUMENTS,   AND
DERIVATIVE  COMMODITY  INSTRUMENTS.  At December 31,  1998,  the Company did not
participate  in any derivative  financial  instruments,  or other  financial and
commodity  instruments for which fair value  disclosure  would be required under
Statement  of  Financial  Accounting  Standards  No. 107.  The Company  holds no
investment securities that would require disclosure on market risk.

     PRIMARY MARKET RISK EXPOSURES.  The Company's primary market risk exposures
are in the areas of interest rate risk and foreign currency  exchange rate risk.
The Company incurs interest expense on loans made under the Notes at an interest
rate,  which is fixed,  for a maximum of ten years.  At December 31,  1998,  the
Company's outstanding  borrowings on the Notes were $100 million, at an interest
rate of  10.875%.  The  Company  also  incurs  interest  on loans  made  under a
revolving line of credit and other debt  instruments at variable  interest rates
ranging from 6.0% to 8.5%. At December 31, 1998, the Company's total outstanding
borrowings on the  instruments  was  approximately  $43.1  million.  The Company
entered into an interest rate swap  agreement and an interest rate cap agreement
to limit the effect of increases in the  interest  rates on floating  rate debt.
The notional amounts of interest rate agreements are used to measure interest to
be paid or received and do not  represent the amount of exposure to credit loss.
The net  cash  amounts  paid or  received  on the  agreements  are  accrued  and
recognized as an adjustment to interest expense.

     The interest  rate swap  agreement is a contract to exchange  floating rate
for fixed rate interest  payments  periodically  over the life of the agreement.
During March 1998,  the Company  entered into an interest  rate swap  agreement,
which  effectively  fixed the interest rate on $12.5 million notional  principal
amount under the 1998 Credit Facility at 5.75% plus a credit margin ranging from
150 to 250 basis points,  for a period ending March 2000. During April 1998, the
Company entered into an interest rate cap agreement,  which  effectively  limits
the  Company's  interest rate  exposure on a $12.5  million  notional  principal
amount under the 1998 Credit Facility at 7.50% plus a credit margin ranging from
250 to 300 basis points,  for a period  ending April 2000.  The  borrowings  not
subject to interest  rate swap or interest  rate cap  agreements at December 31,
1998 totaled $12.0 million.

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

                                       39
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information  required by this Item relating to directors of the Company
is  incorporated  herein by reference to the  definitive  Proxy  Statement to be
filed  pursuant to  Regulation  14A of the  Securities  Exchange Act of 1934, as
amended  (the  "Exchange   Act")  for  the  Company's  1999  Annual  Meeting  of
Stockholders.  The  information  required  by this Item  relating  to  executive
officers of the Company is included in Item 1, "Business - Executive Officers."

ITEM 11. EXECUTIVE COMPENSATION

     The information  required by this Item is incorporated  herein by reference
to the definitive  Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for the Company's 1999 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  required by this Item is incorporated  herein by reference
to the definitive  Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for the Company's 1999 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by this Item is incorporated  herein by reference
to the definitive  Proxy Statement to be filed pursuant to Regulation 14A of the
Exchange Act for the Company's 1999 Annual Meeting of Stockholders

                                     PART IV

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

     (a)  FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:

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

          (2)  Financial Statement Schedule

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

     (b)  REPORTS ON FORM 8-K

          Not applicable.

     (c)  EXHIBITS

EXHIBIT NO.                        DESCRIPTION OF EXHIBIT
-----------                        ----------------------
   3.1      First  Amended and  Restated  Certificate  of  Incorporation  of the
            Registrant
   3.3      Bylaws of the Registrant(1)
   4.1      Specimen of Stock Certificate(1)
   4.2      Specimen of Redeemable Common Stock Warrant(1)

                                       40
<PAGE>
   4.3      Form of Warrant issued to Credit Agricole Indosuez(2)
   4.4      Form of Warrant issued to Bank Boston N.A.(3)
   4.5      Indenture  dated as of June 23, 1998, by and among the Company,  the
            Guarantors  Signatories  thereto,  and State  Street  Bank and Trust
            Company of California, N.A.(4)
   4.6      Form of Global Notes(4)
   4.8      Rights   Agreement,   dated  February  23,  1999,   between  Styling
            Technology  Corporation  and American  Securities  Transfer & Trust,
            Inc., as Rights Agent, together with the following exhibits thereto;
            Exhibit  A-Form of  Certificate  of  Designation  of Series A Junior
            Participating  Preferred  Stock of Styling  Technology  Corporation;
            Exhibit B-Form of Right Certificate;  Exhibit C-Summary of Rights to
            Purchase   Shares  of   Preferred   Stock  of   Styling   Technology
            Corporation.(5)
   10.5     Employment Agreement between Registrant and Sam L. Leopold(1)
   10.11    1996 Stock Option Plan(1)
   10.19    Asset  Purchase  Agreement  dated as of October  31,  1997 among the
            Registrant, Inverness Corporation, and Inverness (UK) Limited.(6)
   10.20    Transition and Manufacturing Agreement dated as of December 10, 1997
            the Registrant and Inverness Corporation.(6)
   10.23    Stock Purchase Agreement dated as of June 23, 1998 among the Company
            and the former shareholders of European Touch, Ltd. II(7)
   10.24    Credit Agreement dated June 30, 1998 among the Company,  BankBoston,
            N.A., and NationsBank, N.A.(8)
   10.25    Stock  Purchase  Agreement  dated as of  August 3,  1998,  among the
            Company, Kevin T. Weir, Carol M. Weir, and Dennis M. Katawczik(6)
   10.26    1998 Employee Stock Option Plan
   12       Computation of Ratio of Earnings to Fixed Charges
   21       Subsidiaries of Registrant
   23.1     Consent of Arthur Andersen LLP
   27       Financial Data Schedules

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

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

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

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

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

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

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

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

                                       41
<PAGE>
                                   SIGNATURES

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

                                        STYLING TECHNOLOGY CORPORATION


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

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

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

<TABLE>
<CAPTION>
       SIGNATURE                            CAPACITY                               DATE
       ---------                            --------                               ----
<S>                               <C>                                         <C>

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


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


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

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

                                       42
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Index to Consolidated Financial Statements and Schedules


Consolidated Financial Statements                                       PAGE
Styling Technology Corporation
   Report of Independent Public Accountants                              F-2
   Consolidated Balance Sheets                                           F-3
   Consolidated Statements of Operations                                 F-4
   Consolidated Statements of Stockholders' Equity                       F-5
   Consolidated Statements of Cash Flows                                 F-6
   Notes to Consolidated Financial Statements                            F-7

Gena Laboratories, Inc.
   Report of Independent Public Accountants                             F-38
   Balance Sheets                                                       F-39
   Statements of Operations                                             F-40
   Statements of Stockholders' Equity                                   F-41
   Statements of Cash Flows                                             F-42
   Notes to Financial Statements                                        F-43

Body Drench (a Division of Designs by Norvell, Inc.)
   Report of Independent Public Accountants                             F-49
   Balance Sheets                                                       F-50
   Statements of Operations                                             F-51
   Statements of Changes in Owners' Investment                          F-52
   Statements of Cash Flows                                             F-53
   Notes to Financial Statements                                        F-54

JDS Manufacturing Co., Inc.
   Report of Independent Public Accountants                             F-57
   Balance Sheets                                                       F-58
   Statements of Operations                                             F-56
   Statements of Stockholders' Equity                                   F-60
   Statements of Cash Flows                                             F-61
   Notes to Financial Statements                                        F-62

Kotchammer Investments, Inc.
   Report of Independent Public Accountants                             F-65
   Balance Sheet                                                        F-66
   Statements of Operations                                             F-67
   Statements of Stockholders' Deficit                                  F-68
   Statements of Cash Flows                                             F-69
   Notes to Financial Statements                                        F-70

Financial Statement Schedule
    Valuation and Qualifying Accounts                                   S-1

                                      F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Styling Technology Corporation:

We  have  audited  the  accompanying  consolidated  balance  sheets  of  STYLING
TECHNOLOGY   CORPORATION,   a  Delaware   corporation,   and  subsidiaries  (the
"Company"),  as of  December  31, 1997 and 1998,  and the  related  consolidated
statements  of  operations  and cash flows for the period from November 27, 1996
(commencement  of  operations)  to  December  31,  1996 and for the years  ended
December  31,  1997  and  1998,  and  the  related  consolidated  statements  of
stockholders'  equity for the three years in the period ended  December 31, 1998
(1997 and 1998 restated - See Notes 1 and 13).  These  financial  statements and
the  schedule  referred  to  below  are  the  responsibility  of  the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

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

As  discussed  in Note 15,  the  Company  has  incurred  substantial  losses and
defaulted  under certain  provisions of its Senior Secured  Credit  facility and
Senior Subordinated Notes.  Management's current projections indicate that there
will not be sufficient  cash flow from  operations  to fund the  Company's  debt
payments in the normal  course of  operations.  On August 31, 2000,  the Company
entered into Chapter 11 bankruptcy.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of the Company as of December 31,
1997 and 1998,  and the  results  of its  operations  and its cash flows for the
period  from  November  27,  1996 to  December  31, 1996 and for the years ended
December 31, 1997 and 1998, in conformity with accounting  principles  generally
accepted in the United States.

Our  audits  were  made for the  purpose  of  forming  an  opinion  on the basic
financial statements taken as a whole.  Schedule II listed in Item 14 of Part IV
(1997 and 1998 restated)  herein is presented for purposes of complying with the
Securities  and Exchange  Commission's  rules and is not a required  part of the
basic financial statements.  This information has been subjected to the auditing
procedures  applied in our audits of the basic financial  statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth  therein in  relation  to the basic  financial  statements  taken as a
whole.

                                        /s/ Arthur Andersen LLP

Phoenix, Arizona
October 18, 2000

                                      F-2
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(in thousands except share data)
<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                      -----------------------
                                                                        1997          1998
                                                                      ---------     ---------
                                                                     (RESTATED)    (RESTATED)
<S>                                                                   <C>           <C>
                                     Assets
Current Assets:
Cash and cash equivalents                                             $   3,063     $   4,023
Accounts receivable, net of allowance
   for doubtful accounts of $1,032 and $1,786                            12,693        24,812
Inventories, net                                                         10,951        25,599
Prepaid expenses and other current assets                                 2,120         1,375
                                                                      ---------     ---------

      Total current assets                                               28,827        55,809

Property and Equipment, net                                               2,640         5,362
Goodwill and Other Intangibles, net of
  accumulated amortization of $1,375 and $5,188                          56,506       139,566
Other Assets                                                              2,913        13,336
                                                                      ---------     ---------

                                                                      $  90,886     $ 214,073
                                                                      =========     =========
                      Liabilities and Stockholders' Equity

Current Liabilities:
   Accounts payable                                                   $   6,505     $  12,108
   Accrued liabilities                                                    3,670        10,367
   Current portion of long-term debt and other                            5,647         2,768
                                                                      ---------     ---------

      Total current liabilities                                          15,822        25,243
                                                                      ---------     ---------

Deferred Income Taxes                                                       162        19,216
Long-Term Debt and Other, less current portion                           47,377       140,366

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,
     4,757,000 shares issued and 3,949,000 shares outstanding at
     December 31, 1997; and 4,876,000 shares issued and 4,068,000
     shares outstanding at December 31, 1998                                  1             1
Additional paid-in capital                                               27,875        29,038
Retained earnings                                                         1,449         2,009
Treasury stock                                                           (1,800)       (1,800)
                                                                      ---------     ---------
      Total stockholders' equity                                         27,525        29,248
                                                                      ---------     ---------

                                                                      $  90,886     $ 214,073
                                                                      =========     =========
</TABLE>

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

                                      F-3
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations
(in thousands except share data)

<TABLE>
<CAPTION>
                                           FOR THE PERIOD FROM
                                            NOVEMBER 27, 1996
                                              (COMMENCEMENT
                                            OF OPERATIONS) TO        YEAR ENDED            YEAR ENDED
                                            DECEMBER 31, 1996     DECEMBER 31, 1997     DECEMBER 31, 1998
                                            -----------------     -----------------     -----------------
                                                                      (RESTATED)            (RESTATED)
<S>                                        <C>                   <C>                   <C>
Net Sales                                       $     1,083           $    36,505           $    83,366
Cost of Sales                                           571                16,756                38,998
                                                -----------           -----------           -----------
      Gross profit                                      512                19,749                44,368
                                                -----------           -----------           -----------

Selling, General and Administrative Expenses            737                12,201                31,619
Centralization and Reengineering Costs                   --                    --                   422
                                                -----------           -----------           -----------
                                                        737                12,201                32,041
                                                -----------           -----------           -----------

Income (Loss) from Operations                          (225)                7,548                12,327
Interest Expense and Other, net                           2                (1,847)               (9,206)
                                                -----------           -----------           -----------
Income (Loss) Before Extraordinary Item and
   Income Taxes                                        (223)                5,701                 3,121
Provision for (Benefit from) Income Taxes               (72)                2,537                 1,470
                                                -----------           -----------           -----------

Income (Loss) Before Extraordinary Item                (151)                3,164                 1,651
Extraordinary Item, net of tax benefit of
   $882,000 and $822,000                                 --                (1,377)               (1,091)
                                                -----------           -----------           -----------
      Net income (loss)                         $      (151)          $     1,787           $       560
                                                ===========           ===========           ===========
Basic Earnings (Loss) per Share:
   Income (loss) before extraordinary item      $     (0.04)          $      0.80           $      0.41
   Extraordinary item                                    --                 (0.35)                (0.27)
                                                -----------           -----------           -----------
      Net income (loss)                         $     (0.04)          $      0.45           $      0.14
                                                ===========           ===========           ===========
      Weighted average shares                     3,770,000             3,949,000             4,033,000
                                                ===========           ===========           ===========
Diluted Earnings (Loss) per Share:
   Income (loss) before extraordinary item      $     (0.04)          $      0.77           $      0.38
   Extraordinary item                                    --                 (0.34)                (0.25)
                                                -----------           -----------           -----------
      Net income (loss)                         $     (0.04)          $      0.43           $      0.13
                                                ===========           ===========           ===========
      Weighted average shares                     3,770,000             4,113,000             4,313,000
                                                ===========           ===========           ===========
</TABLE>

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

                                      F-4
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity
(in thousands)

<TABLE>
<CAPTION>
                                                       COMMON STOCK                      RETAINED
                                                   ---------------------   ADDITIONAL    EARNINGS                   TOTAL
                                                      SHARES      COMMON     PAID-IN   (ACCUMULATED  TREASURY   STOCKHOLDERS'
                                                   OUTSTANDING    STOCK      CAPITAL     DEFICIT)      STOCK       EQUITY
                                                   -----------    -----      -------     --------      -----       ------
                                                                                        (RESTATED)               (RESTATED)
<S>                                                <C>          <C>        <C>          <C>           <C>        <C>
Balance, December 31, 1995                            1,616       $   1     $    --      $   --       $    --     $     1
Issuance of common stock and warrants                    20          --         179        (187)           --          (8)
Issuance of common stock and warrants
 in initial public offering, net of
 offering costs of approximately $1,351,000           3,116          --      27,227          --            --      27,227
Issuance of common stock in KII acquisition               5          --          50          --            --          50
Purchase of 808,000 shares of treasury stock           (808)         --          --          --        (1,800)     (1,800)
Net loss for the period from November 27, 1996
 (commencement of operations) to December 31, 1996       --          --          --        (151)           --        (151)
                                                     ------       -----     -------      ------       -------     -------

Balance, December 31, 1996                            3,949           1      27,456        (338)       (1,800)     25,319
Issuance of warrants                                     --          --         419          --            --         419
Net income                                               --          --          --       1,787            --       1,787
                                                     ------       -----     -------      ------       -------     -------

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

Balance, December 31, 1998                            4,068       $   1     $29,038      $2,009       $(1,800)    $29,248
                                                     ======       =====     =======      ======       =======     =======
</TABLE>

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

                                      F-5
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>

                                                            FOR THE PERIOD
                                                                 FROM
                                                              NOVEMBER 27,
                                                                1996 TO       DECEMBER 31,   DECEMBER 31,
                                                              DECEMBER 31,       1997           1998
                                                                 1996         (RESTATED)     (RESTATED)
                                                              ------------   ------------   ------------
<S>                                                          <C>           <C>           <C>
Cash Flows from Operating Activities:
 Net income (loss)                                            $   (151)       $  1,787       $    560
 Adjustments to reconcile net income (loss) to net cash
  used in operating activities:
  Depreciation and amortization                                     97           1,846          5,187
  Interest accretion to note payable                                --             174            159
  Extraordinary loss on early extinguishment of debt                --           1,377          1,091
  Changes in assets and liabilities:
   Accounts receivable, net                                        532          (5,802)        (4,638)
   Inventories, net                                                (21)         (2,992)        (8,588)
   Prepaid expenses and other assets                               (36)         (1,730)        (2,363)
   Accounts payable and accrued liabilities                       (788)          2,960          1,807
                                                              --------        --------       --------
        Net cash used in operating activities                     (367)         (2,380)        (6,785)
                                                              --------        --------       --------
Cash Flows from Investing Activities:
 Purchase of acquired businesses, net of cash acquired         (20,523)        (45,150)       (62,677)
 Purchases of property and equipment                               (46)           (582)        (1,962)
 Changes in other assets, net                                       --              --         (4,251)
                                                              --------        --------       --------
        Net cash used in investing activities                  (20,569)        (45,732)       (68,890)
                                                              --------        --------       --------
Cash Flows from Financing Activities:
 Proceeds from issuance of common stock, net of offering
  and acquisition costs                                         27,227              --             --
 Proceeds from credit facility, net of financing costs              --          71,633         47,298
 Proceeds from bond offering, net of financing costs                --              --         96,400
 Exercise of stock options                                          --              --          1,163
 Payments on long-term debt                                         --         (24,949)       (68,226)
 Purchase of treasury stock                                     (1,800)             --             --
                                                              --------        --------       --------
        Net cash provided by financing activities               25,427          46,684         76,635
                                                              --------        --------       --------

Increase (Decrease) in Cash and Cash Equivalents                 4,491          (1,428)           960

Cash and Cash Equivalents, beginning of period                      --           4,491          3,063
                                                              --------        --------       --------
Cash and Cash Equivalents, end of period                      $  4,491        $  3,063       $  4,023
                                                              ========        ========       ========
Supplemental Disclosure of Cash Flow Information:
 Cash paid for income taxes                                   $     --        $  1,727       $  2,634
                                                              ========        ========       ========

 Cash paid for interest                                       $     --        $  1,155       $  3,699
                                                              ========        ========       ========
</TABLE>

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

                                      F-6
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1.   Formation and Significant Accounting Policies

     a.   Initial Public Offering and the Initial Businesses

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

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

     b.   Restatement

     On November 29, 1999, the Company announced that the Audit Committee of the
     Board of Directors was initiating  (with the assistance of outside  counsel
     and other experts) an internal  investigation  of the Body Drench  division
     and certain financial reporting related errors and irregularities  reported
     in the previously issued financial  statements for first and second quarter
     1999 and the 1998 fiscal year end. The Audit Committee's  investigation has
     since been  completed  and as a result of its  findings,  the  Company  has
     restated its previously issued consolidated  financial  statements for 1997
     and 1998 (See Notes 13, 14 and 15).

     c.   Principles of Consolidation

     The  consolidated  financial  statements  include  all the  accounts of the
     Company and its  subsidiaries.  All significant  intercompany  accounts and
     transactions are eliminated in consolidation. All references to the Company
     herein refer to Styling Technology Corporation and its subsidiaries.

                                      F-7
<PAGE>
     d.   Cash and Cash Equivalents and Concentrations of Credit Risk

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

     e.   Inventories

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

     Inventories consist of the following: (in thousands)

                                                           DECEMBER 31,
                                                  ------------------------------
                                                      1997              1998
                                                  -------------    -------------

     Raw materials and work-in-process            $       2,594    $       8,612
     Finished goods                                       8,357           16,987
                                                  -------------    -------------

                                                  $      10,951    $      25,599
                                                  =============    =============

     f.   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.

     g.   Goodwill and Other Intangibles

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

     h.   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.  Actual  results  could  differ  from those

                                      F-8
<PAGE>
     estimates.   Significant  accounting  estimates  include  establishment  of
     allowance for doubtful accounts, reserves for sales returns and allowances,
     excess and obsolete inventory and litigation exposures.

     i.   Fair Value of Financial Instruments

     The  Company's  financial  instruments  include cash and cash  equivalents,
     accounts  receivable,  accounts  payable,  accrued  liabilities,  debt  and
     letters  of  credit.  The  carrying  values  of cash and cash  equivalents,
     accounts receivable,  accounts payable and accrued liabilities  approximate
     fair values due to the  short-term  maturities  of these  instruments.  The
     carrying  amount on the 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.  The
     carrying amount of the letters of credit reflects fair value as the related
     fees are competitively determined in the marketplace.  Fair value estimates
     are made at a specific point in time, based on relevant market  information
     about the financial  instrument.  These  estimates are subjective in nature
     and involve uncertainties and matters of significant judgment and therefore
     cannot  be  determined  with  precision.   Changes  in  assumptions   could
     significantly affect these estimates.

     j.   Revenue Recognition

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

     k.   Business  Process  Reengineering  Charges  and Exit Costs of  Acquired
          Businesses

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

     l.   Income Taxes

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

                                      F-9
<PAGE>
     m.   Other Assets

     Other assets  consist  primarily of the following:  (i) deferred  financing
     costs   associated   with  the  Company   completing   various   financings
     transactions  (see  Note 5) and (ii)  deferred  tax  assets  (see  Note 7).
     Deferred  financing  costs  are  amortized  over  the  life of the  related
     obligation.  The Company  recorded  approximately  $170,000 and $333,000 in
     deferred  financing cost amortization for the years ended December 31, 1997
     and 1998, respectively.

     n.   Recently Issued Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Boards issued Statement of
     Financial Accounting Standards ("SFAS") No. 133 (as amended by SFAS No. 137
     and SFAS No.  138),  Accounting  for  Derivative  Instruments  and  Hedging
     Activities.  This statement establishes  accounting and reporting standards
     for derivative  instruments,  including derivative  instruments embedded in
     other contracts, and for hedging activities.  The statement, as amended, is
     effective for the Company's  quarter ending September 30, 2000. The Company
     is  currently  evaluating  the impact from the adoption of SFAS No. 133, as
     amended, on its future results of operations and financial position.

     Effective  January 1, 1998,  the  Company  adopted  SFAS No. 130  Reporting
     Comprehensive Income. This statement requires the Company to classify items
     of other  comprehensive  income,  defined to be the change in equity of the
     Company  during  the  period  from   transactions   and  other  events  and
     circumstances from non-owner sources, in a separate financial statement and
     display the accumulated  balance of other  comprehensive  income separately
     from retained  earnings and additional  paid-in  capital.  Adoption of this
     standard did not have an effect on the  Company's  financial  statements as
     the  Company  has no items of other  comprehensive  income  for any  period
     presented.

     During 1998, the American  Institute of Certified Public Accountants issued
     Statement of Position  98-5  Reporting on the Costs of Start-Up  Activities
     ("SOP  98-5").   SOP  98-5  requires  costs  of  start-up   activities  and
     organization  costs to be  expensed  as  incurred.  This new  statement  is
     effective for fiscal years  beginning  after December 15, 1998. The Company
     intends  to  adopt  this  statement  effective  January  1,  1999.  Initial
     application of SOP 98-5 is required to be reported as the cumulative effect
     of a change in accounting.  The Company believes that its adoption will not
     have a material effect on its financial position or results of operations.

     o.   Earnings (Loss) Per Share

     In February 1997, the FASB issued SFAS No. 128,  Earnings Per Share,  which
     supersedes  Accounting  Principles  Board  Opinion  No.  15.  SFAS No.  128
     modifies the  calculation  of primary and fully diluted  earnings per share
     (EPS)  and  replaces  them with  basic and  diluted  EPS.  SFAS No.  128 is
     effective  for  financial  statements  for both interim and annual  periods
     presented after December 15, 1997, and as a result,  all  prior-period  EPS
     data presented herein has been restated.

                                      F-10
<PAGE>
     A  reconciliation  of the  numerators  and  denominators  of the  basic and
     diluted EPS  computations for the period from November 27, 1996 to December
     31, 1996 and the years ended December 31, 1997 and 1998 is as follows:

<TABLE>
<CAPTION>
                                                  1996                                    1997
                                   ----------------------------------     -------------------------------------
                                                EFFECT OF                                EFFECT OF
                                                 STOCK                                    STOCK
                                                OPTIONS                                  OPTIONS
                                     BASIC        AND        DILUTED         BASIC         AND         DILUTED
                                      EPS       WARRANTS       EPS            EPS        WARRANTS        EPS
                                      ---       --------       ---            ---        --------        ---
<S>                              <C>            <C>        <C>            <C>           <C>          <C>
Income (loss) before
  extraordinary item               $ (151,000)      --     $ (151,000)    $ 3,164,000          --    $3,164,000
Extraordinary item, net                    --       --             --       1,377,000          --     1,377,000
                                   ----------     ----     ----------     -----------     -------    ----------

     Net income (loss)             $ (151,000)      --     $ (151,000)    $ 1,787,000          --    $1,787,000
                                   ==========     ====     ==========     ===========     =======    ==========

Shares                              3,770,000       --      3,770,000       3,949,000     164,000     4,113,000
                                   ==========     ====     ==========     ===========     =======    ==========
Per share amount -- income
  (loss) before extraordinary
  item                             $    (0.04)             $    (0.04)    $      0.80                $     0.77
Per share amount --
  extraordinary item, net                  --                      --           (0.35)                    (0.34)
                                   ----------              ----------     -----------                ----------
Per share amount -- net
income (loss)                      $    (0.04)             $    (0.04)    $      0.45                $     0.43
                                   ==========              ==========     ===========                ==========

                                                                            1998
                                                        -----------------------------------------
                                                                       EFFECT OF
                                                                         STOCK
                                                                        OPTIONS
                                                           BASIC          AND           DILUTED
                                                            EPS         WARRANTS          EPS
                                                            ---         --------          ---

Income before extraordinary item                        $1,651,000           --       $1,651,000
Extraordinary item, net                                  1,091,000           --        1,091,000
                                                        ----------      -------       ----------

         Net income                                     $  560,000           --       $  560,000
                                                        ==========      =======       ==========

Shares                                                   4,033,000      280,000        4,313,000
                                                        ==========      =======       ==========

Per share amount - income before extraordinary item     $     0.41                    $     0.38
Per share amount - extraordinary item, net              $    (0.27)                   $    (0.25)
                                                        -----------                   ----------

Per share amount - net income                           $     0.14                    $     0.13
                                                        ==========                    ==========
</TABLE>

     For the period from November 27, 1996 to December 31, 1996, no common stock
     equivalents  were  considered in the EPS  calculations  as their effect was
     antidilutive.  For  purposes of applying  the treasury  stock  method,  the
     Company has assumed that it will fully utilize tax deductions  arising from
     the assumed exercise of non-qualified stock options.

                                      F-11
<PAGE>
2.   Business Combinations

During March 1997, the Company acquired inventory and other assets of the Utopia
product line of high-end tanning products from Creative  Laboratories,  Inc. for
approximately $350,000 in cash.

On June 25, 1997, the Company acquired all of the issued and outstanding  common
stock  of  ABBA,  which  produces  a  proprietary  line  of   aromatherapy-based
professional  hair  care  products.   The  Company  paid  a  purchase  price  of
approximately  $20 million in cash for the ABBA common stock. In connection with
the ABBA acquisition,  the Company also negotiated approximately $1.1 million in
facilitation fees,  payable over three years, to certain former  shareholders of
ABBA for pre-closing  efforts to facilitate  completion of the acquisition  (see
Note 5). The Company  satisfied its obligation with respect to this facilitation
agreement during 1998. The ABBA acquisition was accounted for under the purchase
method of accounting.

On December 10, 1997, the Company  acquired  certain assets and assumed  certain
liabilities of Inverness  Corporation  and Inverness (UK) Limited  (collectively
Inverness).  Inverness  produces  salon and retail hair  removal  apparatus  and
products  under the brand names "One Touch" and "Clean + Easy". The Company paid
a purchase price consisting of (i) $16.5 million in cash; and (ii) an additional
$3.5  million  in cash  held in  escrow  pending  release  contingent  upon  the
successful  transition of the manufacture of certain hair removal  appliances to
offshore  manufacturing.  The Inverness  acquisition  is accounted for under the
purchase method of accounting.

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

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

In August  1998,  the  Company  acquired  a  controlling  interest  in Ft.  Pitt
Acquisition, Inc. and its 90% owned subsidiary, Ft. Pitt-Framesi, Ltd. (together
Framesi USA).  Framesi USA holds  exclusive  license  rights for the sale in the
United  States and most of Latin  America of Framesi hair color  products  along
with its  complementary  Biogenol  line of shampoos,  conditioners,  and styling
products.  The  Company  paid  approximately  $33.0  million  for the  Ft.  Pitt
Acquisition,  Inc. stock, in the form of cash and seller carryback  financing of
approximately $5.0 million. The acquisition was accounted for using the purchase
method of accounting.  As of December 31, 1998, the Company owned  approximately
85% of Ft. Pitt Acquisition, Inc. The excess of the purchase price paid over the
net  assets  was  allocated  to the  exclusive  license  rights,  which is being
amortized over its contractual life of 40 years.

                                      F-12
<PAGE>
The following table summarizes acquisitions for the two years ended December 31,
1997 and 1998 (in thousands).

                                                     1997              1998
                                                 -------------    -------------

Accounts receivable                              $       5,251    $       7,481
Inventories                                              5,324            6,060
Other assets                                             1,475              803
Property and equipment                                   1,316              968
Assumed accounts payable and accrued
  liabilities                                           (2,861)          (9,563)
Assumed debt                                                -            (1,716)
                                                 -------------    -------------
Net assets acquired                                     10,505            4,033
Cash paid at closing for purchase price and
  acquisition costs                                     45,150           62,677
                                                 -------------    -------------
Goodwill and other intangibles                   $      34,645    $      58,644
                                                 =============    =============

     a.   Unaudited Pro Forma Consolidated Results of Operations

     The  following  table  depicts,  for the years ended  December 31, 1997 and
     1998,  unaudited  pro  forma  consolidated  information  as if  all  of the
     companies  acquired  in 1997 and 1998 were  acquired on January 1, 1997 (in
     thousands).

                                                  1997          1998
                                               -----------   ----------

         Net sales                             $   109,430   $  108,601
         Net income                                  2,636          246
         Income per basic share                       0.67         0.06
         Income per diluted share                     0.64         0.06

     The unaudited pro forma financial data is for informational  purposes only,
     is not  necessarily  indicative  of  the  results  of  operations  had  the
     acquisitions  occurred  at the  beginning  of  1997  and  1998,  and is not
     necessarily indicative of future operating results.

3.   Property and Equipment

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

                                                USEFUL
                                                LIVES
                                               (YEARS)     1997        1998
                                               -------     ----        ----
    Land                                          --     $   150     $    150
    Building and leasehold improvements          7-40        594        1,065
    Machinery and equipment                      3-7       1,559        1,706
    Furniture and fixtures                         7         375        1,326
    Computers, vehicles and other                3-5         356        4,216
                                                         --------    --------
                                                           3,034        8,463
    Less -- accumulated depreciation                        (394)      (3,101)
                                                         --------    --------
                                                         $ 2,640     $  5,362
                                                         ========    ========

The  Company  recorded  approximately   $11,000,   $383,000  and  $1,342,000  in
depreciation  expense  during the period from  November 27, 1996 to December 31,
1996, and for the years ended December 31, 1997 and 1998, respectively, which is
included in selling,  general and  administrative  expenses in the  accompanying
consolidated statements of operations.

4.   Accrued Liabilities

Accrued  liabilities  consist of amounts  accrued but unpaid as of December  31,
1997 and 1998.  Accrued  interest at December 31, 1997 and December 31, 1998 was
$291,000  and  $5,798,000,   respectively.   Accrued  liabilities  also  include
commissions, professional fees, taxes, payroll, and other liabilities.

                                      F-13
<PAGE>
5.   Long-Term Debt and Other

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

<TABLE>
<CAPTION>
                                                                1997          1998
                                                             ---------     ---------
<S>                                                         <C>            <C>
Senior subordinated notes (the "Notes"), bearing
  interest at 10 7/8%, maturing 2008                         $      --     $ 100,000
Senior credit facility (the "1998 Credit Facility"),
  collateralized by substantially all the assets of the
  Company, maturing through June 2003                               --        37,033
Seller carryback financing, related to the acquisition of
  Ft. Pitt Acquisition, Inc., bearing interest at 6%,
  maturing through August 2001                                      --         5,000
Unsecured note payable of Ft. Pitt Acquisition, Inc.                --         1,101
Senior credit facility (the "December 1997 Credit
  Facility"), collateralized by substantially all the
  assets of the Company, paid in full in June 1998              50,000            --
Gena Note, paid in full in November 1998                         1,841            --
Other                                                            1,183            --
                                                             ---------     ---------
                                                                53,024       143,134
Less: current portion                                           (5,647)       (2,768)
                                                             ---------     ---------
                                                             $  47,377     $ 140,366
                                                             =========     =========
</TABLE>

Aggregate  future  maturities  of  long-term  debt and other are as  follows  at
December 31, 1998 (in thousands):

         1999                                           $    2,768
         2000                                                6,304
         2001                                                5,444
         2002                                                3,076
         2003                                               25,542
         Thereafter                                        100,000
                                                        ----------
                                                        $  143,134
                                                        ==========

     a.   Senior Credit Facilities

     In December  1997, in connection  with the  acquisition of Clean + Easy and
     One Touch  product  lines,  the  Company  extinguished  a  previous  credit
     facility and entered into the December 1997 Credit  Facility.  The December
     1997 Credit Facility was a seven-year, $75.0 million credit facility with a
     group of banks with Credit Agricole Indosuez acting as agent. In connection
     with the  extinguishment of the previous credit facility,  the Company took
     an  extraordinary  non-cash charge of  approximately  $1.4 million,  net of
     income taxes, related to the write-off of unamortized financing costs.

     In connection with the Notes Offering as defined below, the Company entered
     into a five-year,  $50.0 million  senior credit  facility (the "1998 Credit
     Facility")  with a group of banks for whom  NationsBank,  N.A.  and Bank of
     Boston,  N.A. acted as co-agents.  The 1998 Credit Facility consists of two
     separate loans: a $25.0 million  acquisition  term loan and a $25.0 million
     revolving line of credit.  The interest on the 1998 Credit Facility is paid
     quarterly  and the interest  rate is determined by the base rate (the "Base
     Rate"), as defined in the credit  agreement.  The Base Rate is equal to the
     higher of (a) the sum of (i) 0.50%  plus (ii) the  Federal  Funds Rate plus
     (iii) the Applicable  Base Rate Margin or (b) the sum of (i) the Prime Rate
     plus  (ii) the  Applicable  Base Rate  Margin.  Principal  payments  on the
     acquisition term loan are paid quarterly beginning in March 2000. Principal

                                      F-14
<PAGE>
     payments on the revolving  line of credit are due on the maturity date. The
     acquisition term loan and the revolving line of credit mature in June 2003.
     The revolving line of credit will be used for working capital purposes. The
     Company has the option to convert the interest rates relating to any of the
     loans to LIBOR plus 150 to 250 basis points. If the Company converts to the
     LIBOR-based  interest rate,  interest is paid on the  LIBOR-based  maturity
     date, which is generally three months from the conversion date.

     As of December  31,  1998,  the Company had  borrowed  approximately  $12.0
     million under the  revolving  line of credit for working  capital  purposes
     including  financing the inventory and  receivable  buildup  related to the
     launch of the ABBA packaging and funding  capital  expenditures  associated
     with the  centralization  and reengineering  project  undertaken during the
     fourth  quarter of 1998. In addition,  the borrowing was used to repay debt
     created in conjunction with the initial public offering in November 1996 as
     well as to repay existing debt assumed in the acquisition of Framesi USA.

     b.   Notes

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

     A portion of the  proceeds  from the Notes  Offering  was used to repay the
     December  1997  Credit  Facility.  The Company  reported an  extraordinary,
     non-cash charge of approximately  $1.1 million,  net of taxes, or $0.25 per
     diluted share,  related to unamortized  financing costs associated with the
     repayment of the December 1997 Credit Facility.

     c.   Debt Covenants

     The Company's 1998 Credit  Facility  agreement  contains  provisions  that,
     among other  things,  require the Company to comply with certain  financial
     ratios and net worth requirements and will limit the ability of the Company
     and its subsidiaries to incur additional indebtedness,  pay dividends, sell
     assets,  or engage in certain  mergers or  consolidations.  At December 31,
     1998,  the  Company  was  in  compliance  with  all  applicable  covenants.
     Subsequent to year end, the Company  defaulted on certain credit agreements
     due to non-compliance  with certain  financial and  non-financial  convents
     (see Note 15).

     The Notes described above are general unsecured  obligations of the Company
     and are  unconditionally  guaranteed on a joint and several basis by all of
     the Company's wholly owned current and future subsidiaries (see Note 12).

     d.   Interest Rate Protection

     In connection with the 1998 Credit Facility,  the Company maintains certain
     interest rate protection instruments.  As of December 31, 1998, the Company
     has entered into interest rate swap and interest rate cap  agreements  (the
     Agreements) to reduce the impact of changes in interests rates. The Company
     is  exposed  to a risk of  credit  loss in the event of  nonperformance  by
     financial institutions that are also party to the Agreements.  However, the


                                      F-15
<PAGE>
     Company  believes  that,  based  on  the  high  creditworthiness  of  these
     counterparties,  nonperformance is unlikely.  The following is a summary of
     the Company's Agreements (in thousands) as of December 31, 1998:

                                  Company's         Notional
                Instrument      Effective Rate       Amount
                ----------      --------------       ------
                  Swap              8.50%           $ 12,500
                  Cap              10.25%             12,500
                                                    --------
                                                    $ 25,000
                                                    ========

6.   Stockholders' Equity

     a.   Treasury Stock

     In October 1996, the Company entered into a stock repurchase agreement with
     a  founder,  pursuant  to which the  founder  agreed to sell  approximately
     808,000  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.

     b.   Initial Public Offering

     In November 1996, the Company  completed the Offering of approximately  2.9
     million shares of its common stock with an issue price of $10.00 per share.
     During  December  1996,  the  Company's   underwriters  exercised  an  over
     allotment  option,  resulting  in the  issuance  of  approximately  216,000
     additional shares. Net proceeds from the Offering and over allotment option
     amounted to approximately $27,227,000.

     c.   Warrants

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

     d.   Stock Options

     At the initial  capitalization  of the Company,  162,000  stock  options to
     purchase  shares  of the  common  stock of the  Company  were  issued to an
     officer  with an exercise  price of $0.10 per share.  During the year ended
     December 31, 1998,  approximately  72,000 stock  options were  cancelled in
     connection with the officer's retirement.

     During 1996,  the Company  adopted the 1996 Stock  Option  Plan,  which was
     amended  during 1998 to provide up to 750,000  incentive  and  nonqualified
     stock  options to acquire  common stock of the Company to key personnel and
     directors of the Company.

     e.   Shareholder Rights Plan

     During  February  1999,  the  Company's   Board  of  Directors   adopted  a
     shareholder  rights plan, which authorized the distribution of one right to
     purchase  one  one-thousandth  of a share of Series A Junior  Participating
     Preferred   Stock,  at  a  purchase  price  of  $70,   subject  to  certain
     antidilution  adjustments.  The rights will expire 10 years after  issuance
     and will be  exercisable  if (i) a person or group  becomes the  beneficial

                                      F-16
<PAGE>
     owner of 15% or more of the Company's Common Stock;  (ii) persons currently
     holding 15% or more of the Common Stock acquire an additional 1% or more of
     the Common Stock; or (iii) a person or group commences a tender or exchange
     offer that would result in the offeror  beneficially  owning 15% or more of
     the Common Stock (a "Stock Acquisition  Date"). If a Stock Acquisition Date
     occurs, each right, unless redeemed by the Company,  entitles the holder to
     purchase  an  amount  of  Common  Stock  of  the  Company,  or  in  certain
     circumstances a combination of securities and/or assets or the common stock
     of the acquiror,  having a market value of twice the exercise  price of the
     right. Rights held by the acquiring person will become void and will not be
     exercisable to purchase shares at the bargain purchase price.

     During 1998, the Company adopted the 1998 Employee Stock Option Plan, which
     provides  for the grant of up to  150,000  nonqualified  stock  options  to
     acquire  common  stock of the  Company  to  employees  of the  Company.  On
     December 14, 1998, the Company repriced 246,000 options.

     A summary of the status of all the Company's  stock options at December 31,
     1996,  1997 and 1998 and changes  during the periods  ended is presented in
     the following table:

<TABLE>
<CAPTION>
                                          1996                   1997                   1998
                                   ------------------    --------------------   ---------------------
                                             WEIGHTED                WEIGHTED                WEIGHTED
                                              AVERAGE                 AVERAGE                AVERAGE
                                             EXERCISE                EXERCISE                EXERCISE
                                   OPTIONS    PRICE      OPTIONS      PRICE       OPTIONS     PRICE
                                   -------    -----      -------      -----       -------     -----
<S>                                <C>        <C>         <C>         <C>         <C>         <C>
Outstanding at beginning of year   162,000    $ 0.10      250,000     $ 3.58      549,000     $ 7.38
  Granted                           88,000     10.00      430,000      10.57      694,000      12.83
  Exercised                             --        --           --         --      (99,000)      1.87
  Canceled                              --        --     (131,000)     10.60     (350,000)     12.09
                                   -------    ------    ---------     ------    ---------     ------
Outstanding at end of year         250,000    $ 3.58      549,000     $ 7.38      794,000     $10.76
                                   =======    ======    =========     ======    =========     ======

Exercisable at end of year          18,000    $10.00      136,000     $ 9.71      279,000     $10.10
                                   =======    ======    =========     ======    =========     ======
Weighted average fair value
 per share of options granted      $  5.65              $    4.13               $    5.44
                                   =======              =========               =========
</TABLE>

     Options outstanding at December 31, 1998 have exercise prices between $0.10
     and $24.00.  9,000 options have an exercise price of $0.10 with a remaining
     average  contractual  life of 6.1  years,  and are  fully  vested.  597,000
     options  have  exercise  prices  between  $9.25 and $11.38 with a remaining
     average  contractual life of 9.03 years,  with vesting between one and five
     years.  188,000 options have exercise prices between $11.80 and $24.00 with
     a remaining  average  contractual life of 9.57 years,  with vesting between
     one and five years.

                                      F-17
<PAGE>
     The following pro forma  disclosures of net income (loss) are made assuming
     the Company had accounted  for the stock options  pursuant to the provision
     of SFAS No. 123, Accounting for Stock-Based Compensation.

<TABLE>
<CAPTION>
                                            FOR THE PERIOD
                                                 FROM
                                             NOVEMBER 27,
                                                 1996
                                            (COMMENCEMENT
                                            OF OPERATIONS)
                                            TO DECEMBER 31,    DECEMBER 31,       DECEMBER 31,
                                                 1996             1997               1998
                                                 ----             ----               ----
<S>                                          <C>              <C>               <C>
Income (loss) before extraordinary item
  As reported                                $ (151,000)      $  3,164,000      $  1,651,000
  Pro forma                                    (226,000)         2,833,000           849,000
  Diluted EPS - as reported                       (0.04)              0.77              0.38
  Diluted EPS - pro forma                         (0.06)              0.69              0.20
Extraordinary item, net
  As reported                                        --         (1,337,000)       (1,091,000)
  Diluted EPS - as reported                          --              (0.33)            (0.25)
Net income (loss)
  As reported                                  (151,000)         1,787,000           560,000
  Pro forma                                    (226,000)         1,456,000          (242,000)
  Diluted EPS - as reported                       (0.04)              0.43              0.13
  Diluted EPS - pro forma                         (0.06)              0.36             (0.06)
</TABLE>

     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%,
     expected lives of 3.8 years;  and a volatility  factor of 60%. The weighted
     average  assumptions  used for  grants in 1997 were as  follows:  risk-free
     interest rates of 5.99% to 6.62%, expected lives of two to six years; and a
     volatility  factor of 38.59%.  The weighted  average  assumptions  used for
     grants in 1998 were as follows: risk-free interest rates of 4.98%, expected
     lives of 4.97  years;  and a  volatility  factor  of  43.07%.  The  assumed
     dividend yield is zero for 1996, 1997 and 1998.

7.   Income Taxes

The provision for (benefit from) income taxes (in thousands) for the period from
November  27, 1996 to December  31,  1996 and for the years ended  December  31,
1997, and 1998 consists of the following:

                                               1996          1997          1998
                                               ----        -------        ------
Current expense                                $ --        $ 2,586        $  940
Deferred expense (benefit)                      (72)           (49)          530
                                               ----        -------        ------
Net income tax expense (benefit)               $(72)       $ 2,537        $1,470
                                               ====        =======        ======

                                      F-18
<PAGE>
The  components  of the deferred tax accounts (in  thousands) as of December 31,
1997 and 1998, consist of the following:

                                                            1997         1998
                                                           ------      --------
Current deferred tax assets:
  Reserves and other accruals                              $  232      $    516
  Inventory capitalization                                    222         1,298
  Other                                                         8            --
                                                           ------      --------
  Total current deferred tax assets                           462         1,814
                                                           ------      --------
  Long-term deferred tax assets:
  Net operating loss carryforward                             -0-         2,581
  Reserves and accruals                                        --         2,562
                                                           ------      --------
  Total long-term deferred tax assets                          --         5,143
                                                           ------      --------
Non-current deferred tax liabilities:
  Accelerated tax deductions, depreciation,
    and amortization                                          162         6,118
  Effect of book basis in excess of tax basis
    of licenses                                                --        13,098
                                                           ------      --------
  Total non-current deferred tax liabilities                  162        19,216
                                                           ------      --------
  Net deferred tax asset (liability)                       $  300      $(12,259)
                                                           ======      ========

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

                                                             DECEMBER 31,
                                                      -------------------------
                                                      1996       1997      1998
                                                      ----       ----      ----
Statutory federal rate                                 (34)%       34%       34%
Effect of state taxes                                   (5)%        4%        4%
Nondeductible amortization of goodwill                   7%         7%        9%
                                                       ---        ---       ---
                                                       (32)%       45%       47%
                                                       ===        ===       ===

8.   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 serves as president of a consulting
firm  which was paid a  $150,000  fee during  1997 in  connection  with the ABBA
acquisition.

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

9.   Segment Information

The  Company  monitors  its  salon  distribution  operations  by the  hair-care,
nail-care,  skin and body care, and appliances and sundries product  categories.
Distribution of the product takes place primarily throughout the United States.

Management  monitors and evaluates the  financial  performance  of the Company's
operations by its current four operating segments.

                                      F-19
<PAGE>
The following operating segment information  includes financial  information (in
thousands) for all four of the Company's operating segments.

<TABLE>
<CAPTION>

DECEMBER 31, 1998
                                                           APPLIANCES
                                                SKIN AND      AND
                          HAIR CARE  NAIL CARE  BODY CARE   SUNDRIES      PARENT    ELIMINATIONS      TOTAL
                          ---------  ---------  ---------   --------      ------    ------------      -----
<S>                        <C>        <C>        <C>        <C>          <C>          <C>           <C>
Net sales                  $29,224    $18,902    $25,930    $  9,310     $     --     $      --     $  83,366
Operating income (loss)      4,385      3,467      3,165       3,489       (2,179)           --        12,327
Depreciation and
  amortization                 107      2,561      1,189         215        1,115            --         5,187
Total assets                97,571     46,796     80,375      30,326       94,258      (135,253)      214,073
Capital expenditures            25        134        661         146          996            --         1,962


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


DECEMBER 31, 1996
                                                           APPLIANCES
                                                SKIN AND      AND
                          HAIR CARE  NAIL CARE  BODY CARE   SUNDRIES      PARENT    ELIMINATIONS      TOTAL
                          ---------  ---------  ---------   --------      ------    ------------      -----
Net sales                  $    --    $   697    $   337    $     49     $     --     $      --     $   1,083
Operating income (loss)         --         11          5         (19)        (222)           --          (225)
Depreciation and
  amortization                  --         58         11           3           25            --            97
Total assets                    --     15,066     12,542         663        6,156        (2,193)       32,234
Capital expenditures            --         --         --          --           46            --            46
</TABLE>

Sales to a major U.S.  beauty  supply chain as a  percentage  of total net sales
approximated  25% for the period from  November  27, 1996 to December  31, 1996.
During 1997,  this  customer  accounted for  approximately  13% of the total net
sales of the Company.  During 1998, sales to any single customer as a percentage
of total net sales did not exceed 10%.

10.  Commitments and Contingencies

     a.   Legal Matters

     The  Company  is party to certain  legal  matters  arising in the  ordinary
     course of its business.  In management's  opinion, as of December 31, 1998,
     the  expected  outcome of such  matters  will not have a  material  adverse
     effect on the Company's  financial  position or results of operations  (see
     Note 15).

                                      F-20
<PAGE>
     b.   Operating Leases

     The Company leases certain  equipment and office and warehouse  space under
     noncancelable  operating  leases.  Rent  expense  related  to  these  lease
     agreements totaled approximately  $12,000,  $313,000 and $1,132,000 for the
     period from  November 27, 1996 to December 31, 1996 and for the years ended
     December 31, 1997 and 1998.

     Future lease payments under  noncancelable  operating leases (in thousands)
     are as follows:

                    YEARS ENDING
                    DECEMBER 31,
                    ------------
                      1999                                      $  2,330
                      2000                                         2,117
                      2001                                         1,526
                      2002                                         1,261
                      2003                                           950
                      Thereafter                                   4,815
                                                                --------
                                                                $ 12,999
                                                                ========

     c.   Retirement Plans

     On April 1, 1998, the Company  adopted the Styling  Technology  Corporation
     401(k) Plan (the "401(k) Plan").  The 401(k) Plan allows eligible employees
     to contribute up to 20% of their annual pre-tax  compensation.  The Company
     will make a matching  contribution of 50% of the first 5% of the employee's
     contribution. Generally, employees are eligible to participate at the first
     calendar  quarter  following  90 days  of  continuous  service.  Collective
     bargaining units are excluded from participation.  Vesting in the Company's
     matching  contribution  is 25% per year of service;  the employee  would be
     100% vested after four years of service.  The Company made payments to this
     401(k)  Plan in the sum of $98,000  during  1998.  An  employee's  unvested
     portion  of  the  Company  match  goes  back  to  the  401(k)  Plan  upon a
     termination distribution. Forfeited amounts are first applied toward 401(k)
     Plan expenses and are then applied toward future matching contributions.

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

     Another of the Company's  Subsidiaries,  Ft. Pitt Acquisition,  Inc., ("Ft.
     Pitt")  sponsors a 401(k) plan ("Ft.  Pitt 401(k)  Plan") for its  separate
     employees. All full time Ft. Pitt employees,  except employees covered by a
     union plan,  are eligible to  participate.  The Ft. Pitt 401(k) Plan allows
     employees to contribute up to 20% of their annual pre-tax compensation. Ft.
     Pitt  will  match 20% of the  employees'  deferral,  subject  to a six year
     vesting schedule.  The Ft. Pitt 401(k) Plan also provides for discretionary
     profit-sharing   contributions.   During  1998,   Ft.  Pitt  made  matching
     contributions  of  approximately  $11,000.  Ft.  Pitt made a  discretionary
     profit sharing contribution of $20,000 in 1998.

                                      F-21
<PAGE>
11.  Vendor Concentration

As part of the Company's strategy, the Company uses third parties to manufacture
the  majority of the  Company's  products.  One of these  third party  suppliers
accounted  for  approximately  15% of the total cost of sales for the year ended
December 31, 1997. During 1998, purchases from a single supplier as a percentage
of total purchases did not exceed 10%.

12.  Guarantor and Non-Guarantor Subsidiaries

The Notes described in Note 5 are general  unsecured  obligations of the Company
and are  unconditionally  guaranteed  on a joint and several basis by all of the
Company's wholly owned current and future subsidiaries.

The financial statements presented below include the combined financial position
as of December 31, 1997 and 1998;  the results of operations for the period from
November 27, 1996 to December 31, 1996 and for the restated years ended December
31, 1997 and 1998; and the statements of cash flows for the period from November
27, 1996 to December 31, 1996 and for the restated years ended December 31, 1997
and 1998 of Styling  Technology  Corporation  (Parent);  guarantor  subsidiaries
(Guarantors) and the non-guarantor subsidiaries (Non-guarantors).

                                      F-22
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Balance Sheet
as of December 31, 1997 (in thousands)

<TABLE>
<CAPTION>
                                                                    NON-
                                           PARENT    GUARANTORS  GUARANTORS  ELIMINATING   CONSOLIDATED
                                           ------    ----------  ----------  -----------   ------------
<S>                                       <C>          <C>        <C>          <C>          <C>
                                     Assets
Current Assets:
 Cash and cash equivalents                $  2,907     $   156    $     --     $     --     $  3,063
 Accounts receivable, net                    8,251       4,442          --           --       12,693
 Inventories, net                            5,882       5,069          --           --       10,951
 Prepaid expenses and other current
   assets                                    1,581         539          --           --        2,120
 Due to/from affiliates                     (2,379)      2,379          --           --           --
                                          --------     -------    --------     --------     --------
      Total current assets                  16,242      12,585          --           --       28,827

Property and Equipment, net                  1,558       1,082          --           --        2,640
Goodwill and Other Intangibles, net         26,106      30,400          --           --       56,506
Other Assets                                 2,902          11          --           --        2,913
Investment in Subsidiaries, net             39,468          --          --      (39,468)          --
                                          --------     -------    --------     --------     --------
                                          $ 86,276     $44,078    $     --     $(39,468)    $ 90,886
                                          ========     =======    ========     ========     ========

                      Liabilities and Stockholders' Equity

Current Liabilities:
 Accounts payable                         $  4,101     $ 2,404    $     --     $     --     $  6,505
 Accrued liabilities                         1,481       2,189          --           --        3,670
 Current portion of long-term debt
   and other                                 5,630          17          --           --        5,647
                                          --------     -------    --------     --------     --------
      Total current liabilities             11,212       4,610          --           --       15,822
                                          --------     -------    --------     --------     --------

Deferred Income Taxes                          162          --          --           --          162
                                          --------     -------    --------     --------     --------
Long-Term Debt and Other, less current
 portion                                    47,377          --          --           --       47,377
                                          --------     -------    --------     --------     --------

Commitments and Contingencies

Stockholders' Equity:
 Preferred stock                                --          --          --           --           --
 Common stock                                    1          --          --           --            1
 Additional paid-in capital                 27,875      36,768          --      (36,768)      27,875
 Retained earnings                           1,449       2,700          --       (2,700)       1,449
 Treasury stock                             (1,800)         --          --           --       (1,800)
                                          --------     -------    --------     --------     --------

      Total stockholders' equity            27,525      39,468          --      (39,468)      27,525
                                          --------     -------    --------     --------     --------

                                          $ 86,276     $44,078    $     --     $(39,468)    $ 90,886
                                          ========     =======    ========     ========     ========
</TABLE>

                                      F-23
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

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

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

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

                      Liabilities and Stockholders' Equity

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

Deferred Income Taxes                         6,475          --       12,741            --        19,216
                                          ---------     -------    ---------     ---------     ---------
Long-Term Debt and Other, less current
portion                                     140,366          --           --            --       140,366
                                          ---------     -------    ---------     ---------     ---------

Commitments and Contingencies

Stockholders' Equity:
 Preferred stock                                 --          --           --            --            --
 Common stock                                     1          --           --            --             1
 Additional paid-in capital                  29,038      61,770       32,527       (94,297)       29,038
 Retained earnings                            2,009       8,715        1,305       (10,020)        2,009
 Treasury stock                              (1,800)         --           --            --        (1,800)
                                          ---------     -------    ---------     ---------     ---------

      Total stockholders' equity             29,248      70,485       33,832      (104,317)       29,248
                                          ---------     -------    ---------     ---------     ---------

                                          $ 187,506     $79,643    $  51,241     $(104,317)    $ 214,073
                                          =========     =======    =========     =========     =========
</TABLE>

                                      F-24
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement of Operations
November 27, 1996 to December 31, 1996 (in thousands)

<TABLE>
<CAPTION>
                                                                       NON-
                                             PARENT    GUARANTORS   GUARANTORS  ELIMINATING  CONSOLIDATED
                                             ------    ----------   ----------  -----------  ------------
<S>                                          <C>         <C>         <C>           <C>         <C>
Net sales                                    $ 386       $ 697       $     --      $   --      $ 1,083
Cost of sales                                  162         409             --          --          571
                                             -----       -----       --------      ------      -------
    Gross profit                               224         288             --          --          512

Selling, general and administrative
  expenses                                     460         277             --          --          737
                                             -----       -----       --------      ------      -------

Income (loss) from operations                 (236)         11             --          --         (225)
Interest (expense) and other income, net         2          --             --          --            2
                                             -----       -----       --------      ------      -------

Income (loss) before income taxes             (234)         11             --          --         (223)
Provision for (benefit from) income taxes      (84)         12             --          --          (72)
Income (loss) from wholly owned
subsidiaries                                    (1)         --             --           1           --
                                             -----       -----       --------      ------      -------

Net loss                                     $(151)      $  (1)      $     --      $    1      $  (151)
                                             =====       =====       ========      ======      =======
</TABLE>

                                      F-25
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                     NON-
                                          PARENT     GUARANTORS   GUARANTORS   ELIMINATING   CONSOLIDATED
                                         --------     --------     --------      -------       --------
<S>                                      <C>          <C>          <C>           <C>           <C>
Net sales                                $ 15,193     $ 21,312     $     --      $    --       $ 36,505
Cost of sales                               6,348       10,408           --           --         16,756
                                         --------     --------     --------      -------       --------

Gross profit                                8,845       10,904           --           --         19,749
Selling, general and administrative
   expenses                                 5,874        6,327           --           --         12,201
                                         --------     --------     --------      -------       --------

Income from operations                      2,971        4,577           --           --          7,548
Interest expense and other, net            (1,789)         (58)          --           --         (1,847)
                                         --------     --------     --------      -------       --------
Income before extraordinary item and
   income taxes                             1,182        4,519           --           --          5,701
Provision for income taxes                    719        1,818           --           --          2,537
                                         --------     --------     --------      -------       --------

Income before extraordinary item              463        2,701           --           --          3,164
Extraordinary item, net                    (1,377)          --           --           --         (1,377)
Income from wholly owned subsidiaries       2,701           --           --       (2,701)            --
                                         --------     --------     --------      -------       --------

Net income                               $  1,787     $  2,701     $     --      $(2,701)      $  1,787
                                         ========     ========     ========      =======       ========
</TABLE>

                                      F-26
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                      NON-
                                             PARENT    GUARANTORS  GUARANTORS    ELIMINATING  CONSOLIDATED
                                             ------    ----------  ----------    -----------  ------------
<S>                                         <C>          <C>         <C>           <C>          <C>
Net sales                                   $ 30,958     $40,326     $12,082       $    --      $ 83,366
Cost of sales                                 15,684      18,470       4,844            --        38,998
                                            --------     -------     -------       -------      --------

Gross profit                                  15,274      21,856       7,238            --        44,368
Selling, general and administrative
   expenses                                   14,200      11,439       5,980            --        31,619
Centralization and reengineering costs           422          --          --            --           422
                                            --------     -------     -------       -------      --------

Income from operations                           652      10,417       1,258            --        12,327
Interest income (expense) and other, net      (9,302)         --          96            --        (9,206)
                                            --------     -------     -------       -------      --------

Income (loss) before extraordinary item       (8,650)     10,417       1,354            --         3,121
Provision (benefit) for income taxes          (2,981)      4,402          49            --         1,470
                                            --------     -------     -------       -------      --------

Income (loss) before extraordinary item       (5,669)      6,015       1,305            --         1,651
Extraordinary item, net                       (1,091)         --          --            --        (1,091)
Income from wholly owned subsidiaries          7,320          --          --        (7,320)           --
                                            --------     -------     -------       -------      --------

Net income                                  $    560     $ 6,015     $ 1,305       $(7,320)     $    560
                                            ========     =======     =======       =======      ========
</TABLE>

                                      F-27
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

Statement Of Cash Flow
as of November 27, 1996 to December 31, 1996 (in thousands)

<TABLE>
<CAPTION>
                                                                                   NON-
                                                        PARENT     GUARANTORS   GUARANTORS   ELIMINATING   CONSOLIDATED
                                                        ------     ----------   ----------   -----------   ------------
<S>                                                  <C>          <C>          <C>           <C>          <C>
Cash Flows from Operating Activities:
 Net Loss                                             $   (151)      $  (1)      $      --      $   1       $   (151)
 Adjustments to reconcile net loss to net cash
  provided by (used in) in operating activities:
  Depreciation and amortization                             93           4              --         --             97
  Change in certain assets and liabilities:
   Accounts receivable, net                                390         142              --         --            532
   Inventory, net                                          (28)          7              --         --            (21)
   Prepaid expenses and other assets                       (67)         31              --         --            (36)
   Accounts payable and accrued liabilities               (756)        (32)             --         --           (788)
   Due to/from affiliates, net                               2          (1)             --         (1)            --
                                                      --------       -----       ---------      -----       --------

       Net cash provided by (used in) operating
        activities                                        (517)        150              --         --           (367)
                                                      --------       -----       ---------      -----       --------
Cash Flows from Investing Activities:
 Purchase of acquired business, net of cash acquired   (20,523)         --              --         --        (20,523)
  Purchase of property, and equipment                      (46)         --              --         --            (46)
                                                      --------       -----       ---------      -----       --------
        Net cash used in investing activities          (20,569)         --              --         --        (20,569)
                                                      --------       -----       ---------      -----       --------
Cash Flows from Financing Activities:
 Proceeds from issuance of common stock,
  net of offering and acquisition costs                 27,227          --              --         --         27,227
 Purchase of treasury stock                             (1,800)         --              --         --         (1,800)
                                                      --------       -----       ---------      -----       --------
        Net cash provided by financing activities       25,427          --              --         --         25,427
                                                      --------       -----       ---------      -----       --------

Increase in Cash and Cash Equivalents                    4,341         150              --         --          4,491
                                                      --------       -----       ---------      -----       --------
Cash and Cash Equivalents, beginning of Period              --          --              --         --             --
                                                      --------       -----       ---------      -----       --------

Cash and Cash Equivalents, end of period              $  4,341       $ 150       $      --      $  --       $  4,491
                                                      ========       =====       =========      =====       ========
</TABLE>

                                      F-28
<PAGE>
STYLING TECHNOLOGY CORPORATION AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                                   NON-
                                                        PARENT     GUARANTORS   GUARANTORS   ELIMINATING   CONSOLIDATED
                                                        ------     ----------   ----------   -----------   ------------
<S>                                                  <C>          <C>          <C>           <C>          <C>
Cash Flows from Operating Activities:
 Net Income                                           $  1,787      $ 2,701     $   --        $(2,701)      $  1,787
 Adjustments to reconcile net income to net cash
  provided by (used in) in operating activities:
  Depreciation and amortization                          1,058          788         --             --          1,846
  Interest accretion on note payable                         6          168         --             --            174
  Extraordinary loss on early extinguishment of debt     1,377           --         --             --          1,377
  Change in certain assets and liabilities:
    Accounts receivable, net                            (3,624)      (2,178)        --             --         (5,802)
    Inventories, net                                    (2,063)        (929)        --             --         (2,992)
    Prepaid expenses and other assets                   (1,825)          95         --             --         (1,730)
    Accounts payable and accrued liabilities               845        2,115         --             --          2,960
    Due to/from affiliates, net                           (507)      (2,194)        --          2,701             --
                                                      --------      -------     ------        -------       --------
         Net cash provided by (used in) operating
           activities                                   (2,946)         566         --             --         (2,380)
                                                      --------      -------     ------        -------       --------
Cash Flows from Investing Activities:
 Purchase of property and equipment                       (518)         (64)        --             --           (582)
 Purchase of acquired business, net of
  cash acquired                                        (45,131)         (19)        --             --        (45,150)
                                                      --------      -------     ------        -------       --------
         Net cash investing activities                 (45,649)         (83)        --             --        (45,732)
                                                      --------      -------     ------        -------       --------
Cash Flows from Financing Activities:
 Proceeds from credit facility, net of
  financing costs                                       71,633           --         --             --         71,633
 Payments on long-term debt                            (24,472)        (477)        --             --        (24,949)
                                                      --------      -------     ------        -------       --------
         Net cash provided by (used in) financing
           activities                                   47,161         (477)        --             --         46,684
                                                      --------      -------     ------        -------       --------
Increase (Decrease) in Cash and Cash Equivalents        (1,434)           6         --             --         (1,428)
                                                      --------      -------     ------        -------       --------
Cash and Cash Equivalents, beginning of year             4,341          150         --             --          4,491
                                                      --------      -------     ------        -------       --------
Cash and Cash Equivalents, end of year                $  2,907      $   156     $   --        $    --       $  3,063
                                                      ========      =======     ======        =======       ========
</TABLE>
                                      F-29
<PAGE>
STYLING TECHNOLOGY  CORPORATION AND SUBSIDIARIES  Statement of Cash Flow for the
Year Ended December 31, 1998 (in thousands)

<TABLE>
<CAPTION>
                                                                                   NON-
                                                        PARENT     GUARANTORS   GUARANTORS   ELIMINATING   CONSOLIDATED
                                                        ------     ----------   ----------   -----------   ------------
<S>                                                  <C>          <C>          <C>           <C>          <C>
Cash Flows from Operating Activities:
 Net Income                                            $    560     $ 6,015     $  1,305       $(7,320)      $    560
 Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                           2,993       1,839          355            --          5,187
  Interest accretion on note payable                        159          --           --            --            159
  Extraordinary loss on early extinguishment of debt      1,091          --           --            --          1,091
  Change in certain assets and liabilities:
    Accounts receivable, net                               (195)     (3,217)      (1,226)           --         (4,638)
    Inventories, net                                     (3,997)     (5,329)         738            --         (8,588)
    Prepaid expenses and other assets                    (2,636)        (51)         324            --         (2,363)
    Accounts payable and accrued liabilities             (2,124)      2,641        1,290            --          1,807
    Due to/from affiliates, net                         (16,157)        992        7,845         7,320             --
                                                       --------     -------     --------       -------       --------
          Net cash provided by (used in) operating
            activities                                  (20,306)      2,890       10,631            --         (6,785)
                                                       --------     -------     --------       -------       --------
Cash Flows from Investing Activities:
 Purchase of property, plant and equipment               (1,766)       (174)         (22)           --         (1,962)
 Purchase of acquired business, net of
  cash acquired                                         (62,677)         --           --            --        (62,677)
 Change in other assets                                   2,978      (2,510)      (4,719)           --         (4,251)
                                                       --------     -------     --------       -------       --------
          Net cash provided by used in investing
            activities                                  (61,465)     (2,684)      (4,741)           --        (68,890)
                                                       --------     -------     --------       -------       --------
Cash Flows from Financing Activities:
 Proceeds from credit facility, net of financing costs   47,298          --           --            --         47,298
  Proceeds from bond offering, net of offering costs     96,400          --           --            --         96,400
  Exercise of stock options                               1,163          --           --            --          1,163
  Payments on long-term debt                            (63,130)        (19)      (5,077)           --        (68,226)
                                                       --------     -------     --------       -------       --------
          Net cash provided by (used in) financing
            activities                                   81,731         (19)      (5,077)           --         76,635
                                                       --------     -------     --------       -------       --------
Increase (Decrease) in Cash and Cash Equivalents            (40)        187          813            --            960

Cash and Cash Equivalents, beginning of year              2,907         156           --            --          3,063
                                                       --------     -------     --------       -------       --------
Cash and Cash Equivalents, end of year                 $  2,867     $   343     $    813       $    --       $  4,023
                                                       ========     =======     ========       =======       ========
</TABLE>
                                      F-30
<PAGE>
13.  Restatement

Subsequent to the issuance of the Company's  consolidated  financial  statements
for the fiscal years ended December 31, 1997 and 1998, it was determined through
an internal  investigation that the previously  reported results included errors
and  irregularities  in  the  Body  Drench  division.  Upon  examination  it was
determined   revenue  for  certain  Body  Drench   transactions  was  improperly
recognized  when  inventory  was not  shipped to  customers.  During  subsequent
periods,  certain of the amounts,  which were improperly  recognized as sales by
the Body Drench division,  were written-off through the bad debt provision. As a
result,  the Company has restated  previously  reported annual results including
the 1998 and 1997 financial information set forth herein.

In addition to the Company's investigation,  in October 1999, the Securities and
Exchange  Commission (SEC) issued a Formal Order of Private  Investigation  (see
Note 15). While  management has made all adjustments  considered  necessary as a
result of the investigation into accounting irregularities in the preparation of
the restated financial  statements for 1998 and 1997, there can be no assurances
that  additional  adjustments  will  not be  required  as a  result  of the  SEC
investigation.  The  following  statements  of  operations  and  balance  sheets
reconcile previously reported and restated financial  information (in thousands,
except for per share amounts).

                                      F-31
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED
(in thousands)
<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1997         DECEMBER 31, 1998
                                                ------------------------  ------------------------
                                                AS REPORTED  AS RESTATED  AS REPORTED  AS RESTATED
                                                -----------  -----------  -----------  -----------
<S>                                               <C>          <C>          <C>          <C>
Net Sales                                         $ 38,108     $ 36,505     $ 90,373     $ 83,366
Cost of Sales                                       16,756       16,756       39,222       38,998
                                                  --------     --------     --------     --------

    Gross profit                                    21,352       19,749       51,151       44,368
                                                  --------     --------     --------     --------

Selling, General and Administrative Expenses        12,201       12,201       32,715       31,619
Centralization and Reengineering Costs                  --           --          422          422
                                                  --------     --------     --------     --------
                                                    12,201       12,201       33,137       32,041
                                                  --------     --------     --------     --------

Income (Loss) from Operations                        9,151        7,548       18,014       12,327
Interest Expense and Other, net                     (1,847)      (1,847)      (9,206)      (9,206)
                                                  --------     --------     --------     --------
Income (Loss) Before Extraordinary Item and
   Income Taxes                                      7,304        5,701        8,808        3,121
Provision for (Benefit from) Income Taxes            3,097        2,537        3,635        1,470
                                                  --------     --------     --------     --------

Income (Loss) Before Extraordinary Item              4,207        3,164        5,173        1,651
Extraordinary Item, net of tax benefit of $882
 and $822                                           (1,377)      (1,377)      (1,091)      (1,091)
                                                  --------     --------     --------     --------

         Net Income (Loss)                        $  2,830     $  1,787     $  4,082     $    560
                                                  ========     ========     ========     ========
Basic Earnings (Loss) per Share:
   Income (loss) before extraordinary item        $   1.07     $   0.80     $   1.28     $   0.41
   Extraordinary item                                 (.35)        (.35)        (.27)        (.27)
                                                  --------     --------     --------     --------

         Net income (loss)                        $   0.72     $   0.45     $   1.01     $   0.14
                                                  ========     ========     ========     ========
         Weighted average shares                     3,949        3,949        4,033        4,033
                                                  ========     ========     ========     ========
Diluted Earnings (Loss) per Share:
   Income (loss) before extraordinary item        $   1.02     $   0.77     $   1.20     $   0.38
   Extraordinary item                                 (.33)        (.34)        (.25)        (.25)
                                                  --------     --------     --------     --------

         Net income (loss)                        $   0.69     $   0.43     $   0.95     $   0.13
                                                  ========     ========     ========     ========
         Weighted average shares diluted             4,113        4,113        4,313        4,313
                                                  ========     ========     ========     ========
</TABLE>

                                      F-32
<PAGE>
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                    DECEMBER 31, 1997         DECEMBER 31, 1998
                                                ------------------------  ------------------------
                                                AS REPORTED  AS RESTATED  AS REPORTED  AS RESTATED
                                                -----------  -----------  -----------  -----------
<S>                                               <C>         <C>          <C>          <C>
                                     Assets
Current Assets:
 Cash and cash equivalents                        $  3,063    $   3,063    $   4,023    $   4,023
 Accounts receivable, net of allowance
  for doubtful accounts of $1,032 and $1,786        14,296       12,693       32,326       24,812
 Inventories, net                                   10,951       10,951       25,375       25,599
 Prepaid expenses and other current assets           2,120        2,120        1,791        1,375
                                                  --------    ---------    ---------    ---------
      Total current assets                          30,430       28,827       63,515       55,809

Property and Equipment, net                          2,640        2,640        5,362        5,362
Goodwill and Other Intangibles, net of
 accumulated amortization of $1,375 and $4,749      56,506       56,506      139,566      139,566
Other Assets                                         2,913        2,913       10,755       13,336
                                                  --------    ---------    ---------    ---------
                                                  $ 92,489    $  90,886    $ 219,198    $ 214,073
                                                  ========    =========    =========    =========

                      Liabilities and Stockholders' Equity

Current Liabilities:
 Accounts payable                                 $  7,065    $   6,505    $  12,668    $  12,108
 Accrued liabilities                                 3,670        3,670       10,367       10,367
 Current portion of long-term debt and other         5,647        5,647        2,768        2,768
                                                  --------    ---------    ---------    ---------
      Total current liabilities                     16,382       15,822       25,803       25,243
                                                  --------    ---------    ---------    ---------

Deferred Income Taxes                                  162          162       19,216       19,216
Long-Term Debt and Other, less current portion      47,377       47,377      140,366      140,366
                                                  --------    ---------    ---------    ---------
Commitments and Contingencies

Stockholders' Equity:
 Preferred stock                                        --           --           --           --
 Common stock                                            1            1            1            1
 Additional paid-in capital                         27,875       27,875       29,038       29,038
 Retained earnings                                   2,492        1,449        6,574        2,009
 Treasury stock                                     (1,800)      (1,800)      (1,800)      (1,800)
                                                  --------    ---------    ---------    ---------
      Total stockholders' equity                    28,568       27,525       33,813       29,248
                                                  --------    ---------    ---------    ---------

                                                  $ 92,489    $  90,886    $ 219,198    $ 214,073
                                                  ========    =========    =========    =========
</TABLE>

                                      F-33
<PAGE>
14.  Unaudited Quarterly Financial Data

During  1997 and 1998,  the  Company  recorded  transactions  in the Body Drench
division that require restatement (see Note 13).

<TABLE>
<CAPTION>
                                      1998
                                                   FIRST QUARTER            SECOND QUARTER
                                             ------------------------  ------------------------
                                             AS REPORTED  AS RESTATED  AS REPORTED  AS RESTATED
                                             -----------  -----------  -----------  -----------
<S>                                             <C>         <C>          <C>         <C>
                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Net Sales                                       $16,225     $ 14,073     $19,074     $ 16,795
Gross Profit (a)                                  9,183        7,488      10,624        8,895
Selling, General and Administrative Expenses      5,395        5,395       6,514        6,514
Income from Operations                            3,788        2,093       4,110        2,381
Net Income (Loss) before Extraordinary Item       1,439         (256)      1,565         (164)
Extraordinary Item, net                              --           --       1,091        1,091
Net Income (Loss)                                 1,439         (256)        474       (1,255)
Diluted EPS before Extraordinary Item           $  0.34     $  (0.06)    $  0.36     $  (0.04)
Diluted EPS after Extraordinary Item               0.34        (0.06)       0.11        (0.28)


                                                  THIRD QUARTER            FOURTH QUARTER
                                             ------------------------  ------------------------
                                             AS REPORTED  AS RESTATED  AS REPORTED  AS RESTATED
                                             -----------  -----------  -----------  -----------
                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Net Sales                                       $26,539     $ 25,400     $28,535     $ 27,098
Gross Profit (a)                                 15,001       14,195      16,343       13,790
Selling, General and Administrative Expenses      9,689        9,689      11,117       10,021
Income from Operations                            5,312        4,506       4,804        3,347
Net Income before Extraordinary Item              1,243          437         926        1,634
Extraordinary Item                                   --           --          --           --
Net Income                                        1,243          437         926        1,634
Diluted EPS before extraordinary item           $  0.29     $   0.10     $  0.23     $   0.40
Diluted EPS after extraordinary item               0.29         0.10        0.23         0.40
</TABLE>

----------
(a)  Management  has estimated the gross margin for the Body Drench  division on
     an interim basis for the restated quarters.

                                      F-34
<PAGE>
<TABLE>
<CAPTION>
                                      1997
                                                   FIRST QUARTER            SECOND QUARTER
                                             ------------------------  ------------------------
                                             AS REPORTED  AS RESTATED  AS REPORTED  AS RESTATED
                                             -----------  -----------  -----------  -----------
<S>                                             <C>         <C>          <C>         <C>
                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Net Sales                                       $ 7,479     $ 7,479      $  7,437      $  7,093
Gross Profit                                      4,245       4,245         4,191         3,994
Selling, General and Administrative Expenses      2,398       2,398         2,333         2,333
Income from Operations                            1,847       1,847         1,858         1,661
Net Income before Extraordinary Item              1,054       1,054         1,031           834
Extraordinary Item                                   --          --            --            --
Net Income                                        1,054       1,054         1,031           834
Diluted EPS before Extraordinary Item           $  0.26     $  0.26      $   0.25      $   0.20
Diluted EPS after Extraordinary Item               0.26        0.26          0.25          0.20


                                                  THIRD QUARTER            FOURTH QUARTER
                                             ------------------------  ------------------------
                                             AS REPORTED  AS RESTATED  AS REPORTED  AS RESTATED
                                             -----------  -----------  -----------  -----------
                                               (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

Net Sales                                       $10,669     $10,210      $ 12,523      $ 11,723
Gross Profit                                      5,802       5,480         7,114         6,030
Selling, General and Administrative Expenses      3,574       3,574         3,896         3,896
Income from Operations                            2,228       1,906         3,218         2,134
Net Income before Extraordinary Item                828         506         1,294           770
Extraordinary Item                                   --          --         1,377         1,377
Net Income (Loss) Net                               828         506           (83)         (607)
Diluted EPS before Extraordinary Item           $  0.20     $  0.12      $   0.31      $   0.19
Diluted EPS after Extraordinary Item               0.20        0.12         (0.02)        (0.15)

</TABLE>

                                      F-35
<PAGE>
15.  Subsequent Events

     a.   Litigation

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

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

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

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

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

                                      F-36
<PAGE>
     b.   SEC Investigation

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

     c.   Credit Agreements

     On June 22, 1999,  the Company  entered into a $90 million  Senior  Secured
     Revolving Credit Facility (the "GE Credit  Facility") with General Electric
     Capital  Corporation.  Proceeds  from the GE Credit  Facility  were used to
     repay amounts  outstanding  under the 1998 Credit  Facility.  The GE Credit
     Facility  is  collateralized  by  substantially  all of the  assets  of the
     Company. In November, 1999, the Company defaulted on the GE Credit Facility
     due to non compliance with certain financial and  non-financial  covenants.

     Additionally,  the Company did not make the  required  interest  payment on
     July 1, 2000 to the Noteholders of the Notes. On June 28, 2000 an agreement
     was reached with 81% of the  Noteholders  to convert all $100.0  million of
     the Notes into 90% of the equity of the Company.  The  agreement,  which as
     amended is effective  through  January 1, 2001,  includes a provision  that
     allows  the  Company  to  effect  a debt  for  equity  exchange  through  a
     pre-negotiated  plan of reorganization if the Company is not able to secure
     consents  from  the  remaining  19% of  the  Noteholders.  There  can be no
     assurance that the lenders will continue to grant waivers. The Company does
     not currently have  alternative  financing to meet its  obligations as they
     come due.

     d.   Bankruptcy

     During 1999, the Company recorded a net loss of $51.9 million and continued
     to experience  negative operating results in 2000. As a result, the Company
     filed a  voluntary  petition  for  reorganization  under  Chapter 11 of the
     Federal Bankruptcy Code on August 31, 2000.

     In  connection  with  the  audit  of the  1999  financial  statements,  the
     Company's  independent public accountants issued their report dated October
     18,  2000,  which  expressed  significant  doubt  about the  ability of the
     Company to continue as a going concern.

     e.   Sale of One Touch and Clean + Easy

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

                                      F-37
<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

Phoenix, Arizona,
March 21, 1997.

                                      F-38
<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-39
<PAGE>
                            GENA LABORATORIES, INC.

                            STATEMENTS OF OPERATIONS

<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>
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
                                                  ==========     ==========     ==========      ==========
</TABLE>

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

                                      F-40
<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                2,000     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-41
<PAGE>
                            GENA LABORATORIES, INC.

                            STATEMENTS OF CASH FLOWS

<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>
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-42
<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.

     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
                                                     ========       ==========

                                      F-43
<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 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.

     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.

                                      F-44
<PAGE>
(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
                                                      ========        ========

     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

                                      F-45
<PAGE>
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:

<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>
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
                                   ========        ========        ========         ========
</TABLE>

     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:

                                      F-46
<PAGE>
<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.

     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

                                      F-47
<PAGE>
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-48
<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

Phoenix, Arizona,
  March 21, 1997.

                                      F-49
<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-50
<PAGE>
                                  BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                                         FOR THE PERIOD
                                                     YEARS ENDED DECEMBER 31,           JANUARY 1, 1996
                                              --------------------------------------          TO
                                                 1993         1994          1995       NOVEMBER 26, 1996
                                              ----------   -----------   -----------   -----------------
<S>                                           <C>          <C>           <C>             <C>
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)
                                              ==========   ===========   ===========       ==========
</TABLE>

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

                                      F-51
<PAGE>
                                  BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)


                  STATEMENTS OF CHANGES IN OWNER'S 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-52
<PAGE>
                                  BODY DRENCH
                    (A DIVISION OF DESIGNS BY NORVELL, INC.)

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                      FOR THE
                                                                                       PERIOD
                                                      FOR THE YEARS ENDED            JANUARY 1,
                                                         DECEMBER 31,                 1996 TO
                                              -----------------------------------   NOVEMBER 26,
                                                1993         1994         1995          1996
                                              ---------   -----------   ---------   ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                           <C>         <C>           <C>         <C>
  Net income (loss)                           $ 327,712   $   446,303   $ 293,599   $  (137,311)
  Adjustments to reconcile net income
    (loss) 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-53
<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.

     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.

                                      F-54
<PAGE>
     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
                                                       =========    =========

(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.

                                      F-55
<PAGE>
     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-56
<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

Phoenix, Arizona,
  March 21, 1997.

                                      F-57
<PAGE>
                           JDS MANUFACTURING CO., INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    SEPTEMBER 30,
                                                                  1995             1996
                                                                --------         --------
<S>                                                             <C>              <C>
                                           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
                                                                ========         ========
</TABLE>

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

                                      F-58
<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-59
<PAGE>
                           JDS MANUFACTURING CO., INC.

                       STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                        COMMON STOCK
                                                      -----------------    RETAINED
                                                      SHARES    AMOUNT     EARNINGS     TOTAL
                                                      ------    -------    --------    --------
<S>                                                  <C>       <C>        <C>         <C>
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
                                                      =====     =======    ========    ========
</TABLE>

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

                                      F-60
<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-61
<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.

     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
                                               ========         ========

                                      F-62
<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.

     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.

(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

                                      F-63
<PAGE>
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-64
<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

Phoenix, Arizona,
  March 21, 1997.

                                      F-65
<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-66
<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-67
<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-68
<PAGE>
                          KOTCHAMMER INVESTMENTS, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                 For the Period
                                                                  For the       January 1, 1996
                                                                 Year Ended            to
                                                                December 31,      November 26,
                                                                    1995              1996
                                                                ------------    ----------------
<S>                                                              <C>               <C>
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         $      -
                                                                 =========         =========
</TABLE>

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

                                      F-69
<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.

     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.

                                      F-70
<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)  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.

(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
                                                               =========

                                      F-71
<PAGE>
     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.  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-72
<PAGE>
                                                                     SCHEDULE II

Styling Technology Corporation and Subsidiaries
Valuation and Qualifying Accounts
At December 31,

                                              1996         1997          1998
                                              ----       -------        -------
                                                      (in thousands)

Allowance for Doubtful accounts:
Balance at beginning of year                  $ --       $   427        $ 1,032
Provision                                      427           710          1,614
Write-offs                                      --          (105)          (860)
                                              ----       -------        -------

Balance at end of year                        $427       $ 1,032        $ 1,786
                                              ====       =======        =======

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

----------
(1)  Incorporated  by  reference  to the  Registration  Statement  on  Form  S-1
     (Registration   No.  333-12469)  filed  September  20,  1996  and  declared
     effective November 12, 1996.
(2)  Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
     as filed with the Securities and Exchange  Commission (the "Commission") on
     August 14, 1997.
(3)  Quarterly  Report on Form 10-Q as filed with the Commission on November 14,
     1997.
(4)  Incorporated  by  reference  to the  Registration  Statement  on  Form  S-4
     Registration  No.  333-61035)  filed August 7, 1998 and declared  effective
     September 18, 1998.
(5)  Incorporated  by  reference  to the  Registration  Statement on Form 8-A as
     filed with the Commission on March 8, 1999
(6)  Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed with the Commission on December 24, 1997.
(7)  Incorporated by reference to the Registrant's Current Report on Form 8-K as
     filed with the Commission on July 8, 1998.
(8)  Incorporated by reference to Amendment No. 1 to Form S-4  (Registration No.
     333-61035)  filed September 17, 1998 and declared  effective  September 18,
     1998.