SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    FORM 10-Q

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

                For the quarterly period ended September 29, 1996

                                       or

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

         For the transition period from ________________ to ___________________

Commission File Number:   0-20510


                    AMERICAN STUDIOS, INC.
             (Exact name of registrant as specified in its charter)



           North Carolina                                       56-1758321
(State or other jurisdiction of incorporation                (I.R.S. Employer
           or organization)                               Identification Number)


               11001 Park Charlotte Boulevard, Charlotte, NC 28273
                     (Address of principal executive office)
                                   (Zip Code)

                                 (704) 588-4351
              (Registrant's telephone number, including area code)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

Yes    X    No

                      APPLICABLE ONLY TO CORPORATE ISSUES:

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.


         Class                                Outstanding at September 29, 1996

Common Stock, $.001 par value                           21,433,160

<PAGE>



                     AMERICAN STUDIOS, INC. AND SUBSIDIARIES


                                      INDEX


PART I. FINANCIAL INFORMATION
  Item 1.  Financial Statements                                         Page No.

           Consolidated Balance Sheets -
           September 29, 1996 and December 31, 1995                         1

           Consolidated Statements of Operations -
           Thirteen Weeks Ended  and Thirty-Nine Weeks Ended 
           September 29, 1996 and October 1, 1995                           2

           Consolidated Statements of Shareholders' Equity -
           Thirty-Nine  Weeks Ended
           September 29, 1996 and October 1, 1995                           3

           Consolidated Statements of Cash Flows -
           Thirty-Nine Weeks Ended
           September 29, 1996 and October 1, 1995                           4

           Condensed Notes to Consolidated Financial Statements             5

  Item 2.  Management's Discussion and Analysis of Financial Condition
           and Results of Operations                                        7

PART II. OTHER INFORMATION


  Item 6. Exhibits and Reports on Form 8-K                                  12



<PAGE>


                     AMERICAN STUDIOS, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (Dollars in thousands)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                             September 29,             December 31,
ASSETS                                                                            1996                     1995
                                                                         ---------------------    ---------------------
<S>                                                                                       <C>                    <C>  
CURRENT ASSETS:
Cash                                                                                      $763                   $1,681
Accounts receivable:
  Trade                                                                                    655                      809
  Employees, principally travel advances                                                    69                      183
  Income tax receivable                                                                      0                    1,365
Inventories                                                                              2,247                    3,027
Prepaid expenses and other                                                                 749                      491
                                                                          ---------------------    ---------------------
     Total current assets                                                                4,483                    7,556

PROPERTY, PLANT AND EQUIPMENT, NET                                                      25,271                   30,010

NON-COMPETE AGREEMENTS AND OTHER INTANGIBLE ASSETS                                       4,000                    4,485

DEFERRED TAX ASSET                                                                       1,301                    1,301

OTHER ASSETS                                                                               548                      478
                                                                          ---------------------    ---------------------

TOTAL                                                                                  $35,603                  $43,830
                                                                          =====================    =====================

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Current portion of long-term obligations                                                $9,495                   $7,240
Trade accounts payable                                                                   4,606                    4,324
Commissions payable to Wal-Mart Stores, Inc.                                               924                    2,232
Salaries, commissions and bonuses                                                        1,600                    1,809
Taxes (other than income)                                                                1,478                    1,974
Income Tax payable                                                                       1,097                        -
Self-insurance reserves                                                                  2,883                    2,447
Other                                                                                      938                      753
                                                                          ---------------------    ---------------------

     Total current liabilities                                                          23,021                   20,779
                                                                          ---------------------    ---------------------

LONG TERM DEBT                                                                           5,038                   10,380

SHAREHOLDERS' EQUITY:
Preferred stock - $1.00 par value (authorized 1,000,000 shares; no
   shares issued)                                                                            -                        -
Common stock - $.001 par value (authorized 70,000,000 shares;
   outstanding 21,433,160 shares)                                                           21                       21
Additional paid-in capital                                                              12,794                   12,794
Retained deficit                                                                        (5,348)                    (223)
Cumulative foreign currency translation adjustments                                         77                       79
                                                                          ---------------------    ---------------------

     Total shareholders' equity                                                          7,544                   12,671
                                                                          ---------------------    ---------------------

TOTAL                                                                                  $35,603                  $43,830
                                                                          =====================    =====================

</TABLE>

See condensed notes to consolidated financial statements.


                                        1

<PAGE>

                     AMERICAN STUDIOS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                  (Dollars in thousands, except per share data)
                                   (Unaudited)


<TABLE>
<CAPTION>


                                                                       THIRTEEN                               THIRTY-NINE
                                                                      WEEKS ENDED                             WEEKS-ENDED
                                                            ------------------------------------------------------------------------
                                                             September 29,     October 1,            September 29,        October 1,
                                                                 1996             1995                   1996               1995
                                                           --------------   ---------------        -----------------    -----------


<S>                                                              <C>               <C>                  <C>                <C>    
NET SALES                                                        $24,771           $23,312              $68,686            $66,659

COST OF SALES                                                     21,411            24,038               60,716             62,215
                                                           --------------   --------------          -----------          ---------

GROSS PROFIT (LOSS)                                                3,360              (726)               7,970              4,444 

GENERAL AND ADMINISTRATIVE EXPENSES                                3,388             4,953               11,398             13,920
AMORTIZATION OF NON-COMPETE AGREEMENTS
     AND OTHER INTANGIBLE ASSETS                                     163               169                  487                508
FOREIGN EXCHANGE LOSSES (GAINS)                                        6                21                    -                 70
                                                           --------------   --------------          -----------          ----------

LOSS BEFORE INTEREST                                                (197)           (5,869)              (3,915)           (10,054)

INTEREST                                                             372               233                1,210                265
                                                           --------------   --------------          -----------          ----------

LOSS BEFORE INCOME TAXES                                            (569)           (6,102)              (5,125)           (10,319)

INCOME TAX BENEFIT                                                     -            (2,251)                   -             (4,023)
                                                           --------------   --------------          -----------          ----------

NET LOSS                                                           ($569)          ($3,851)             ($5,125)           ($6,296)
                                                           ==============   ==============          ===========          ==========



NET LOSS PER COMMON SHARE                                         ($0.03)           ($0.18)              ($0.24)            ($0.29)
                                                           ==============   ==============          ===========          ==========
CASH DIVIDEND PER COMMON SHARE                                         -                 -                    -                  -
                                                           ==============   ==============          ===========          ==========


WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
     AND COMMON STOCK EQUIVALENTS                             21,433,160        21,397,885           21,433,160         21,399,674
                                                           ==============   ==============          ===========        ===========
</TABLE>

See condensed notes to consolidated financial statements.


                                       2

<PAGE>

                     AMERICAN STUDIOS, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                  (Dollars in thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                                 FOR THE THIRTY-NINE WEEKS ENDED
                                      -----------------------------------------------------------------------------------------
                                                                                        REETAINED     CUMULATIVE      TOTAL
                                            COMMON STOCK            ADDITIONAL           EARNINGS     TRANSLATION  SHAREHOLDERS'
                                      -------------------------
                                           SHARES       AMOUNT    PAID-IN CAPITAL        (DEFICIT)    ADJUSTMENTS    EQUITY
                                      --------------  ---------   --------------      ------------   -----------   ----------


<S>                                      <C>               <C>         <C>                  <C>               <C>     <C>    
BALANCE AT DECEMBER 31, 1994             21,426,465        $21        $12,871              $6,626            $7      $19,525

NET LOSS                                                                                   (6,296)                    (6,296)

ISSUANCE OF COMMON STOCK UNDER THE
  THE EMPLOYEE STOCK PURCHASE PLAN           25,420                        49                                             49

CASH DIVIDEND DECLARED ($.04
   PER SHARE)                                                                                (856)                      (856)

ACQUISITION OF COMPANY STOCK                (54,000)                     (161)                                          (161)

FOREIGN CURRENCY TRANSLATION
   ADJUSTMENT                                                                                                39           39

                                      ==============  =========  =============        ============   ===========   ==========
BALANCE AT OCTOBER 1, 1995               21,397,885        $21        $12,759               ($526)          $46      $12,300
                                      ==============  =========  =============        ============   ===========   ==========





BALANCE AT DECEMBER 31, 1995             21,433,160        $21        $12,794               ($223)          $79      $12,671

NET LOSS                                                                                   (5,125)                    (5,125)

FOREIGN CURRENCY TRANSALATION
   ADJUSTMENT                                                                                                (2)          (2)

                                      ==============  =========  =============        ============   ===========   ==========
BALANCE AT SEPTEMBER 29, 1996            21,433,160        $21        $12,794             ($5,348)          $77       $7,544
                                      ==============  =========  =============        ============   ===========   ==========


</TABLE>

See condensed notes to consolidated financial statements.



                                       3


<PAGE>

                     AMERICAN STUDIOS, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Dollars in thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                     THIRTY-NINE
                                                                                                     WEEKS ENDED
                                                                                          ------------------------------
                                                                                            September 29,    October 1,
                                                                                                  1996           1995
                                                                                          --------------   -------------
<S>                                                                                             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                                        ($5,125)        ($6,296)
                                                                                          --------------   -------------

Adjustments to reconcile net loss to net cash used by operating activities
   Deferred income tax benefit                                                                        0            (656)
   Depreciation of property, plant and equipment                                                  4,993           2,475
   Amortization of intangible assets                                                                487             508
   Foreign exchange losses (gains)                                                                   (6)             70
   Increase in valuation allowance                                                                  100               -
   Other                                                                                            230               -
   Change in operating  assets and  liabilities  net of effects from purchase of
    CVS, Inc.:
      Decrease (increase) in accounts receivable                                                  1,633          (2,247)
      Decrease (increase) in inventories                                                            780            (432)
      Decrease (increase) in prepaid expenses and other assets                                     (328)             70
      Increase (decrease)  in accounts payable and accrued liabilities                              (13)            309
                                                                                          --------------   -------------

      Total adjustments                                                                           7,876              97
                                                                                          --------------   -------------

Net cash provided by (used in) operating activities                                               2,751          (6,199)
                                                                                          --------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Capital expenditures, net                                                                       (584)         (7,425)
   Payment for purchase of CVS, Inc.                                                                  -            (460)
                                                                                          --------------   -------------

      Net cash used in investing activities                                                        (584)         (7,885)
                                                                                          --------------   -------------

CASH FLOWS FROM FINANCING ACTIVITES:
   Net borrowings under revolving credit facility                                                 1,864           6,921
   Principal payments under notes payable                                                        (4,217)           (533)
   Principal payments under capital lease obligations                                              (734)            (56)
   Dividends paid                                                                                     -            (856)
   Issuance of common stock under the employee stock purchase plan                                    -              49
   Acquisition of company stock                                                                       -            (161)
                                                                                          --------------   -------------

      Net cash provided by (used in) financing activities                                        (3,087)          5,364
                                                                                          --------------   -------------

EFFECT OF EXCHANGE RATE ON CASH                                                                       2             (70)
                                                                                          --------------   -------------

NET DECREASE IN CASH AND CASH EQUIVALENTS                                                          (918)         (8,790)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                    1,681           9,058
                                                                                          --------------   -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                                           $763            $268
                                                                                          ==============   =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Cash paid during the period for income taxes                                                      $5          $1,239
                                                                                          ==============   =============

   Cash paid during the period for interest                                                      $1,236            $173
                                                                                          ==============   =============

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligations inclurred when the Company entered into
   a lease for new property plant and equipment                                                                  $6,817
                                                                                                           =============

Note payable obligations incurred when the Company entered into
  a note payable for new property plant and equipment                                                            $2,834
                                                                                                           =============
</TABLE>

                                       4

<PAGE>


                    AMERICAN STUDIOS, INC. AND SUBSIDIARIES

              CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

With respect to the significant  accounting  policies of American Studios,  Inc.
(the "Company"),  reference is made to Note 1 of the financial statements in the
Company's  Form 10-K for the year  ended  December  31,  1995.  These  financial
statements should be read in conjunction with the financial statements and notes
thereto included in such Form 10-K.

In the opinion of the Company's management,  the accompanying  unaudited interim
financial  statements  reflect all  adjustments,  consisting of normal recurring
adjustments,  necessary for a fair  presentation  of the results for the interim
periods presented. Interim results are not necessarily indicative of results for
the entire year.

Principles of Consolidation - The accompanying  financial statements include the
accounts of the Company,  its wholly owned subsidiary,  ASI  Distribution,  Inc.
(presently inactive) and its 99.99% owned subsidiary American Studios de Mexico,
S.A. de C.V. All significant intercompany transactions have been eliminated.


                                       5
<PAGE>



NOTE 2 - LONG TERM DEBT AND CAPITAL LEASES

Long-term  debt and capital  leases  obligations  are  summarized as follows (in
000's):

<TABLE>
<CAPTION>

                                                                
Long-term debt:                                                                              1996              1995
                                                                                          --------         ----------
     <S>                                                                                  <C>              <C>                   
     Revolving credit facility due January 31, 1997, bearing interest
       at lender's prime rate, which at September 29, 1996 was  8.25%                     $ 5,560          $  3,696
     Collateralized note payable, 8.00%, due in monthly installments
       of $41,438, including interest through 1998                                            881             1,191
     Collateralized note payable, 8.00%, due in monthly installments
       of $54,945, including interest through 1998                                          1,215             1,623
     Notes payable, at prime, in one installment, due on
       December 31, 1996                                                                      500               500
     Collateralized note payable, at prime, due in monthly installments
       of $500,000 through 1996                                                               670             4,169

Capital lease obligations:
     Leases of certain digital  imaging  technology  systems and  sales/portrait
       order entry stations with lease periods expiring
       through 2000, at interest of 7.69%                                                   3,932             4,781
     Leases of certain digital imaging technology systems with lease
       periods expiring through 1999, at interest of 8.5%                                   1,701             1,660
      Lease of certain copier equipment with lease period expiring in 2001                     46
     Lease of certain film processing equipment with lease period
       expiring in 1998                                                                        28                 -
                                                                                           ------           -------
Total debt                                                                                 14,533            17,620

Less current portion due within one year                                                    9,495             7,240
                                                                                           ------           -------
Long-term debt and capital loan obligation, net of current portion                        $ 5,038          $ 10,380
                                                                                           ======           =======
</TABLE>

Aggregate principal payments for the next five years are as follows:

     1996      $  9,495
     1997         2,847
     1998         2,007
     1999           174
     2000            10
                -------     
     Total     $ 14,533
               ========

                                       6


<PAGE>



Item 2.  Management's Discussion and Analysis of Financial Condition and Results
         Of Operations.

Results of Operations

Overview

American  Studios,  Inc.'s net loss for the third quarter,  ending September 29,
1996, of $569,000 was a 85.2%  improvement  over the third quarter of 1995's net
loss of $3.9 million. Sales increased 6.3% to $24.8 million as compared to $23.3
million in 1995.  The  improvement  in  operating  results is due  primarily  to
increased gross margin in the Permanent Studio operations,  increased efficiency
in portrait  processing  which  reduced  costs,  along with reduced  general and
administrative expenses.

The Company  incurred a net loss of $5.1 million for the first three quarters of
1996, a $1.1 million  improvement over $6.3 million net loss for the same period
in 1995. Net sales  increased 3.0% to $68.7 million as compared to $66.7 million
for the same period in 1995.  The  reduction  in the net loss is due to improved
gross margin in Permanent Studios and Fashion  Photography,  increased  portrait
processing  efficiency  and reduced  general and  administrative  expenses.  The
increase  in net  sales  was  due to an  increase  in  Fashion  Photography  and
Permanent  Studio  operations being partially offset by lower sales in Traveling
Studio operations.

Permanent Studio Operations

For the third  quarter of 1996 in  permanent  studio  operations,  gross  margin
improved due to improved  labor  productivity,  lower  promotion  expenses,  and
decreased  product  costs due to the  implementation  of the  Company's  digital
imaging system.  These  improvements were partially offset by a 15.1% decline in
customers per  promotion and higher  depreciation  expense  associated  with the
digital imaging systems and sales/portrait order systems. Net sales were up 5.6%
due to a 4.1% increase in average sales per customer and a 19.2% increase in the
number of promotions which was partially offset by the decrease in customers per
promotion.  Cost of sales per customer  decreased  8.6% in the second quarter of
1996 as compared to the third quarter of 1995.

Traveling Studio Operations

For the third  quarter of 1996 in  traveling  studio  operations,  gross  margin
increased  26.8% as compared  to the third  quarter of 1995  principally  due to
improved labor  productivity  and reduced  promotion  costs. Net sales decreased
5.2% principally due to 7.8% decline in customers per promotion partially offset
by  a  2.9%  increase  in  promotions.  The  average  sales  per  customer  were
approximately  the same in the third  quarter  of 1996 and the third  quarter of
1995.  Cost of sales per customer  decreased  4.1% in the third  quarter of 1996
versus the third  quarter of 1995.  The cost  reductions  were achieved by lower
promotion expenses, improved labor productivity, and reduced studio costs.

Fashion Photography Operations

For the third  quarter of 1996,  fashion  photography  operations  gross  margin
improved 558.9% as compared to the third quarter of 1995 due to a 26.9% increase
in promotions and a 23.7%

                                       7

<PAGE>

increase in sales average per customer being partially
offset by a 1.4% decline in customers per promotion.  Cost of sales per customer
increased 12% due to reduced  labor  efficiency,  higher  promotion  costs,  and
increased  studio  costs  related to  conversion  of our fashion  operations  to
digital imaging technology.

General  Operations  - During  the  third  quarter,  Wal*Mart  began a test with
another portrait  photography  company in 15 of ASI's existing  permanent studio
locations in the western United States. The Company's  traveling  children's and
fashion  photography  operations  in this  region are not  involved in the test.
These  locations  were  obtained by ASI in October 1995 from  Associated  Family
Photographers.  In October  1996,  the Company was notified by Wal*Mart that its
seven portrait studios in Puerto Rico would be given to another vendor while ASI
was awarded four new studio locations in Mexico.  These decisions are consistent
with  Wal*Mart's  corporate  policy  of  having  two  suppliers  for all  vendor
services.

General and Administrative  Expenses - General and administrative  expenses were
$3.4 million, or 13.7% of net sales for the third quarter of 1996 as compared to
$5.0 million,  or 21.2% of net sales for the third quarter of 1995. The decrease
in general and  administrative  expenses is principally due to (i) the Company's
restructuring  of field and corporate  management,  (ii) reduced  communications
costs, and (iii) lower insurance costs.

Interest  Expense - Interest expense was $372,000 for the third quarter of 1996,
as compared to $233,000  for the same period in 1995.  The  increase in interest
expense for the third  quarter of 1996 is  primarily  due to  borrowings  on the
Company's  revolving  credit  facility to support  working  capital  needs,  and
long-term  capital lease and note  obligations to finance the Company's  digital
imaging and electronic order entry systems.

Income Tax Benefit - During the third  quarter of 1995,  the Company  recognized
income tax benefits totaling  approximately $2.2 million relating principally to
operating  losses incurred during the period.  Historically,  during quarters in
which the Company  experiences  a loss,  the Company has  recognized  income tax
benefits at an effective tax rate of 40%;  however,  during the third quarter of
1996,  there was no income tax benefit due to the Company's  utilization  of net
operating loss carrybacks as a result of the 1995 net loss.

Seasonality

Like the business of many retailers,  the Company's  business is seasonal,  with
its highest sales  historically  occurring in the fourth  quarter and its lowest
sales historically  occurring in the first quarter. The fourth quarter accounted
for  approximately  35% of the Company's net sales in 1995 and the first quarter
accounted for approximately 18% of the Company's net sales in 1995.

Liquidity and Capital Resources

Net working capital at September 29, 1996 was a negative $18.5 million; cash was
$763,000.  During  the third  quarter of 1996,  net  working  capital  increased
$368,000 over the second quarter of 1996 due to an increase in cash, an increase
in prepaid expenses,  a decrease in the current portion of long term debt, and a
reduction in  commissions  payable to Wal*Mart.  These  increases were partially
offset by an increase in trade accounts payable, a reduction in inventories,  an
increase  in accrued  taxes  (other  than  income),  and  larger  self-insurance
reserves.

                                       8
<PAGE>

The Company  believes that cash flow from  operations and  borrowings  under its
existing  revolving  credit  facility  will be  adequate  to fund the  Company's
operating  requirements  for 1996.  The  Company  plans to  continue  to examine
appropriate cost cutting  measures,  its method of operating in certain Wal*Mart
stores,  non-profitable  areas of its operations and ways to continue to improve
its operating and portrait processing efficiency. However, the Company's ability
to meet its liquidity  needs for 1996 will depend  principally on the success of
management's efforts to increase sales and reduce cost.

On  November  1, 1995,  the  Company  obtained a new  secured  revolving  credit
facility that expires on January 31, 1997 from its commercial  bank lender.  The
Company and the  commercial  bank  amended  this  facility on March 26, 1996 to,
among other  things,  modify  certain  financial  covenants  to  facilitate  the
Company's  compliance  therewith  and to reduce  the  maximum  amount  available
thereunder.  The  maximum  amount  available  under this  facility,  as amended,
including  amounts available for letters of credit issued in connection with the
Company's worker's compensation insurance arrangements, is $14.5 million through
March 31, 1996,  $13.5  million  from April 1, 1996 through May 31, 1996,  $13.0
million from June 1, 1996 through  July 31, 1996,  $11.5  million from August 1,
1996  through  October 31,  1996,  $9.5  million  from  November 1, 1996 through
November 30, 1996 and $8.5 million from December 1, 1996 until  maturity.  As of
September 29, 1996, the Company had  obligations of  approximately  $5.6 million
under  this  facility  and the bank had  issued  letters  of credit  under  this
facility in the  aggregate  amount of  approximately  $2.3 million in connection
with the Company's worker's compensation insurance  arrangements.  The Company's
obligations under the facility are secured by a first priority security interest
in all of the  Company's  assets  (other  than  certain  equipment  used  in the
Company's digital imaging systems with regard to which the Company had granted a
first security interest to a vendor prior to obtaining the facility),  including
any federal and state tax refunds.

The interest  rate under the facility is the bank's prime rate.  The Company has
agreed to deposit all of its funds into an account  with the bank.  The facility
contains certain financial covenants of the Company relating to minimum tangible
net  worth and debt to  tangible  net worth and  interest  coverage  ratios.  In
addition,  the  facility  contains  covenants of the Company  that,  among other
things,  prohibit  capital  expenditures  or  acquisitions  without  the  bank's
consent, limit operating lease expense,  restrict the Company's ability to incur
additional  debt or liens and  require the Company to maintain a majority of its
senior management. At September 29, 1996, the Company was in compliance with the
covenants under the facility.

The  Company  obtained  several  long-term  leases and secured  long-term  notes
totaling  $9.7  million  from  several  vendors  to  finance  certain  equipment
associated with the Company's digital imaging systems and  sales/portrait  order
entry stations  during 1995. At September 29, 1996, the Company had  obligations
of approximately $7.7 million under such arrangements discussed above.

In  November  1995,  the  Company  entered  into  a  short-term  note  financing
arrangement  with its primary  supplier  evidenced by a  promissory  note in the
principal amount of $4.1 million and a security  agreement pursuant to which the
Company's  obligations under such note are secured by a security interest in all
inventories  of supplies  sold by such  supplier to the Company.  The  principal
amount of the note is payable in monthly  payments of $500,000  beginning  March
1996 until paid,  together with monthly payments of interest at Citibank's prime
rate on the outstanding  principal  balance.  At September 29, 1996, the Company
had  obligations  of  approximately  $670,000  under  the  short-term  financing
arrangement.

At the end of the third quarter of 1996, total net capital  expenditures to date
were approximately $584,000. The Company's present expectation is that these and
other  capital  expenditures  will be

                                       9
<PAGE>

approximately  $775,000  for  1996.  This estimate  does not include any  
expenditures  by the Company for any  additional digital imaging systems.


The  Company's  1991 and 1992  federal  income tax returns are  presently  being
examined  by  the  Internal  Revenue  Service.  Although  the  results  of  such
examination  cannot  be  predicted  with  certainty,  management  believes  that
additional  assessments,  if any,  arising from this examination will not have a
material  effect  on the  Company's  financial  position  or future  results  of
operations.

The statements herein as to the Company's beliefs concerning, and plans for, the
future are forward-looking  statements that are subject to a number of risks and
uncertainties.  In addition to the other factors, any uncertainties specifically
identified  in the text  related to such  statements,  among other  factors that
could cause actual results to differ materially from those  contemplated in such
forward-looking  statements  are the following  (i) the  Company's  inability to
increase  net sales,  (ii) the  Company's  inability  to attract  customers in a
sufficient  number  and/or  achieve a  sufficient  sales  average  to enable the
Company to offset the costs associated with its operations,  (iii) the Company's
inability to control the variable  costs of its  operations,  (iv) the Company's
inability to maintain  satisfactory  portrait processing  operations in terms of
costs and quality,  (v) the adverse impact on the Company of strategies  pursued
by  its  competitors,   (vi)  the  unsatisfactory   resolution  of  the  claims,
investigations and lawsuits and the examination  discussed herein, and (vii) any
decision  by Wal*Mart  to  authorize  another  portrait  photography  company to
provide services in a material number of Wal*Mart stores  presently  serviced by
the Company.  Other factors that could cause actual results to differ materially
from those set forth in such  forward-looking  statements  include the risks and
uncertainties  detailed in the Company's most recent Form 10-K and other filings
with the  Securities  and Exchange  Commission.  All such factors  could have an
adverse effect on the Company's  results of operations  and liquidity  needs for
1996.


                                          10

<PAGE>



                                   SIGNATURES


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                              AMERICAN STUDIOS, INC.

Date: November 13, 1996       By: /s/ J. Robert Wren, Jr.
                                 ----------------------------------
                                       J. Robert Wren, Jr.
                                       Chief Executive Officer


Date: November 13, 1996       By: /s/ Shawn W. Poole
                                -------------------------------------
                                      Shawn W. Poole
                                      Executive Vice President/Chief
                                      Financial Officer (Principal Financial
                                      Officer and Accounting Officer)

                                       11
<PAGE>


Item 6.   Exhibits and Reports on Form 8-K

         (a)      Exhibit 10(a) Second Amendment to Employment and Non-compete
                  Agreement with J. Robert Wren, Jr. dated September 14, 1996.

                  Exhibit 10(b) First Amendment to Employment and Non-compete
                  Agreement by and between the Company and James O. Mattox
                  dated September 14, 1996.

         (b)      None


                                       12