UNITED STATES
                 SECURITIES & EXCHANGE COMMISSION
                      Washington, D.C. 20549

                            FORM 10-K

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

For the fiscal year ended December 31, 1996     Commission file number  0-28174

                      The Lamaur Corporation
         (Exact name of registrant as specified in its charter)


                Delaware                              68-0301547
     (State or other jurisdiction of               (I.R.S. Employer
       incorporation of organization)                Identification No.)

           One Lovell Avenue, Mill Valley, California 94941
           (Address of principal executive offices) (Zip Code)

        Registrant's telephone number, including area code (415) 380-8200

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

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

Common Stock, $.01 par value

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.
[X] Yes [  ] No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K (ss.  229.405 of this chapter) is not contained  herein,  and
will not be  contained,  to the best of  registrant's  knowledge,  in definitive
proxy or information  statements  incorporated  by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.[ ]

     The aggregate  market value of voting stock held by  non-affiliates  of the
registrant as of February 28, 1997 was approximately $14,034,814. This number is
calculated by excluding all shares held by directors, Intertec Holdings L.P. and
DowBrands,  Inc.  without  conceding  that  all such  persons  or  entities  are
affiliates of registrant.
As of  February  28,  1997,  there  were  5,642,995  outstanding  shares  of the
registrant's common stock, $.01 par value.

                     DOCUMENTS INCORPORATED BY REFERENCE.

PART III: Portions of Proxy Statement for 1997 annual meeting of stockholders.





<PAGE>



PART I

Item I.  BUSINESS

Overview

The Lamaur  Corporation (the "Company") was  incorporated  under the laws of the
State of Delaware on January 4, 1996. The Company's predecessor, Electronic Hair
Styling, Inc., was incorporated in the State of Washington on April 1, 1993 and,
effective  March 18, 1996,  it merged with the Company to  accomplish a Delaware
reincorporation.  Effective November 15, 1995, as a result of the acquisition of
the Personal Care  Division of DowBrands  L.P. (an affiliate of The Dow Chemical
Company),  the Company  became a successor  to a business  started in 1930 known
prior to its  acquisition by DowBrands in 1987 as Lamaur Inc. On March 26, 1997,
the Company changed its name to The Lamaur  Corporation.  The Company is a major
producer of personal hair care products in North America.

Through its Lamaur division based in Fridley,  Minnesota,  the Company develops,
formulates,  manufactures and markets personal hair care products, consisting of
shampoos,  conditioners,  hair sprays, permanent wave products and other styling
aids,  for both the  consumer  and  professional  hair care  markets.  Corporate
functions,  including corporate  development,  investor  relations,  science and
technology,  and  financial  and legal  services,  are managed at the  Company's
headquarters in Mill Valley, California.

The Company's products are distributed to consumer retail outlets,  professional
salons and specialty shops. The Company also contract  manufactures a variety of
aerosol and other liquid filling products. The Company believes it was among the
ten largest  manufacturers  in the United States in 1996 in three  categories of
hair care products - shampoos,  conditioners  and styling  aids.  The Company is
also  engaged in the early  stages of research  and  development  of  Electronic
Chemistry(TM),  a  new  hair  styling  concept  which  is  intended  to  combine
electronics  and chemicals to create new products  designed to color,  style and
condition hair quickly, without the damaging side effects often experienced with
most chemical-based hair styling products.  The Company's patented technology is
licensed from an affiliate.  Research activities during 1996 have been primarily
directed towards conducting  early-stage  coloring and styling  experiments with
respect to the reaction of hair samples to electromagnetic signals.

During 1996, the Company integrated the new senior management team, restructured
the national sales organization,  reduced  manufacturing  costs,  implemented an
"Americas"  expansion  strategy  with its  initial  phase to develop  markets in
Canada, Puerto Rico and Mexico,  developed and implemented  corrective marketing
strategies  for existing  retail  products,  introduced  and began  shipments of
Willow Lake(TM) and Apple Pectin(R) Naturals,  brands of premium priced products
in the  retail  and salon  markets,  respectively,  and  doubled  the  number of
exclusive professional market distributors for the Pativa(R) line of products.

The Company  restructured  its contract  manufacturing  activity,  forming a new
profit  center and  increased  the level of contract  manufacturing  business in
1996. In addition,  the Company  raised $18.1 million  through an initial public
offering,  applying  $8 million to reduce  acquisition  debt and $10  million to
working  capital.  The  Company  also  continues  to explore  opportunities  for
acquisitions  or strategic  relationships  that may enable it to expand its hair
care product lines or diversify its business into other segments of the personal
care market.

The Company's  product  lines are sold through  consumer  retail  outlets by its
Retail Group (the "Retail Group") under the  premium-priced  Willow Lake(TM) and
Perma Soft(R),  mid-priced Salon Style(R) and value-priced Style(R) brand names.
Most product  lines  contain a wide  assortment  of shampoos,  conditioners  and
styling products positioned towards distinct consumer segments.  In addition,  a
full  line  of  high  quality,   premium-priced   products  including  shampoos,
conditioners,  hair sprays,  perms and a variety of styling aids are sold to the
professional  salon and  specialty  shops  market by its Salon Group (the "Salon
Group")  under  the  Nucleic  A(R),  Apple  Pectin(R),  Apple  Pectin  Naturals,
Vita/E(R)  and  Pativa(R)  brand  names.  Sales by the Retail  Group during 1996
accounted  for  59.3%  of the  Company's  total  revenues,  and are made to mass
merchandisers,  food  stores,  drug  stores and others by a  combination  of the
Company's direct sales force and a network of independent brokers.  Sales by the
Salon Group to the professional market, including sales to distributors who then
sell to  professional  salons and  specialty  outlets,  are made directly by the
in-house sales force, and during 1996 accounted for 14.4% of the Company's total
revenues.  The Company also manufactures  certain products,  principally aerosol
sprays,  on a contract basis for third  parties.  Those  activities  during 1996
accounted for 26.3% of the Company's revenues.


Industry Overview and Investment Considerations

Worldwide retail sales of chemical hair care products in 1995 were approximately
$26 billion,  of which  approximately  $4.6 billion  represented  sales in North
America.  It is  estimated  that by 2000,  worldwide  retail  sales of hair care
products will reach approximately $32.8 billion, with approximately $5.6 billion
attributable to sales in North America.

There have been changes in  consumers'  buying  patterns  toward  higher  priced
shampoos and conditioners and specialty niche products. In addition, the cost of
goods sold in the hair care products market has been rising steadily for several
years; however, intense competition has prevented manufacturers and distributors
from passing those increases on to customers.  The result has been an erosion in
profit margins among the industry's competitors generally,  although this effect
has been less  pronounced  in certain  market niches that are  characterized  by
premium pricing and fewer competitors.  Consequently, the hair care industry has
been  experiencing  both a  consolidation  in the  number of  competitors  and a
globalization in the marketing efforts. The Company believes that currently five
companies  (L'Oreal,  Unilever,  N.V. The Procter & Gamble Company,  Wella,  and
Alberto-Culver  Company) account for approximately 65% of worldwide sales in the
hair care products industry.

The Company has a limited  operating history evolving from its development stage
in 1995 by acquiring the  operations of the Personal Care Division of DowBrands.
The Personal Care Division had experienced nine consecutive  years of losses and
even though new management  implemented a turnaround  strategy which resulted in
operating  profits for 1996,  management  does not consider the turnaround to be
complete and no assurance  can be given that earnings will be available for 1997
or for future periods.  Because of significant  competition,  additional working
capital may be needed to correct brand  marketing  strategy and to introduce new
brands.  With the  Company's  historical  losses and the  uncertainty  of future
earnings,  additional  working capital may not be available,  and the absence of
such working capital could have a material adverse impact on the Company.  It is
for the above  reasons  that the  Company's  Common  Stock  could be  subject to
substantial volatility.

Because of the complexity of the turnaround, the loss of senior management could
also have a material  adverse effect on performance.  In addition,  for the next
several  years the Company  will have a  dependence  on its  largest  customers,
including  DowBrands  and  Wal-Mart.  Any  significant  change in sales to these
customers could materially effect the Company's  performance.  The Company's new
Electronic  Chemistry(TM) technology and its underlying principles have not been
commercially developed, and no assurance can be given that products will ever be
derived from the  technology  and if  successfully  developed that such products
will be accepted by the market or would comply with government regulations.

This report contains  forward looking  statements  within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange  Act of 1934,  as amended,  including  statements  regarding  sales and
marketing  plans for 1997,  plans  with  respect  to the  Company's  technology,
liquidity and capital resources, potential for growth in revenue and earnings in
1997, the turnaround of the Company,  and the Company's growth potential.  These
forward  looking  statements  involve risks and  uncertainties  that could cause
actual results to differ materially from the  forward-looking  statements.  Such
risks include  market  acceptance of the Company's  products,  effectiveness  of
recently adopted  initiatives,  competition,  the Company's ability to implement
appropriate  cost controls,  price changes by the Company or its competitors and
fluctuations in capital and operating results.

Products

The Company  formulates  and  manufactures  a broad  range of hair care  product
lines, consisting of approximately 90 products,  marketed under several distinct
brand names.  Product lines sold through  consumer retail outlets include Willow
Lake (TM), Perma Soft(R), Salon Style(R), and Style(R) brand names most of which
are widely  recognized  by retailers and  consumers.  Most lines contain a broad
assortment of shampoos,  conditioners  and styling  products and are  positioned
toward a distinct consumer  segment.  Product lines used by stylists and sold by
salons and  beauty  supply  stores  throughout  the United  States and in Canada
include shampoos, conditioners, hair sprays, perms and a variety of styling aids
sold under the Pativa(R),  Nucleic A(R), Apple Pectin(R),  Apple Pectin Naturals
and Vita/E(R) brand names. In addition,  the Company also manufactures products,
principally aerosol sprays, under contract for third parties.


<PAGE>


The following table sets forth the Company's  principal brands and products sold
within each brand during 1996:
<TABLE>

<CAPTION>
                                                         Retail Brands

Brand                                      Shampoos and Conditioners                      Styling Aids and Perms

<S>                             <C>                                             <C>
Willow Lake (TM).................. Cherry Bark & Irish Moss Conditioning Shampoo;
                                Citrus & Rosemary Shampoo; Lavender & Mint
                                Shampoo;  Witch Hazel & Honeysuckle Shampoo;
                                Hops, Apricot & Almond Conditioner; Sunflower,
                                Honey & Hibiscus Conditioner;  Vitamin E,
                                Carrot Extract & Milk Protein Conditioner
Perma Soft(R).................... Revitalizing Shampoo, Moisturizing Shampoo,      Hair Sprays (aerosol and nonaerosol),
                                Extra Body Shampoo, Shampoo Plus Conditioner,    Mousse, Gel, Frizz Control Cream, Shine
                                Revitalizing Conditioner, Moisturizing           Treatment, Conditioning Foam,
                                Conditioner, Extra Body Conditioner, Deep        Revitalizing Spray
                                Reconditioning Treatment, Moisturizing Mist
                                Conditioner
Salon Style(R)................... Moisture Potion(R)Shampoo, Therapy Shampoo,       Hair Sprays (aerosol and nonaerosol),
                                Strengthening Shampoo, NutriShine Shampoo,       Spray Gel, Vitafixx(TM)Spritz, Body
                                Hydration Conditioning Shampoo, Botanical        Boost(R)Mousse, Defrizz 'N Shine(R)
                                Reconstructing Conditioner, Moisture Potion(R)   Hydrating Cream
                                Conditioner, Detangling Conditioner, Pro Mist
                                Leave-On Conditioner, Hydro Balance Hair Masque
Style(R)......................... Moisturizing Shampoo, Extra Body Shampoo,        Hair Sprays (aerosol and non-aerosol),
                                Regular Shampoo, Strawberry Shampoo, Nourishing  Gel, Mousse, Dry Style(R)Hair Spray for
                                Shampoo, Coconut & Papaya Shampoo, Moisturizing  Men (aerosol)
                                Conditioner, Extra Body Conditioner, Regular
                                Conditioner, Strawberry Conditioner, Deep
                                Conditioning Conditioner, Coconut & Papaya
                                Conditioner

                                                      Salon Brands

Brand                                      Shampoos and Conditioners                      Styling Aids and Perms

Pativa(R)........................ Curl Cleanse Shampoo, Revitalizing Volumizing    Mousse, Spritz, Design Creme,
                                Cleanse Shampoo, Moisturizing Cleanse Shampoo,   Alternative Wave (Normal), Alternative
                                Curl Revitalizer Conditioner, Leave-In           Wave (Tinted), Sprae Concentrate Hair
                                Fortifier, Moisturizing Rinse, Replenishing      Spray
                                Hair Masque
Nucleic A(R)..................... Body Plus(R)Shampoo, Proteplex(R)Shampoos and      Botanical(TM)Hair Spray, Gel
                                Conditioner
Apple Pectin(R).................. Shampoo and Conditioner, Moisturizing Shampoo,   Moisturizing Hair Spray, Acid Perm,
                                ScentSates(TM)Shampoos and Conditioners, Apple     Apple Pectin Plus(R)Perm, Ten-Minute
                                Pectin Plus(R)Shampoo and Conditioner in One      Wave, Ultra Hold Mousse, Styling Creme
Apple                           Pectin   Naturals..........    Witch   Hazel   &
                                Honeysuckle  Shampoo,  Irish Moss & Cherry  Bark
                                Shampoo;  Rosemary & Grapefruit  Shampoo;  Hops,
                                Apricots & Almonds Conditioner; Sunflower, Honey
                                & Hibiscus  Conditioner;  Milk  Protein,  Carrot
                                Extract & Vitamin E  Conditioner;  Peppermint  &
                                Lavender Bath & Body [Body Wash]
Vita/E(R)........................ Shampoo, Conditioners                            Perm, Hair Spray, Ultrahold Hair Spray,
                                                                                 Unscented Hair Spray, Maximum Hold Hair
                                                                                 Spray, Ultra-hold Concentrate Hair Spray

Other Salon Products........... Natural Man(TM) Conditioning Shampoo, Bone Marrow(R)  Natural Man(R) Styling Creme, Natural
                                Conditioners                                     Man(R) Hair Spray, Natural Woman(R) Hair

                                                                                 Spray, CO-A(R)Perm, CO-A Kinetics(R)Perm,
                                                                                 Lamaur Inception(R) Thio-Free Perm, Strata(R)
                                                                                 Perm, Gamma pHactor(R) Wave Set and Concentrate,
                                                                                 Beauti-Lac(R) Hair Spray, Stylac(R) Hair Spray,
                                                                                 Sprayage(R) Hair Spray, Body Plus Mousse, Axiom(R)
                                                                                 Perm, Body for Sure(R) Perm
</TABLE>


<PAGE>



Willow  Lake(TM),  a new "high-end"  retail hair care product line positioned as
"Nature's  Prescription  for Beautiful  Hair(TM)"  began shipments in the fourth
quarter of 1996. The line of shampoos and  conditioners is the Company's  newest
entry in the "naturals" segment of the hair care category.

Perma  Soft(R),  which is a "high-end"  retail product line, is intended to meet
the needs of a large  segment of consumers  who use  permanent  wave products or
color treat their hair.

Salon  Style(R),   launched  in  1994,  is  a  line  of  "mid-priced"  shampoos,
conditioners  and styling aids positioned as "Salon Quality at a Fraction of the
Price."

Style(R) is the Company's  "value priced" brand,  intended for use by the entire
family.

Apple Pectin  Naturals was  introduced  to the salon  industry at the Beauty and
Barber Supply Institute (BBSI) convention in Las Vegas, Nevada in July 1996. The
Company  began  shipments  in the fourth  quarter of 1996.  The new Apple Pectin
Naturals product line will further the Salon Group's sales of "natural" products
into the professional market.

Apple Pectin(R),  originally  introduced to salons in 1978, was one of the first
product lines based on an ingredient found in nature.

Pativa(R)  is a full  line of  professional  salon  shampoos,  conditioners  and
styling  products which includes an innovative  wave  technology that eliminates
the neutralizer step. Launched in March 1995,  Pativa(R) line provides the Salon
Group with a product  line  distributed  by  exclusive  dealers to full  service
salons.

The following table sets forth certain information  concerning the Company's net
sales by group in each of the last three fiscal years:
<TABLE>

<CAPTION>
                                                  1996                          1995                          1994

<S>                                       <C>             <C>          <C>               <C>        <C>                <C>
Retail...........................         $  69,432       59.3 %       $  73,256         62.2 %     $  80,669          66.5%
Salon............................            16,833       14.4            16,947         14.4          16,928          14.0
Contract Manufacturing (1).......            30,818       26.3            27,563         23.4          23,680          19.5

Total:...........................          $117,083      100.0 %        $117,766        100.0%       $121,277         100.0%
-------------------------------------

</TABLE>


     (1)  Contract  manufacturing  sales  included  sales to  DowBrands of $22.2
million,  $21.4 million and $19.3 million in each of the years ended December 31
1996, 1995, and 1994, respectively.

Marketing and Distribution

The Company's consumer retail sales are made to mass merchandisers, food stores,
drug stores and other  retail  outlets,  as well as to  wholesalers  who service
retail  outlets,  resulting in the  Company's  products  being sold in more than
60,000 retail outlets in North  America.  Sales for the Retail Group are carried
out through a  combination  of the  Company's  own sales  force and  independent
brokers.  Salon  Group  products  are  distributed  to  professional  salons and
specialty  shops  through a network of  independent  distributors  served by the
Company's sales force.

The Company currently  maintains more than 1,800 active customer accounts and no
customer  other than  DowBrands and Wal-Mart  accounted for more than 10% of the
Company's  total net sales in any of the last three years.  DowBrands  accounted
for 16%, 18% and 19% of the Company's  total net sales in each of 1994, 1995 and
1996, respectively, and Wal-Mart accounted for 18%, 18% and 17% of the Company's
total net sales in each of 1994, 1995 and 1996, respectively.  The loss of sales
to  DowBrands,  Wal-Mart or other  significant  customers  could have a material
adverse  effect on the business  and  operations  of the  Company.  There are no
contractual obligations from any customers to make continuing purchases from the
Company,   although   DowBrands  has  agreed  to  purchase  all  of  its  future
requirements  for certain  products from the Company through  November 1997. The
Company  is  currently  engaged  in  discussions  to  extend  the  term  of this
agreement.

The Company promotes sales of its products  utilizing  substantial  advertising,
consumer promotions and merchandising  support programs.  During the years ended
December 31, 1994,  1995 and 1996, the Company's  marketing  support expense was
approximately $31.4 million, $23.8 million and $23.8 million, respectively.

In view of the intensely  competitive  nature of the personal hair care products
industry, new product introductions require proportionally higher costs relative
to sales  than  costs for  well-established  products  during  the  introductory
period. While those expenditures  materially impact results of operations in the
particular  period in which  they are  incurred,  they  assist in the  Company's
growth beyond that period if the new product is ultimately successful.

The Company anticipates incurring increased  expenditures in connection with its
marketing  activities in the next two years, and expects to utilize  substantial
cash resources to fund those activities.  These activities include (i) expanding
its product mix by introducing new products,  particularly Willow Lake(TM), (ii)
restaging  certain other existing  products,  and (iii)  enhancing the Company's
marketing   efforts,   particularly  in  connection  with  its  commencement  of
activities outside the United States. The Company plans to increase retail sales
in Mexico  and Canada  during  1997,  and is  considering  expansion  into other
international  markets.  Expanding the Company's  international  market share in
Mexico,  Canada and  elsewhere  will require the Company to address  competitive
factors similar to those it faces in the United States,  factors unique to those
markets, as well as to comply with any local regulatory requirements.


Research and Development

The  Company  continuously  engages  in  the  development  of new  products  and
improvements to its existing  formulations  and maintains  extensive  laboratory
facilities for those purposes.  The Company relies principally on the experience
of its staff in connection with formulating new products. The Company's research
and technical staff of approximately 21 persons works closely with the Company's
sales and marketing  groups to keep current with changes in consumer  tastes and
new product developments in the industry.  The Company believes its research and
development  efforts are enhanced  materially by the availability of its on-site
salon,  which is fully  equipped  to permit  the  testing  of new  products  and
improvements  in  conditions   that  simulate  those  actually   encountered  by
consumers.  The Company maintains  extensive  laboratory,  quality assurance and
quality control facilities.  Examples of products recently developed include (i)
the Willow Lake(TM) product line, a complete  consumer-oriented  line of natural
hair care products  introduced  in 1996,  and (ii) Apple Pectin (R) Naturals for
the professional salon and specialty market, introduced in 1996.

The  Company  believes  that  the  absence  of  any  fundamental  change  in the
technology underlying hair care products for several decades,  combined with the
substantial  global market for hair care products,  presents an opportunity  for
new  technologically  oriented products.  In the Company's view,  electronically
controlled  and managed hair styling  products  that use  chemicals  and provide
quick and convenient application can gain widespread consumer acceptance if they
are  successfully  developed and properly  marketed.  The Company's  strategy is
using  licensed  technology to develop a line of advanced hair styling  products
and, if it is successful in doing so,  eventually  to compete  significantly  on
that basis. There can be no assurance, however, that the Company will be able to
develop such  advanced hair styling  products or, if it does,  that they will be
commercially successful.

Research  activities during 1996 have been primarily directed towards conducting
early-stage  coloring  and styling  experiments  with respect to the reaction of
hair samples to electromagnetic  signals.  These experiments have been conducted
under  contract with the Company's  virtual  laboratory at  TRI/Princeton.  Such
services are expected to continue through 1997.  Substantial additional research
and  development  will be required before any prototype  product  containing its
licensed  technology  could be  delivered,  and the  Company  believes  that the
earliest any prototype  product might be introduced  would be the second half of
1998.  The timing of  introduction  of its first  commercial  product  will also
depend on the time required to obtain any required regulatory  approvals.  There
can be no  assurance  however,  that the  Company  will be able to develop  such
advanced hair styling  products or, if it does,  that they will be  commercially
successful



<PAGE>



Manufacturing and Supply

All the  Company's  manufacturing,  packaging  and  warehousing  operations  are
located in a 438,000 square foot facility in Fridley,  Minnesota. The production
area  comprises  135,000  square feet and includes  formula  compounding  areas,
quality control laboratories,  multiple fully-automated,  high speed aerosol and
liquid filling lines and state-of-the-art  packaging facilities. The compounding
or mixing department utilizes a combination of manual and fully-automated  batch
processing  systems.  A portion of the  aerosol  batching  is  controlled  by an
automated  computer-driven  blending  system  which has  significantly  improved
efficiencies and product  integrity.  The high speed  fully-automated  packaging
equipment used for both liquid filling and aerosol lines runs at speeds of up to
300  containers  per minute.  The Company  believes it is an industry  leader in
fully automating its production  facilities.  The Company has substantial excess
production  capacity,  which it currently  intends to utilize in connection with
any expansion of its contract manufacturing activities.

The Company maintains a strict internal control system to monitor the quality of
its  products.  The quality  control  laboratory is well equipped and capable of
conducting both micro and analytical testing. The Company also maintains product
liability insurance at levels it believes to be adequate.

Raw  materials  used  by  the  Company  are  principally  alcohol,  surfactants,
fragrances,  propellants and a wide variety of packaging materials and compounds
including   containers  such  as  aerosol  cans,  cardboard  boxes  and  plastic
containers,  container caps, tops, valves and labels, all of which are purchased
from outside  sources.  The  Company's  principal  raw  materials  and packaging
components are available from several domestic suppliers and it is not dependent
on the availability of supplies from any single source.  While at times the hair
care industry has experienced a shortage of raw materials of the types essential
to the Company's  business,  because the Company has  long-established  supplier
relationships and has developed  alternative raw material  substitutes,  it does
not anticipate any difficulty in obtaining adequate supplies of raw materials to
meet its needs. Similarly,  while the industry has from time to time experienced
raw material cost increases,  the Company  believes it has been and remains able
to purchase its requirements at competitive prices from sources that are readily
available in the vicinity of the Fridley, Minnesota, facility.

The Company uses tank railcars to transport  certain high volume raw  materials.
Trucks are used to transfer smaller volume raw material  requirements as well as
packaging  components  such as  aerosol  cans,  plastic  bottles  and caps,  and
cardboard  shipping  containers.  A  separate  tank farm for  above-ground  bulk
storage of chemicals and aerosol propellants is located adjacent to the plant.

The Company maintains inventory of raw materials and packaging materials as well
as certain finished goods in its on-site warehouse that comprises 265,000 square
feet. Finished inventory generally is warehoused for distribution throughout the
United States at the Company's  plant,  but products  produced for third parties
are  immediately  released  to third party  warehouses  and do not remain on the
Fridley site as inventory. As many as twelve over-the-road truck trailers can be
loaded and unloaded in the plant's warehousing and shipping area at one time.

Contract  manufacturing  of household  cleaning and hair care aerosol sprays and
liquid  products  for others,  particularly  with respect to the  production  of
aerosol spray products  utilizing the Company's  automated high speed production
lines,  has  contributed  20% or more to the Company's sales in each of the last
three years.  Since the beginning of 1996, the Company has obtained new contract
manufacturing  orders from new customers.  The Company recognizes  revenues from
such orders only upon  shipment.  In November  1995,  the Company and  DowBrands
entered into a two-year  agreement (with two additional  one-year  extensions at
Dow's  election)  pursuant  to  which  the  Company  will  continue  to serve as
DowBrands' sole supplier of certain household cleaning products,  subject to the
Company maintaining competitive pricing and delivery schedules.


Government Regulation

The Company's manufacturing and packaging operations are subject to a wide range
of  federal,  state  and  local  regulations.   These  regulations  include  the
applicable cosmetic purity and labeling  requirements  prescribed by the federal
Food,  Drug and Cosmetic  Act, the  applicable  labeling  provisions of the Fair
Packaging  and Labeling Act, the  discharge,  handling and disposal of hazardous
wastes regulations contained in applicable environmental laws, and the plant and
laboratory safety  requirements of various  applicable  occupational  safety and
health laws. Existing and future aerosol-based  products are also expected to be
subject to state and, possibly, federal standards relating to permissible levels
of volatile organic compounds.  The Company does not expect that compliance with
those standards will adversely affect its revenues or costs. The Company is also
subject to federal regulations concerning the content of its advertising,  trade
practices and certain other matters.

A Phase I environmental assessment of the Fridley facility was performed in late
1995. No environmental pollution was identified. The Company is not aware of any
environmental  pollution  or  liabilities  arising  out of any  past or  present
activities  of  either   DowBrands   Personal  Care  Division  or  the  Company.
Additionally,  DowBrands Inc. has agreed,  for a period of eight years (but only
until May 15,  1996,  with  respect  to  asbestos  related  matters,  if any) to
indemnify the Company  against  environmental  liabilities in excess of $150,000
arising  at  the  Fridley  facility  from  events  that  occurred  prior  to the
acquisition.

The Company  believes it has  complied in all material  respects  with regard to
governmental  regulations  applicable to it. To date, those regulations have not
materially restricted or impeded the Company's operations.


Patents and Trademarks

The Company  markets its products  under a number of trademarks  and trade names
that are  registered in the United  States and several  foreign  countries.  The
Company  will seek to  register  significant  marks  and names in other  foreign
countries when it enters them.  Principal trademarks of the Retail Group include
Willow Lake (TM) Perma Soft(R), Color Soft(TM), Salon Style(R) and Style(R). The
Salon Group trademarks include Pativa(R),  Nucleic A(R), Apple Pectin(R),  Apple
Pectin  Naturals  and  Vita/E(R).  The  Company  believes  its  position  in the
marketplace  is  significantly  dependent  upon the goodwill  engendered  by its
trademarks and trade names, and therefore considers  trademark  protection to be
material  to its  business.  Although  the Company  owns  certain  patents,  its
business is not  materially  dependent  upon any patent,  license,  franchise or
concession, whether owned by or licensed to the Company.

The Company  believes  that  protection  of its  proprietary  technology  (which
includes certain technology licensed from an affiliate) and know-how is critical
to the development of its business.  It seeks to protect its interests through a
combination of patent  protection and  confidentiality  agreements  with all its
critical employees,  as well as by limiting the availability of certain critical
information to a small number of key employees.  The Company intends to pursue a
vigorous  patent  application  program in the  United  States.  To date,  it has
obtained the rights,  pursuant to an exclusive  license,  to cosmetic  hair care
applications  of  the  technology  reflected  in a  United  States  patent  (No.
5,395,490,  issued to Messrs.  Don Hoff and  Joseph  Stiley in March  1995,  and
expiring in March 2012),  that it believes is important to the protection of the
core technology underlying its research activities. Mr. Hoff, Chairman and Chief
Executive  Officer,  and  Mr.  Stiley,  Director  and  Company  consultant,  are
affiliates of the Company.  The Company believes that the patent, which contains
claims  relating to the method of  applying  electronic  signals at  frequencies
determined  by the  natural  characteristics  of a  material  in  order to alter
certain  molecular bonds in that material,  provides broad  coverage,  and hence
significant protection, for its proprietary technology; however, there can be no
assurance  that this will be the case.  Moreover,  the Company  currently has no
patent  protection  for its  technology  outside the United  States,  and may be
unable to obtain even  limited  protection  for its  proprietary  technology  in
foreign countries.

The Company believes that its current and anticipated business does not and will
not infringe on any patent owned by others.

Competition

The markets for the  Company's  products are very  competitive  and sensitive to
changing  consumer needs and  preferences.  They are  characterized  by frequent
introductions of competitive  products,  often  accompanied by major advertising
and promotional activities.

The Company competes primarily on the basis of product quality, price, marketing
and  brand  name  recognition.  As a result  of  competitive  conditions  in the
industry,  which have adversely  affected profit margins,  and growing  consumer
demand for greater product  convenience and  performance,  the industry has been
experiencing  a  consolidation  and a  globalization  in the  activities  of its
members.  The hair care  products  market is dominated by large,  multi-national
corporations,  all of which compete with the Company and have greater  financial
and other resources than those of the Company. The Company believes it was among
the ten largest  manufacturers  in the United States in 1996 of three categories
of hair care  products-  shampoos,  conditioners  and  styling  aids.  Principal
competitors include The Procter & Gamble Company, Unilever N.V. (Helene Curtis),
Bristol-Myers   Squibb   Company   (Clairol),   L'Oreal   S.A.   (Cosmair)   and
Alberto-Culver  Company,  and those of the  Salon  Group  include  Bristol-Myers
Squibb Company (Clairol and Matrix), Nexxus, and Wella AG (Redken).

Personnel

The Company  employed 336 persons as of December 31, 1996. None of the Company's
employees is a member of a labor union.  The Company  considers its relationship
with its employees to be good.


<PAGE>




Item 2. PROPERTIES

The Company  owns its facility in Fridley,  Minnesota,  near  Minneapolis.  This
facility contains administrative,  laboratory, production and warehousing areas.
The 438,000  square foot,  primarily  single  story,  air  conditioned  plant is
located on a 25 acre site, and includes an approximately 38,000 square foot, two
story office center that houses the administrative staff, research laboratories,
computer  services and the test salon. The Company believes the facility,  which
was  constructed in 1969 and improved during the 1980s at a total cost in excess
of $60 million,  is well maintained and adequate for its contemplated needs. The
Company  has excess  production  capacity,  which it intends to utilize  for new
products and for possible expansion of its contract manufacturing activities.

The  Company  leases its 6,008  square  foot  office  facility  in Mill  Valley,
California,  near San Francisco, from Intertec, a division of Innovative Capital
Management, Inc.. The term of the lease is for three years commencing October 1,
1996.

Item 3. LEGAL PROCEEDINGS
None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<TABLE>

<CAPTION>
                                              Executive Officers of the Registrant

                                                                                        ELECTED TO PRESENT
-------------------------  --------------------------------------------  -----------         POSITION
<S>                        <C>                                               <C>              <C>
          NAME                               POSITION                        AGE

Don G. Hoff                Chairman of the Board and Chief Executive         62                1993
                           Officer
--------------------------
John D. Hellmann           Vice President, Chief Financial Officer           47                1995
--------------------------
John A. Anzur              Vice President, General Counsel                   41                1996
--------------------------
Donald E. Porter           Vice President, Corporate Development.            57                1993
--------------------------
Richard T. Loda            Vice President, Science and Technology            48                1996
--------------------------
Dominic J. LaRosa          President and CEO - Lamaur Division               54                1995
--------------------------
Ronald P. Williams         Executive Vice President - Lamaur Division        53                1996
--------------------------
William M. Boswell         Vice President, Sales - Retail Group of the       55                1995
                           Lamaur Division
--------------------------
Michele L. Redmon          Vice President, Marketing - Retail Group of       41                1995
                           the Lamaur Division
--------------------------
Jay T. Olson               Vice President , Finance - Lamaur Division        45                1996
--------------------------
Michael L. Flahaven        Vice President - Salon Group of the Lamaur        40                1997
                           Division

</TABLE>


<PAGE>



PART II

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

The  Company's  Common Stock is traded in the NASDAQ  National  Market under the
symbol  LMAR.  The  table  below  sets  forth the range of the high and low sale
prices,  as reported by the NASDAQ  stock market  during last year.  Previous to
March 26, 1997 the Company traded under the symbol EHST.

                                                        1996
                                           High                         Low
     Second Quarter *                   $  8 .250                    $  5.250
     Third Quarter                          6.000                       3.750
     Fourth Quarter                         4.875                       3.125

*Includes  only the  period  May 23,  1996,  the first  trading  date  after the
Company's initial public offering, to June 30, 1996.

As of March 3, 1997,  the number of  holders of record of the  Company's  Common
Stock was 377 and the  number of holders  of record of the  Company's  Preferred
Stock was one. As for the Common Stock, this number does not include  beneficial
holders where shares are held of record by nominees.

Dividends  are payable with respect to the Series A Preferred  Stock only to the
extent (on an  as-converted  basis) that  dividends are declared  payable on the
Common  Stock.  The Series B  Preferred  Stock is entitled  to  cumulative  cash
dividends at the rate of 8.0% per annum, payable quarterly ($400,000 annually).

The Company does not anticipate  paying any dividends on its Common Stock in the
foreseeable  future.  The  payment  of  future  dividends  will  depend  on  the
evaluation  by the  Company's  Board of  Directors  of such  factors as it deems
relevant at the time. Currently, the Board of Directors believes that all of the
Company's  earnings,  if any,  should be  retained  for the  development  of the
Company's  business.  In  addition,  payment of dividends on the Common Stock is
prohibited by the terms of the Norwest Credit Agreement and is restricted by the
terms of its Preferred Stock.

In  January  1996,  the  Company  issued  15,575  shares of Common  Stock to 311
employees for services  rendered to the Company.  The securities  were valued at
$6.00 per share.  These securities were exempt from registration  under Rule 701
under the Securities Act of 1933.

In May 1996 in  connection  with the  Company's  initial  public  offering,  the
Company  issued  warrants  to  purchase  182,000  shares of Common  Stock to the
Representatives  of the Underwriters  for a nominal amount.  Also in May 1996 in
connection  with  certain  financial  advisory  services  to be  provided to the
Company,  the Company issued  warrants to purchase 39,000 shares of Common Stock
to Rodman & Renshaw,  Inc. for a nominal  amount.  These  securities were exempt
from  registration  under Section 4(2) of the Securities Act. These warrants are
initially exercisable at a price of $9.60 per share of Common Stock for a period
of four years,  commencing  May 1997. The exercise price of the warrants and the
number of shares of Common Stock  issuable upon exercise  thereof are subject to
adjustment  under  certain  circumstances.  The warrants are  redeemable  by the
Company  on prior  notice if the price of the Common  Stock two years  after the
closing of the offering exceeds $20.00 for a 60-day period.

In June,  1996,  the Company  issued 9,900 shares  pursuant to the exercise of a
stock option.  These  securities  were exempt from  registration  under Rule 701
under the Securities Act of 1933.

<PAGE>




Item 6.   SELECTED FINANCIAL DATA

                        SELECTED FINANCIAL DATA
                 (In thousands, except per share data)

Set forth below is selected  financial  data with respect to the  statements  of
operations of the Company,  for the twelve months ended December 31, 1996, 1995,
1994 and for the period from April 1, 1993 (Inception) to December 31, 1993, and
the balance sheet data of the Company at December 31, 1996, 1995, 1994 and 1993.
In addition,  set forth below is selected financial data with respect to the pro
forma  statement  of  operations  for the  Company for the twelve  months  ended
December 31, 1995. Such data presents the combined  results of operations of the
Company as if the  acquisition of the Personal Care Division was effective as of
January 1, 1995. The pro forma combined  financial data includes all adjustments
which the Company  considers  necessary for a fair  presentation,  in accordance
with generally accepted accounting principles,  of its results of operations for
that period. The pro forma combined financial data does not purport to represent
what the  Company's  results  of  operations  would  actually  have been had the
acquisition  in fact occurred on the indicated  date or to project the Company's
results of operations for any future date or period.

In  addition,  included  below is selected  financial  data with  respect to the
statements  of  operations  for the Personal  Care  Division for the period from
January 1, 1995 to November 30, 1995 (the effective date of the  acquisition for
financial  reporting  purposes) and the years ended December 31, 1994,  1993 and
1992, and the balance sheets of the Personal Care Division at December 31, 1994,
1993 and 1992. Such data were derived from the Personal Care Division  financial
statements, certain of which are included herein.
<TABLE>

<CAPTION>
                                                          HISTORICAL                               PRO FORMA

                                                YEARS ENDED                                       ---------------------
                                                DECEMBER 31,                APRIL 1, 1993
                                  ----------------------------------------  (INCEPTION) TO
                                                                            DECEMBER 31, 1993     YEAR ENDED DECEMBER
                                       1996         1995 (1)     1994                             31, 1995
--------------------------------- -----------------------------------------                       ----------------------
<S>                                 <C>            <C>           <C>            <C>                  <C>
SELECTED STATEMENTS OF
OPERATIONS DATA:

Total Net Sales                     $   117,083     $ 8,070      $   -          $   -                $  117,766
Cost of Goods Sold                       70,215       5,656          -              -                    71,395

Gross Margin                             46,868       2,414          -              -                    46,371
Operating Expenses                       45,641       3,496      557             1,565                   45,130

Write-Down of Assets                     -              -              -              -                  11,000

Operating Income (Loss)                   1,227      (1,082)    (557)           (1,565)                  (9,759)

Interest Expense                         (1,386)       (300)     (59)              (40)                  (1,554)

Other Income                                712         -             -              -                      101

Net Income (Loss)                   $       553     $(1,382)   $(616)         $ (1,605)               $ (11,212)(2)

Net Income (Loss) Per Share         $       .06    $   (.34)   $(.15)         $   (.44)               $   (2.74)

Weighted Average Shares
Outstanding (3)                            5609        4086     4086              3658                     4086

BALANCE SHEET DATA:
Working Capital (Deficit)           $    26,376    $ 10,346    $(466)         $    (27)

Total Assets                             61,566      42,967        6               134

Long Term Debt, less Current
Portion                                  14,723      20,350    1,000             1,000
Stockholders' Equity (Deficit)           30,252       6,594   (1,462)            1,057)

</TABLE>




<PAGE>



Financial Data of the Personal Care Division




<TABLE>

<CAPTION>

                                                                                        Period from January 1,
                                                  Years Ended December 31,              1995 through
                                                1994           1993          1992       November 30, 1995 (4)
<S>                                         <C>            <C>            <C>              <C>
Selected Statements of Operations Data:
----------------------------------------
   Total net sales.....................      $121,277       $112,031      $124,288          $109,696
----------------------------------------
   Cost of goods sold..................        71,735         71,061        77,613            67,088
----------------------------------------

                                        -------------    -----------    ----------          --------

----------------------------------------
   Gross margin........................        49,542         40,970        46,675            42,608
----------------------------------------
   Operating expenses..................        57,830         53,851        56,014            42,344
----------------------------------------
   Write-down of assets................       120,100          -              -               11,000
----------------------------------------

                                        -------------    -----------    ----------         ---------

----------------------------------------
   Operating income (loss).............     (128,388)       (12,881)       (9,339)          (10,736)
----------------------------------------
   Interest expense from Dow...........       (5,805)        (6,643)       (6,055)           (1,603)
----------------------------------------
   Other income (expense), net.........           705            317         (328)               101
----------------------------------------

                                        -------------   ------------   -----------        ----------

----------------------------------------
   Net loss............................    $(133,488)      $(19,207)     $(15,722)         $(12,238)
----------------------------------------
</TABLE>




<TABLE>


<CAPTION>
                                                                 At December 31,
                                                       1994          1993         1992

<S>                                                 <C>          <C>           <C>
Selected Balance Sheet Data:
-------------------------------------------
   Working capital.......................            $16,787      $11,457       $16,517
   Total assets..........................             58,021      180,376       190,605
   Net invested capital..................             47,493      169,058       179,654
-----------
</TABLE>

     (1)  Includes the results of  operations  of the Personal Care Division for
          the month of December 1995 following its acquisition by the Company.

     (2)  Includes an $11.0 million  write-down of assets required to adjust the
          carrying  value of The Personal  Care  Division to its net  realizable
          value in  connection  with Dow's  decision to sell the  Personal  Care
          Division.  Future  significant  charges are not expected as assets and
          liabilities  were recorded at their  estimated fair values at the date
          of the Company's acquisition of the Personal Care Division.

     (3)  In  accordance   with  the  rules  of  the   Securities  and  Exchange
          Commission,  all common stock equivalents of the Company issued within
          one year of its  initial  public  offering  have  been  considered  as
          outstanding  since the  inception  of the Company  using the  treasury
          stock  method  even  though they are  anti-dilutive  in loss  periods.
          Common stock  equivalents  issued  prior to one year of the  Company's
          initial  public  offering  are  excluded  in loss  periods as they are
          anti-dilutive.

     (4)  Results of  operations  of the Personal  Care  Division  following its
          acquisition  by the  Company  in  November  1995 are  included  in the
          results of operations  of the Company for the year ended  December 31,
          1995.
<PAGE>




Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION


Pro Forma and Historical Results of Operations

The following table sets forth pro forma statements of operations information in
dollars and as a  percentage  of total net sales for each of the two years ended
December 31, 1995,  and the  historical  statement of operations  information in
dollars and as a percentage  of total net sales for the year ended  December 31,
1996. The pro forma  information gives effect to the acquisition of the Personal
Care  Division as if it had occurred at the  beginning  of each period.  The pro
forma information is not necessarily indicative of future results of operations.
<TABLE>


<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                                 (In Thousands)
                               -----------------------------------------------------------------------------------


                                          HISTORICAL                PRO FORMA                    PRO FORMA
                                            1996                      1995                        1994
                                                  %                         %                             %
------------------------------
<S>                                <C>           <C>          <C>          <C>          <C>             <C>
Total Net Sales                    $  117,083    100.0 %      $117,766     100.0 %      $121,277        100.0 %
------------------------------
Cost of goods sold                     70,215     60.0          71,395      60.6          69,764         57.5

------------------------------     ----------    -------      --------     -----        --------        -------
Gross margin                           46,868     40.0          46,371      39.4          51,513         42.5

------------------------------
Operating expenses                     45,641     39.0          45,130      38.3          54,600         45.0

------------------------------
Write-down of assets                   -              -         11,000       9.4         120,100         99.0

------------------------------     ----------    -------       --------    -----        --------        -------
Operating income (loss)                 1,227      1.0          (9,759)     (8.3)       (123,187)      (101.5)

Other income (expense)
Interest expense                       (1,386)    (1.1)         (1,554)     (1.3)         (2,374)        (2.0)
     Other income                         712       .6             101        .1             705           .6

------------------------------     ----------    -------        -------    -----        --------        -------

Net income (loss)                  $      553       .5 %      $(11,212)     (9.5)%     $(124,856)      (102.9) %
                                   ==========    =======      =========    =====       ==========      =========
</TABLE>

Year Ended December 31, 1996 (Historical) Compared to Year Ended
December 31, 1995 (Pro Forma)

Total net sales of $117.1  million for the year ended December 31, 1996 declined
0.6% compared to pro forma net sales of $117.8 million in 1995. During 1996, the
Company  experienced  sales  growth from its new product  line Willow  Lake(TM),
contract  manufacturing  and its Style(R)  product line.  These  increases  were
offset by sales decreases in the Perma Soft(R) and Salon Style(R) product lines.

The Company's  management  implemented  a new  marketing  strategy that included
increasing  advertising that began in the quarter ended June 30, 1996,  intended
to stem the decline in Perma Soft(R) sales.  In addition to supporting the brand
with advertising, the Company is testing new line extensions designed to reverse
the decline in sales.

In  April  1995,  DowBrands  discontinued   advertising  of  Salon  Style(R)  in
conjunction  with the decision to sell the Personal  Care  Division.  During the
next ten months,  Salon Style(R) was not supported with any  advertising  funds.
Although  the  Company   reinstituted   a  marketing   campaign  which  included
advertising  in the first  quarter of 1996,  Salon  Style(R)  continued  to lose
market share. The Company is developing and expects to implement a new marketing
strategy for the Salon Style(R) brand in 1997.

In  November  1995,  the  Company  entered  into a  two-year  contract  in which
DowBrands  has agreed to  purchase  all of its future  requirements  for certain
products.  Contract  manufacturing  sales  for 1996  were  $30.8  million  which
included sales to DowBrands of $22.2 million or 18.9% of total net sales.

Gross margin as a percentage of sales was 40.0% for the year ended  December 31,
1996,  as compared with a pro forma gross margin of 39.4% for the same period in
1995.  The increase in gross margin  percentage is  attributable  to the product
cost savings which were realized  through  operating  efficiencies  and the high
gross margin generated from the Willow Lake(TM) product line that began shipping
in the fourth quarter of 1996.  The gross margin  percentage  improvements  were
partially  offset by an increase in sales of the  lower-margin  Style(R) line of
products and contract manufacturing, and a decrease in consumer retail purchases
of the higher margin Perma Soft(R) and Salon Style(R) product line.

Although  investment  was  necessary  in 1996  resulting  from the  takeover  of
operations  from  DowBrands  and  from  the   implementation  of  the  Company's
turnaround  strategy,  operating  expenses  of $45.6  million for the year ended
December  31,  1996,  were  relatively  unchanged  as  compared  with pro  forma
operating expenses of $45.1 million for the same period in 1995.

The $11.0 million write-down of assets by DowBrands in the first quarter of 1995
reflected  a further  adjustment  in the  carrying  value of the  Personal  Care
Division to its net realizable  value in connection  with DowBrands  decision to
sell the Personal Care Division.  Future significant charges are not expected as
all assets and  liabilities  were recorded at their  estimated fair value at the
date of the Company's acquisition of the Personal Care Division.

As a result of the foregoing  factors,  the operating  income for the year ended
December 31, 1996, was $1.2 million, as compared with a pro forma operating loss
of $9.8 million in the same period in 1995.  Excluding the write-down of assets,
the pro forma operating  income for the year ended December 31, 1995, would have
been $1.2 million.

Interest Expense of $1.4 million for the year ended December 31, 1996,  declined
10.8%  compared  to pro forma  Interest  Expense of $1.6  million  in 1995.  The
decrease was due to the additional cash available for working capital in 1996 as
a result of the Company's initial public offering in May 1996.

Other income for the year ended  December 31, 1996, was $0.7 million as compared
with $0.1 million for the same period in 1995.  This increase is attributable to
the  increase in interest  income from the  investment  of the  additional  cash
available as a result of the  Company's  initial  public  offering in the second
quarter of 1996, and gain on the sale of equipment.

As a result of the foregoing factors, net income for the year ended December 31,
1996,  was $0.6 million,  as compared with a pro forma net loss of $11.2 million
for the same period in 1995.

Year Ended December 31, 1995 (Pro Forma) Compared to Year Ended
December 31, 1994 (Pro Forma)

Total net sales on a pro forma basis of $117.8  million for 1995  declined  2.9%
compared to $121.3 million in 1994. Although the Salon Style(R) product line and
contract manufacturing  experienced sales growth, these increases were more than
offset by  decreases  in the Perma  Soft(R)  and  Style(R)  product  lines.  The
decrease in Perma  Soft(R) sales in 1995 followed  moderate  sales  increases in
1994 after a heavily funded marketing  campaign.  As part of that 1994 marketing
effort,  the Perma Soft(R) product line was  reformulated  and repackaged  which
together with the  substantial  reduction in  advertising  support in 1995 and a
reduction in perm incidence,  caused the decline in Perma Soft(R) sales in 1995.
Contract manufacturing increased $3.9 million and sales to DowBrands represented
18.2% of pro forma total net sales for 1995 compared to 15.9% in 1994.

Pro forma gross margin for 1995 decreased by $5.1 million as compared with 1994,
or 10.0%. Gross margin as a percentage of pro forma total net sales was 39.4% in
1995,  as compared with 42.5% in 1994.  The decrease in gross margin  percentage
was due to a change in product sales mix to lower-margin  products,  as a result
of a decrease in consumer  retail  purchases of the higher  margin Perma Soft(R)
product line, and increases in lower margin contract manufacturing, as well as a
greater  emphasis on  promotional  activities,  which resulted in higher product
costs.  The decrease in gross margins was partially offset by the higher margins
provided by Salon  Style(R),  and a reduction  of employee  benefit  expenses in
1995; of which  $874,000 was reflected in pro forma  adjustments  related to the
elimination of postretirement  benefits and 401(k) matching  contributions,  and
$160,000 related to a reduction in the Company's vacation  benefits.  Comparable
reductions were not included in the 1994 pro forma gross margins.

Operating expenses on a pro forma basis for 1995 decreased to $45.1 million,  or
38.3% of pro forma total net sales, as compared to $54.6 million or 45.0% of pro
forma total net sales in 1994. The decrease was  principally  due to a reduction
in marketing expenses in 1995 from 1994 levels, which had been increased in 1994
for the Perma Soft(R)  marketing  campaign and the introduction of a new product
line,  Salon  Style(R).  Operating  expenses on a pro forma basis also decreased
because of the  reduction in 1995 employee  benefit  expenses as a result of pro
forma  adjustments  made by the Company in the amount of $570,000 related to the
elimination of postretirement  benefits and 401(k) matching  contributions,  and
$105,000 related to the reduction in the Company's  vacation  benefits.  The pro
forma  adjustments  were made to reflect the Company's  decision to eliminate or
reduce those benefits.  Comparable  adjustments are not included in the 1994 pro
forma operating expenses.

The $120.1  million  write-down  of assets by Dow in 1994 was required to adjust
the carrying value of the Personal Care Division to its net realizable  value in
connection with Dow's decision to sell the Personal Care Division. An additional
write-down of $11.0 million was recorded in 1995. Future significant charges are
not expected as all assets and liabilities were recorded at their estimated fair
values at the date of the Company's acquisition of the Personal Care Division.

As a result of the foregoing factors,  the pro forma operating loss for 1995 was
$9.8 million, compared with the 1994 pro forma operating loss of $123.2 million.
Excluding the asset write-downs, pro forma operating income would have been $1.2
million in 1995 and pro forma  operating  loss  would have been $3.1  million in
1994.

Pro forma interest expense,  which was $1.6 million for 1995, compared with $2.4
million in 1994,  represents interest on the indebtedness incurred in connection
with the  Company's  acquisition  of the  Personal  Care  Division  and expected
average borrowings during the periods.

As a result of the foregoing factors, the pro forma net loss for 1995 was
$11.2 million,  compared with the 1994 pro forma net loss of $124.9 million.

Historical Results of Operations

Years Ended December 31, 1996, 1995 and 1994

The Company was in a  development  stage and had no revenues  until it completed
the  acquisition  of the  Personal  Care  Division in November  1995.  Operating
expenses of $45.6  million  were  incurred in the year ended  December 31, 1996,
compared with $3.5 million in the year ended December 31, 1995, and $0.6 million
in the year ended  December 31,  1994.  The higher  operating  expenses for 1996
reflect the inclusion of the Personal Care Division's  operating  expenses after
its acquisition in late 1995. Prior to the acquisition,  the Company's operating
expenses  were  comprised  of  marketing,  administrative  and  other  operating
expenses incurred to support the Company's  technology  development and research
activities.  The Company's  net income for the year ended  December 31, 1996 was
$0.6  million as compared  with a loss of $1.4  million and $0.6 million for the
years ended December 31, 1995 and 1994 respectively.


Liquidity and Capital Resources

In  1996,  the  Company  primarily   financed  its  working  and  other  capital
requirements  from  operations,  the initial public offering and borrowing under
its term loan and revolving credit line with Norwest Business Credit.  (See Note
6 to the Financial Statements.)

At  December  31,  1996,  the  Company  had  $12.1  million  in  cash  and  cash
equivalents.  In May 1996, the Company completed its initial public offering for
the sale of 2,600,000  shares of common  stock at $8 per share.  Net proceeds to
the Company from the offering were approximately $18.0 million.

In November  1995,  the  Company  entered  into a loan  agreement  with  Norwest
Business  Credit.  The Norwest Credit Agreement is for three years, and provides
for a working  capital line up to $14.0  million and a term loan of $6.0 million
which is  amortized  over five  years with  annual  principal  payments  of $1.2
million.  The  working  capital  balances  and term loan are  payable in full in
November  1998.  The interest  rates on these loans are variable and are tied to
Norwest  Bank's base rate which at December  31,  1996,  was 8.5%.  The interest
rates  on the  revolver  and  the  term  loan  are  currently  8.75%  and  9.0%,
respectively. The working capital line and term loan with Norwest are secured by
all of the assets of the  Company and impose  certain  operating  and  financial
restrictions  such as minimum  income  requirements,  minimum net worth and debt
service and leverage ratios.

In June 1996, the Company used $8.0 million of the net proceeds from its initial
public offering to pay down a portion of its revolving  credit line with Norwest
Business  Credit,  Inc. As of December 31, 1996,  the Company had  approximately
$9.8 million of debt outstanding  under its revolving credit line agreement with
Norwest.

Upon  completion  of the Company's  initial  public  offering,  its $5.0 million
convertible  note  with  DowBrands  converted  into  763,500  shares of Series B
convertible  preferred  stock,  the holders of which are  entitled to  dividends
($400,000  annually),  which will accrue  whether or not  declared,  and will be
cumulative to the extent not paid.

Accounts  receivable at December 31, 1996,  increased $6.0 million from December
31,  1995,  principally  due to higher sales in December  1996 as compared  with
December 1995.  Inventory increased at December 31, 1996, as compared to 1995 as
the  Company  began  building  its  inventory  for the  launch of its new Willow
Lake(TM) product line.

The Company's launch of Willow Lake(TM) as well as the introduction of other new
products  in 1997 will be  supported  by a major  marketing  campaign  including
advertising  and consumer  promotions.  The funds  required  for this  marketing
campaign are expected to come primarily  from working  capital and the Company's
line of credit  facility.  The Company  also intends to increase  this  facility
during 1997 but no assurance can be made that Norwest will agree to an increase.

Capital  expenditures  for 1996 were  approximately  $3.5  million  and are
anticipated to be $2.9 million for 1997.


At December 31, 1996,  the Company had a net  operating  loss carry  forward for
federal  income tax  purposes of  approximately  $2.8 million  which  expires at
various dates between 2008 and 2111.

Management believes that the Company's cash on hand,  anticipated cash flow from
operations  and the amounts  available to the Company  under the Norwest  Credit
Agreement will be sufficient for its working capital,  capital  expenditures and
debt service and preferred stock requirements for at least the next 12 months.



Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                          Index to Financial Statements



<TABLE>




<S>                                                                                                                       <C>
               THE LAMAUR CORPORATION                                                                                     Page
               Independent Auditors' Report................................................................                F-1
               Balance Sheets for the Years Ended December 31, 1996 and 1995...............................                F-2
               Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994...............                F-3
               Statements of Changes in Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994          F-4
               Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994...............                F-5
               Notes to Financial Statements for the Years Ended December 31, 1996, 1995 and 1994..........                F-6
               PCD, THE PERSONAL CARE DIVISION OF DOWBRANDS L.P.
               Independent Auditors' Report................................................................               F-16
               Statements of Operations for the Period from January 1,  1995 to November 30,  1995 and for the Year
                  Ended December 31, 1994..................................................................               F-17
               Statements of Net Invested Capital for the Period from January 1, 1995 to November 30,  1995 and for
                  the Year Ended December 31, 1994.........................................................               F-18
               Statements of Cash Flows for the Period from January 1,  1995 to November 30,  1995 and for the Year
                  Ended December 31, 1994..................................................................               F-19
               Notes to Financial Statements for the Period from January 1,  1995 to November 30,  1995 and for the
                  Year Ended December 31, 1994.............................................................               F-20
</TABLE>



PART III

Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT

Incorporated  by  reference  from the  Company's  1997  Proxy  Statement  in the
material  captioned  "Election  of  Directors."   Information  with  respect  to
Executive Officers of the registrant is presented at the end of Part I hereof.

Item 11. EXECUTIVE COMPENSATION

Incorporated  by  reference  from the  Company's  1997  Proxy  Statement  in the
material  captioned   `Compensation  of  Executive   Officers"  and  "Additional
Information Relating to Directors and Officers of the Company."

Item 12. SECURITY OWNERSHIP OF CERTAIN BENFICIAL OWNERS AND MANGEMENT

Incorporated  by  reference  from the  Company's  1997  Proxy  Statement  in the
material  captioned   "Security  Ownership  of  Certain  Beneficial  Owners  and
Management."


Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated  by reference from the Company's  1997 Proxy  Statement in the
material captioned "Certain Transactions."



<PAGE>



PART IV


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

(a) Financial Statements and Schedules - See index in Item 8.
(b) Reports on Form 8-K.  Form 8-K dated October 30, 1996 reporting an Item 5
event.  No financial statements were filed with the Report.
(c) List of Exhibits.

<TABLE>

<S>        <C>
   Exhibit
   Number                                              Description

     *2.1  Asset Purchase Agreement, dated as of November 15, 1995, between DowBrands, Inc. and Registrant.
     *2.2  Plan of Merger, dated March 15, 1996.
     *3.1  Restated Certificate of Incorporation of the Registrant.
     *3.2  By-Laws of the Registrant.
      3.3  Certificate of Amendment of Restated Certificate of Incorporation.
     *4.1  Restated Certificate of Incorporation of the Registrant (incorporated
           by reference to Exhibits 3.1 and 3.3 hereof).
     *4.2  Specimen Copy of Stock Certificate for shares of Common Stock.
     *4.3  Form of Warrant issued to the Representatives.
     *4.4  Form of Common Stock Purchase Warrant, dated as of November 1995, issued to certain investors.
     *4.5  Registration Rights Agreement, dated as of November 15, 1995, between Dow and Registrant.
     *4.6  Form of Registration Rights Agreement between Registrant and certain holders of Registrant
           Common Stock.
    *10.1  License Agreement by and between Registrant and Intertec Ltd., dated May 5, 1993.
    *10.2  Credit and Security Agreement, dated as of November 16, 1995, between Registrant and Norwest
           Business Credit, Inc.
     10.3  First  Amendment  to Credit  Agreement,  Second  Amendment  to Credit
           Agreement,   Amendment   Agreement  and  Third  Amendment  to  Credit
           Agreement between Registrant and Norwest Business Credit, Inc.
    *10.4  Manufacturing Agreement between DowBrands L.P. and Registrant, dated November 16, 1995.
    *10.5  1996 Stock Incentive Plan of the Registrant.
    *10.6  1996 Stock Incentive Plan for Non-Employee Directors and Advisory Board Members of the
           Registrant.
    *10.7  Employment  Agreement between  Registrant and Don G. Hoff, made as of
           June 1, 1994, and modified as of November 6, 1995.
     10.8  1996 Non-Qualified Stock Option Plan of the Registrant.
     10.9  Sublease dated October 1, 1996 between Registrant and Intertec, Ltd.
     11.1  Statement regarding computation of per share earnings.
     23.1  Consent of Deloitte & Touche LLP.
     27.1  Financial Data Schedule
    *99.1  U.S. Patent Number 5,395,490, issued March 7, 1995, registered to Don
           G. Hoff and Joseph F. Stiley, III, for a method of treating materials
           by the application of electromagnetic  energy at resonant  absorption
           frequencies.

           *Incorporated by reference from the Form S-1 Registration Statement (File No. 333-2722).
</TABLE>



<PAGE>



1.    SIGNATURES

Pursuant to the  requirements  of Section 13 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.


Date:  March 27, 1997        THE LAMAUR CORPORATION
                                 (Registrant)

                          By:    /s/ DON G. HOFF
                          Don G. Hoff, Chairman of the Board and Chief Executive
                          Officer



Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been duly signed by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.



Signature                              Title                         Date


    /s/ DON G. HOFF
----------------------------  Chairman of the Board and Chief    March 27, 1997
    Don G. Hoff               Executive Officer
----------------------------  (Principal Executive Officer)


   /s/ JOHN D. HELLMANN
------------------------------  Vice President, Chief Financial  March 27, 1997
    John D. Hellmann            Officer
------------------------------  (Principal Financial and Accounting
                                Officer)


  /s/ DOMINIC J. LaROSA
---------------------------  President and CEO - Lamaur Division  March 27, 1997
  Dominic J. LaRosa          and Director
---------------------------



  /s/ HAROLD M. COPPERMAN
---------------------------  Director                             March 27, 1997
 Harold M. Copperman
---------------------------


 /s/ GERALD A. EPPNER
---------------------------  Director                             March 27, 1997
 Gerald A. Eppner
----------------------------


 /s/ PAUL E. DEAN
----------------------------  Director                            March 27, 1997
 Paul E. Dean
----------------------------


 /s/ PERRY D. HOFF
----------------------------  Director                            March 27, 1997
 Perry D. Hoff
----------------------------


/s/JOSEPH F. STILEY, III
----------------------------  Director                            March 27, 1997
Joseph F. Stiley, III



<PAGE>
F-1







                        INDEPENDENT AUDITORS' REPORT



The Lamaur Corporation:

         We  have  audited  the  accompanying   balance  sheets  of  The  Lamaur
Corporation,  formerly  Electronic Hair Styling,  Inc., (the  "Company"),  as of
December  31,  1996,  and  1995,  and  the  related  statements  of  operations,
stockholders'  equity and cash flows for each of the three years ended  December
31, 1996, 1995 and 1994. 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,  such  financial  statements  present  fairly,  in all
material respects, the financial position of the Company as of December 31, 1996
and 1995,  and the results of its  operations and its cash flows for each of the
three years ended December 31, 1996, 1995 and 1994, in conformity with generally
accepted accounting principles.



Deloitte & Touche LLP
San Francisco, California
March 26, 1997





<PAGE>
F-2
<TABLE>


<CAPTION>
                                                    THE LAMAUR CORPORATION

                                                        BALANCE SHEETS
                                       (In thousands, except share and per share data)

                                                                                  December 31,
                                                                            1996                1995
--------------------------------------------------------------------
<S>                                                                     <C>                 <C>
ASSETS
--------------------------------------------------------------------
Current Assets:
--------------------------------------------------------------------
     Cash and cash equivalents.................................          $ 12,081           $    2,338
--------------------------------------------------------------------
     Receivables from DowBrands................................             1,450                2,374
--------------------------------------------------------------------
     Accounts receivable, net..................................            17,214               10,305
--------------------------------------------------------------------
     Inventories (Note 4)......................................            11,699               11,140
--------------------------------------------------------------------
     Prepaid expenses and other current assets.................               523                  212
--------------------------------------------------------------------
         Total current assets..................................            42,967               26,369
--------------------------------------------------------------------

Property, Plant and Equipment, Net (Note 5)....................            18,475               16,283
--------------------------------------------------------------------

Other Assets...................................................               124                  315
--------------------------------------------------------------------

         Total Assets..........................................          $ 61,566           $   42,967
--------------------------------------------------------------------

<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY

<S>                                                                      <C>               <C>
Current Liabilities:
     Accounts payable..........................................          $  6,724           $    5,525
     Accrued expenses..........................................             4,637                4,849
     Accrued salaries, wages and employee-related expenses                  2,458                2,724

     Current portion of long-term debt (Note 6)................             1,272                1,200
     Payables to related parties (Note 10).....................             1,500                1,725

         Total current liabilities.............................            16,591               16,023

Long-Term Debt (Note 6)........................................            13,723               12,850
Related Party Obligations (Note 10)............................             1,000                7,500
Commitments and Contingencies (Note 11)........................

Stockholders' Equity (Note 7):
     Preferred stock, $.01 par value, 4,000,000 shares authorized:
-------------------------------------------------------------------
      Series A Preferred stock, $.01 par value, 1,000,000
      shares issued and outstanding at December 31, 1996
      and 1995.($10.0 million liquidation preference)...........            8,500                8,500

     Series B Preferred stock, $.01 par value, 763,500
     shares issued and outstanding at December 31,1996.
     ($5.0 million liquidation preference).....................             5,000                    -

     Common stock, $.01 par value,  12,000,000 shares authorized,
     5,603,395 and 2,944,920 shares, issued and outstanding at
     December 31, 1996 and 1995, respectivley..................                56                   29

     Additional paid-in capital................................            19,796                1,718
     Stock subscriptions receivable............................               (50)                 (50)
     Accumulated deficit.......................................            (3,050)              (3,603)

         Total stockholders' equity............................            30,252                6,594

Total Liabilities and Stockholders' Equity.....................          $ 61,566           $   42,967
--------------------------------------------------------------------

</TABLE>

                                              See notes to financial statements
<PAGE>
F-3
<TABLE>



<CAPTION>
                                                    THE LAMAUR CORPORATION
                                                   STATEMENTS OF OPERATIONS
                                           (In thousands, except per share amounts)



                                                                                  Years Ended
                                                                                 December 31,
                                                                        1996              1995               1994
--------------------------------------------------------------

--------------------------------------------------------------
<S>                                                            <C>                   <C>                  <C>
Net Sales..................................................    $       94,912        $    6,426           $    -

--------------------------------------------------------------

Net Sales to DowBrands (Note 10)............................           22,171             1,644                -
--------------------------------------------------------------

Total Net Sales (Note 1)....................................          117,083             8,070                -
--------------------------------------------------------------

Cost of Goods Sold..........................................           70,215             5,656                -
--------------------------------------------------------------

Gross Margin................................................           46,868             2,414                -
--------------------------------------------------------------

Selling, General and Administrative Expenses................           45,641             3,496              557
--------------------------------------------------------------

Operating Income (Loss).....................................            1,227            (1,082)            (557)
--------------------------------------------------------------

Interest Expense............................................           (1,386)             (300)             (59)
--------------------------------------------------------------
Interest  and Other Income..................................              712                 -               -
--------------------------------------------------------------

Net  Income (Loss)..........................................              553            (1,382)            (616)
--------------------------------------------------------------

Dividends on Series B Preferred Stock.......................             (233)                -               -

--------------------------------------------------------------

Net Income (Loss) Available to Common Shareholders........    $           320        $   (1,382)    $       (616)
--------------------------------------------------------------

Net Income (Loss) per Common Share........................    $           .06 $            (.34)    $       (.15)

--------------------------------------------------------------

Weighted Average Common and Common Equivalent Shares
   Outstanding................................................          5,609              4,086            4,086


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

</TABLE>
                                              See notes to financial statements

<PAGE>
F-4
<TABLE>


<CAPTION>
                                                    THE LAMAUR CORPORATION
                                        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

                                     For the Years Ended December 31, 1996, 1995 and 1994
                                                        (In thousands)

                                                                                                    Stock
<CAPTION>
                        Series A             Series B                              ------------  Subscriptions Accumulated
                     Preferred Stock    -------------------      Common Stock       Additional    Receivable     Deficit      Total
                                          Preferred Stock                            Paid-in
                                                                                     Capital
                    Shares    Amount     Shares     Amount     Shares     Amount
------------------

------------------
<S>                     <C>       <C>        <C>       <C>     <C>       <C>       <C>                 <C>    <C>          <C>
  Balance,
  December 31, 1993     -         -          -         -       2,498     $   25    $    523            -      $ (1,605)    $ (1,057)

------------------
Grants of non-cash
stock option credits    -         -          -         -           -          -         211            -             -          211

------------------
Net loss                -         -          -         -           -          -           -            -          (616)        (616)
------------------

  Balance,
  December 31, 1994     -           -        -         -       2,498         25         734            -        (2,221)     $(1,462)
  ------------------

Issuance of Series A
preferred stock        1,000    $  8,500     -         -           -          -           -            -             -        8,500
------------------

Issuance of common stock
for cash                 -          -        -         -         135          1         214            -             -          215
------------------

Issuance of common stock
for services             -          -        -         -         156          1         236            -             -          237
------------------

Issuance of common stock
for stock subscriptions   -       -        -         -          73          1          99     $   (100)            -           -
------------------

Grants of non-cash
stock option credits      -       -        -         -           -          -         311            -             -            311
------------------

Conversion of notes
payable to common
stock                     -       -        -         -          83          1         124            -             -            125
------------------

Reduction of stock
subscriptions
receivable                -       -        -         -           -          -           -           50             -             50
------------------

Net loss                  -       -        -         -           -          -           -            -        (1,382)        (1,382)
------------------

  Balance,
  December 31, 1995   1,000    8,500       -         -        2,945          29       1,718          (50)     (3,603)         6,594
 ----------------

Issuance of Series B
preferred stock         -           -      764    $  5,000         -          -           -            -             -        5,000
------------------

Issuance of common
stock                   -           -        -         -       2,643         26      18,086            -             -       18,112
------------------

Grants of non-cash
stock option credits    -           -        -         -           -          -         132            -             -          132
------------------

Stock grants to
employees               -           -        -         -          15          1          93            -             -           94
------------------

Dividends on
preferred stock         -           -        -         -           -          -        (233)           -             -         (233)
------------------

Net income              -           -        -         -           -          -           -            -           553          553
------------------

  Balance, December 31,
  1996                 1,000   $8,500      764     $5,000      5,603       $ 56      $19,796     $   (50)      $(3,050)     $30,252

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



                                              See notes to financial statements

<PAGE>
F-5
<TABLE>


<CAPTION>
                                                    THE LAMAUR CORPORATION
                                                   STATEMENTS OF CASH FLOWS
                                                        (In thousands)

<CAPTION>
                                                                            Years Ended December 31,
                                                               ---------------------------------------------------
                                                                    1996              1995              1994
<S>                                                              <C>              <C>              <C>
    Cash Flows From Operating Activities:
    Net income (loss).....................................       $      553       $   (1,382)       $     (616)
     Adjustments to reconcile net income (loss) to net cash
     provided by (used in) operating activities:
       Noncash credits for services.......................              132              213               211
       Issuance of common stock for services..............               94               52                 -
       Utilization of DowBrands credits...................           (1,500)               -                 -
       Gain on disposal of assets.........................             (214)               -                 -
       Depreciation and amortization......................            1,365              144                 2
       Effect of changes in:
          Receivables.....................................           (5,985)           3,779                 -
          Inventories.....................................             (559)             528                 -
          Other assets....................................             (177)             (94)                -
          Payables........................................              999           (2,643)               38
          Accrued expenses................................             (478)           1,273                55

             Net cash provided by (used in) operating activities     (5,770)           1,870              (310)

Cash Flows From Investing Activities:
    Additions to property, plant and equipment............           (3,110)            (128)               (2)
    Proceeds from sale of assets..........................              225                -                 -
    Acquisition of PCD....................................                -          (13,689)                -

       Net cash used in financing activitiees.............           (2,885)         (13,817)               (2)

Cash Flows From Financing Activities:
    Revolving credit agreement, net.......................            1,764            8,050                 -
    Borrowings of long-term debt..........................                -            6,465               185
    Repayments of long-term debt..........................           (1,445)            (300)                -
    Proceeds from sales of common stock, net..............           18,112               68                 -
    Payment of preferred dividends........................              (33)               -                 -

       Net cash provided by financing activities..........           18,398           14,283               185
Net Increase (Decrease) in Cash and Cash Equivalents......            9,743            2,336              (127)
Cash and Cash Equivalents at Beginning of Period..........            2,338                2               129
Cash and Cash Equivalents at End of Period................       $   12,081       $    2,338        $        2
Supplemental Disclosures of Cash Flow Information:
    Cash paid during period for interest..................       $    1,186       $        -        $        5
    Noncash investing and financing activities:
       Capital lease obligations entered into ............              401                -                 -
       Dividends payable preferred stock..................              200                -                 -
       Common stock issued for subscriptions receivable...                -              100                 -
       Conversion of notes payable to common stock........                -              125                 -
       Conversion of convertible subordinated note into
       preferred stock                                                5,000                -                 -
       Acquisition of PCD (see Note 1):
       Issuance of preferred stock........................                -            8,500                 -
       Issuance  of convertible subordinated note.........                -            5,000                 -
       Issuance  of DowBrands credits.....................                -            3,000                 -
       Common stock issued for acquisition-related services               -              185                 -
       Reduction of subscription receivable through services              -               50                 -
         performed..
==============================================================
</TABLE>


                                              See notes to financial statements


<PAGE>
F-6


                       THE LAMAUR CORPORATION
--------------------------------------------------------------------------------

                     NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.    ORGANIZATION AND OPERATIONS

      Effective March 26, 1997,  Electronic Hair Styling,  Inc. changed its name
to The Lamaur Corporation (the "Company").  The Company, a Delaware corporation,
is the successor to Electronic Hair Styling, Inc., which was incorporated in the
State of Washington on April 1, 1993 (the  "Predecessor").  Effective  March 18,
1996, Predecessor merged with and into its wholly-owned subsidiary, the Company.
In connection with the merger, the Company issued .660 shares of common stock in
exchange for each issued and outstanding share of Predecessor  common stock. The
accompanying Company financial statements,  which are substantially identical to
Predecessor's  financial  statements  for  periods  prior  to the  merger,  give
retroactive effect to the merger.

      The Company develops,  formulates,  manufactures and markets personal hair
care products, consisting of shampoos, conditioners, hair sprays, permanent wave
products and other styling aids,  for both consumer and  professional  hair care
markets.  The  Company  is also  engaged  in the early  stages of  research  and
development  with  respect to a new hair  styling  concept  which is intended to
combine  electronics  and  chemicals to create new  products  designed to color,
style and  condition  hair  quickly,  without the damaging  side  effects  often
experienced with most chemical-based hair styling products. The Company licensed
the technology from Intertec Ltd., which is the sole limited partner of Intertec
Holdings, L.P., the principal stockholder of the Company (see Note 10). Prior to
the acquisition discussed below , the Company was a development stage company.

      Effective  November  15, 1995,  the Company  acquired  certain  assets and
liabilities  of PCD,  the Personal  Care  Division of  DowBrands  L.P.  ("PCD").
DowBrands  L.P. is a limited  partnership  whose  managing  partner is DowBrands
Inc.,  a wholly  owned  subsidiary  of The Dow  Chemical  Company  (collectively
"DowBrands").  PCD,  which was renamed Lamaur after the  acquisition,  develops,
manufactures,  and markets hair care products. The acquisition was accounted for
as a purchase  and did not result in any  goodwill.  The total  purchase  price,
including  related  acquisition  costs,  was $30.2  million  consisting of $13.7
million in cash (funded with revolving and term credit facilities,  see Note 6),
$8.5  million  (one  million  shares)  of the  Company's  Series  A  convertible
preferred stock (see Note 7),a $5.0 million  convertible  subordinated note (the
"DowBrands's  Convertible  Note,"  Note 10) and $3.0  million  of  credits to be
issued to DowBrands for future purchases.  After giving effect to the conversion
of Series A and Series B Preferred Stock (Note 7), DowBrands owns  approximately
17% of the  Company.  The  acquisition  was  accounted  for as if it occurred on
November 30, 1995, and the Company's financial statements include the results of
PCD effective December 1, 1995.

      The purchase price was allocated to acquired assets and liabilities  based
on their estimated fair values as follows:

                                                                 (In thousands)
     Accounts receivable..................................       $      16,458
     Inventories..........................................              11,668
     Property, plant and equipment........................              16,805
     Other assets.........................................                  35
     Accounts payable and accrued expenses................             (14,268)
     Estimated fair value of assets and liabilities.......              30,698
     Total purchase price.................................             (30,187)
     Excess of estimated fair value of assets and liabilities
     over the purchase price..............................       $         511
     -----------------------------------------------------------

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

      The excess of the estimated fair value of assets and liabilities  over the
purchase price was recorded as a reduction of property, plant and equipment.



<PAGE>
F-7

      The following  unaudited pro forma summary  results of operations for each
of the years ended December 31, 1995 and 1994,  gives effect to the  acquisition
of PCD as if it had occurred at the beginning of each period presented.  The pro
forma  results  have been  prepared  for  comparative  purposes  only and do not
purport to reflect the results of operations which would have actually  occurred
had the combination  been effective on the dates indicated or which may occur in
the future.

                                                       December 31,
                                               1995                   1994

                                       (In thousands, except per share amounts)
------------------
Total net sales                           $   117,766            $   121,277
Net loss                                  $   (11,212)           $  (124,856)
Net loss per share                        $     (2.74)           $    (30.56)


2.    SIGNIFICANT ACCOUNTING POLICIES

      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  and disclosure of contingent  assets and liabilities at the date of
the  financial  statements  and the  reported  amounts of revenues  and expenses
during the reported period. Actual results could differ from those estimates.

      Cash and Cash  Equivalent  -  Certain  balances  are held in a  collateral
account with the  Company's  lender (Note 6). After  residing in the account for
one day, such balances are applied  against the Company's  revolving  debt.  The
Company  considers all investments with an original  maturity of three months or
less on their acquisition date to be cash equivalents. These investments consist
of A1+/P1 rated commercial paper which at December 31, 1996 were $11,496,000.

      Accounts Receivable, net includes an allowance for doubtful accounts.

      Receivables  from  DowBrands   represent  amounts  due  under  a  contract
manufacturing  agreement  with  DowBrands (see Note 10) and at December 31, 1995
included a $665,000 refund  resulting from an adjustment to the initial purchase
price paid to DowBrands, which was received in the first quarter of 1996.

      Inventories are stated at the lower of weighted average cost or market.

      Property,   Plant,  and  Equipment  is  recorded  at  cost  and  is  being
depreciated  using the  straight-line  method over the estimated useful lives of
the  related  assets  which  range  from  20  to  50  years  for  buildings  and
improvements and 3 to 10 years for machinery and equipment. In 1996, the Company
adopted the provisions of Statement of Financial  Accounting  Standards ("SFAS")
No. 121,  "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." SFAS No. 121  establishes  recognition  of impairment
losses  when a company  no longer  expects to recover  the  carrying  value of a
long-lived asset. The effect of adopting SFAS No. 121 was not material.

      Income Tax amounts in the financial statements related to income taxes are
calculated using the principles of SFAS No. 109,  "Accounting for Income Taxes."
Under SFAS 109,  prepaid and  deferred  taxes  reflect  the impact of  temporary
differences  between  the  amounts  of assets  and  liabilities  recognized  for
financial reporting purposes and the amounts recognized for tax purposes as well
as tax credit  carryforwards  and loss  carryforwards.  These deferred taxes are
measured by applying currently enacted tax rates. A valuation  allowance reduces
deferred tax assets as future profits are not yet predictable and utilization of
deferred tax assets are not determinable.

      Stock Based  Compensation - The Company accounts for stock based awards to
employees  using the  intrinsic  value  method  in  accordance  with  Accounting
Principles  Board  Opinion  ("APB")  No.  25,  "Accounting  for Stock  Issued to
Employees" and related Interpretations in accounting for its plans.

      Net Income  (Loss) Per Share was computed by dividing net income (loss) by
the  weighted  average  number  of  shares of  common  stock  and  common  stock
equivalents, which consist of Series A preferred stock, warrants and options. In
accordance  with the rules of the  Securities  and Exchange  Commission,  common
stock  equivalents  issued  within  one  year of the  Company's  initial  public
offering, have been considered as outstanding since the inception of the Company
and have been included in the calculation of weighted  average common and common
equivalent shares outstanding for all periods presented using the treasury stock
method,  even  though  they are  antidilutive  in loss  periods.  Fully  diluted
earnings per share has not been  presented  since the  computation  would not be
dilutive.
<PAGE>
F-8
      Concentration  of Credit  Risk - The  Company  sells the  majority  of its
products to large U.S.  retailers.  Excluding  sales to DowBrands,  sales to the
Company's largest customer was $19.1 million and $1.6 million, in 1996 and 1995,
respectively.  No other customer  accounted for more than 10% of total net sales
in 1996. The Company  performs  ongoing credit  evaluations of its customers and
generally  does not require  collateral.  The  Company  maintains  reserves  for
potential credit losses, which have been insignificant.

      Fair  Value of  Financial  Instruments  -  Generally  accepted  accounting
principles  require  the  disclosure  of the  fair  value of  certain  financial
instruments,  whether or not  recognized in the balance  sheet,  for which it is
practicable  to estimate  fair  value.  The  Company  estimated  the fair values
presented below using appropriate valuation methodologies and market information
available as of year end. Considerable judgment is required to develop estimates
of fair value, and the estimates presented aren't necessarily  indicative of the
amounts that the Company could realize in a current market exchange.  The use of
different market assumptions or estimation  methodologies  could have a material
effect on the  estimated  fair  values.  Additionally,  these fair  values  were
estimated  at  year-end,   and  current  estimates  of  fair  value  may  differ
significantly from the amounts presented.

      The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

         Accounts Receivable,  Accounts Payable and Short-Term  Borrowings - The
      carrying amount of these items approximates fair value.

         Debt - To  estimate  the  fair  value of debt the  Company  uses  those
      interest  rates that are  currently  available  to it for issuance of debt
      with  similar  terms and  remaining  maturities.  At December 31, 1996 and
      1995, the carrying value of debt approximated fair value.

      Reclassification  -  Certain  reclassifications  have  been  made  in  the
accompanying   financial   statements   in  order  to  conform   with  the  1996
presentation.



3.    ACCOUNTS RECEIVABLE

      Accounts Receivable include the following:

                                                         December 31,
                                                --------------------------------
                                                 1996                   1995
                                                --------------------------------
                                                       (In thousands)
----------------------------------------
Accounts receivable trade..............   $     17,380         $       10,030
Non-trade accounts receivable.........             391                    767
Allowance for doubtful accounts and returns       (557)                  (492)
Total...................................  $     17,214         $       10,305
------------------------------------------

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

      Write-offs  to accounts  receivable  were $55,000 and $3,000 for the years
ended  December 31, 1996,  and 1995,  respectively.  There were no write-offs to
accounts receivable for the year ended December 31, 1994.



<PAGE>
F-9

4.    INVENTORIES

      Inventories include the following:
                                                      December 31,
                                  ---------------------------------------------
                                              1996                   1995
                                                     (In thousands)
 ---------------------------------
 Finished goods...................   $      7,324           $        6,393
 Work in process..................            118                      480
 Raw materials....................          4,257                    4,267
 Total............................   $     11,699           $       11,140
 ----------------------------------

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

5.    PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment consist of the following:

                                                         December 31,
                                   ---------------------------------------------
                                               1996                   1995
                                                        (In thousands)
 ---------------------------------
 Land and land improvements........  $        1,662         $        1,662
 Buildings and improvements........           5,253                  4,981
 Machinery and equipment...........          12,120                  9,599
 Construction in progress..........             883                    185
 Total.............................          19,918                 16,427
 Less accumulated depreciation.....          (1,443)                  (144)
 Total.............................  $       18,475         $       16,283
 ----------------------------------

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

6.    LONG-TERM DEBT

      Long-term debt includes the following:

                                                          December 31,
                                   ---------------------------------------------
                                               1996                   1995
                                                         (In thousands)
 ----------------------------------
 Revolving loan....................  $        9,814         $        8,050
 Term loan.........................           4,800                  6,000
 Obligations under capital leases...            381                      -
 Total...............................        14,995                 14,050
 Less current portion................        (1,272)                (1,200)
 Long-term portion...................$       13,723         $       12,850
 ----------------------------------

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


<PAGE>
F-10

      In November  1995,  the Company  obtained  from  Norwest  Business  Credit
(Norwest) a $20.0  million  credit  facility.  The facility  consists of a $14.0
million  revolving line of credit and a $6.0 million term loan.  Under the terms
of the  revolving  facility,  the  Company  can borrow up to $14.0  million or a
lesser  amount as  determined  by the  borrowing  base (as  defined  in the loan
agreement,  comprising  a percentage  of eligible  receivables  and  inventory).
Interest is payable  monthly on the revolving  line of credit at 8.75% and 9.75%
at December 31, 1996 and 1995, respectively. These rates are .5% and 1.25% above
Norwest Bank's base rate.

      The term loan provided for a single advance of $6.0 million and is payable
in monthly installments beginning January 1, 1996, of $100,000,  plus interest..
Interest is payable  monthly on the term loan at 9.0% and 10.0% at December  31,
1996 and 1995,  respectively.  These  rates are .75 % and  1.50%  above  Norwest
Bank's base rate .

      Both credit  facilities mature on November 15, 1998. The credit facilities
are secured by  virtually  all assets of the Company.  Additionally,  the credit
facilities prohibit the payment of dividends,  restrict the Company's ability to
incur  additional  indebtedness  and require the Company to comply with  certain
financial  covenants  regarding  profitability,  minimum  net  worth,  leverage,
capital expenditures and cash flow.

      The  obligations  under capital leases are at fixed interest rates ranging
from 4.8% to 10.0% and are  collateralized  by equipment  and a letter of credit
for $319,000. Machinery and equipment under capital leases were $395,000 (net of
$6,000 of accumulated depreciation) as of December 31, 1996. Minimum payments on
operating leases obligations are for buildings, autos and office equipment.

Future minimum principal payments on long term debt, capital lease and operating
lease obligations are as follows:
<TABLE>

<CAPTION>
                                                           Principal Payments on    Minimum Payments on
                                                            Long-Term Debt and        Operating Lease
                                                               Capital Lease            Obligations
            Year Ending                                         Obligations
            --------------------------------------------- ------------------------ -----------------------
                                                                          (In thousands)


<S>         <C>                                           <C>                      <C>
            1997                                          $       1,272            $         270
            1998                                                 13,491                      254
            1999                                                     81                      188
            2000                                                     86                       20
            2001                                                     65                        4
            2002 and thereafter                                       -                        -
            Total minimum principal payments              $      14,995            $         736
            ---------------------------------------------

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

      The fair value of the Company's  long-term debt  approximates the carrying
amount based on the current rates offered to the Company on similar debt.

7.    STOCKHOLDERS' EQUITY

      Effective May 22, 1996, the Company  completed its initial public offering
of 2,600,000 shares of its common stock. Net proceeds to the Company  aggregated
approximately  $18.1 million.  As of the closing date of the offering,  the $5.0
million  convertible note with DowBrands converted into 763,500 shares of Series
B preferred stock (see below).

      Preferred Stock - The Company has authorized  4,000,000 shares of $.01 par
value  preferred  stock,  the  terms of  which  are  established  at the time of
issuance by the Board of Directors. In connection with the acquisition described
in Note 1, the  Company  issued  one  million  shares  of  Series A  convertible
preferred stock ("Series A Preferred"). The Series A Preferred has a liquidation
preference  of  $10.00  per  share or $10.0  million  in the  aggregate  and has
dividend and voting rights equal to common stock on an as-converted  basis. Each
share of Series A Preferred is  convertible  into .660 shares of common stock at
the option of the holder;  however, if the trading price of the common equals or
exceeds  $21.21 per share for a 30-day  trading  period,  the  Company may force
conversion.
<PAGE>
F-11
      Also in connection with the acquisition,  the Company's Board of Directors
authorized  763,500  shares of Series B convertible  preferred  stock ("Series B
Preferred")  which was issued in May 1996 upon  conversion  of the $5.0  million
DowBrands  Convertible  Note (Note 1 and Note 10).  Series B Preferred  bears an
8.0%  per  annum  cumulative  dividend,  payable  quarterly,  has a  liquidation
preference of $6.55 per share or $5.0 million in the aggregate, has dividend and
voting rights equal to common stock on an  as-converted  basis and is redeemable
at face value at the option of the  Company in $1.0  million  increments  at any
time. Each share of Series B Preferred is convertible into .660 shares of common
stock at the option of the holder;  however,  if the trading price of the common
equals or exceeds $21.21 per share for a 30 day trading period,  the Company may
force conversion.

      Equity  Incentive  Plans - The Company  maintains  three equity  incentive
plans for employees,  consultants,  directors and advisory board members.  These
plans are the 1996 Stock Incentive Plan, the 1996 Nonqualified Stock Option Plan
and the Stock Option Plan for Non-Employee Directors and Advisory Board Members.
In  connection  with  Predecessor's  merger  with the  Company  (Note 1), all of
Predecessor's  outstanding  stock  options were assumed by the Company under the
1996 Stock  Incentive Plan or The Stock Option Plan for  Non-Employee  Directors
and Advisory  Board  Members.  Stock  options under these plans are issued at an
option  price  not  less  than  market  value  on date of  grant.  Total  shares
authorized  under  these  three  plans  are  1,250,000,   250,000  and  150,000,
respectively.  Total shares  available  for grant under these plans were 18,650,
215,000 and 60,900,  respectively,  at December  31,  1996.  Options  granted to
directors and advisory  board members  generally  vest one year from the date of
grant, and options currently granted to employees and consultants generally vest
annually over three years.  The 1996 Stock  Incentive Plan also provides for the
issuance of stock  appreciation  rights and restricted stock, none of which have
been granted as of December 31, 1996.

      A summary of changes in common stock options  during 1994,  1995, and 1996
is as follows:
<TABLE>

<CAPTION>
                                                                               Weighted Average
                                                        Number of Shares       Share Price

<S>                                                         <C>               <C>
        Outstanding at December 31, 1993..........             79,200         $      1.52
        Granted...................................             42,900                1.52

        Outstanding at December 31,1994...........            122,100                1.52
        Granted (average fair value of $1.04).....            623,700                3.08
        Canceled..................................             (9,900)               1.52

        Outstanding at December 31,1995                       735,900                2.84
        Granted (average fair value of $2.33).....          1,036,050                4.61
        Canceled..................................           (416,500)               5.77
        Exercised.................................            (42,900)               1.64

        Outstanding at December 31, 1996                    1,312,550         $      3.35
</TABLE>

     During 1996,  340,350 options were canceled at exercise prices ranging from
$6.06 to $8.00 per share and reissued at $4.25 per share.  The  reissued  shares
are included in the above table.

Options  exercisable  at  December  31,  1996 and 1995,  were  526,300  and
476,850, respectively.
 <PAGE>
F-12
The following  table  summarizes  information  about the three equity  incentive
plans at December 31, 1996:

                Options Outstanding                                 Options
                                                                    Excercisable
--------------------------------------------------------      ------------------
                         Weighted-Average   Weighted
                         Remaining          Average                  Weighted
Range of                 Contractual Life   Exercise                 Average
Exercise                 (in years)         Price                    Excercise
Prices          Number                                      Number   Price
--------------------------------------------------------------------------------
$ 1.52          323,532   8.33              $1.52          316,932 $      1.52
  3.03          234,168   8.55               3.03          159,918        3.03
  4.00 - 4.38   754,850   9.08               4.23           49,450        4.25
               ---------                                    -----------
              1,312,550                                     526,300
               ==========                                   ===========



      The Company  applies APB No. 25 "Accounting for Stock Issued to Employees"
and  related  interpretations  in  accounting  for its  plans.  Accordingly,  no
compensation  cost has been recognized for its stock-based  compensation  plans.
Had  compensation  cost been determined  based on the fair value of the 1996 and
1995  stock  option  grants  consistent  with the  requirements  of SFAS No. 123
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:

                                                     1996             1995
                                               ---------------- ---------------
                                                  (In thousands, except per
                                                         share amounts)
Net income (loss)              As reported       $         553    $      (1,382)
                               Pro forma         $        (142)   $      (1,479)

Net income (loss) per share    As reported       $         .06    $        (.34)
                               Pro forma         $        (.03)   $        (.36)
============================================

================================================================================
      In determining  the above pro forma amounts under SFAS 123, the fair value
of each option grant is  estimated on the date of grant using the  Black-Scholes
option-pricing  model with the following  weighted-average  assumptions used for
grants  in 1996  and  1995,  respectively:  expected  volatility  of 65% and 0%,
risk-free  interest rates of 6.4% and 6.4 %, expected lives of 6.5 years and 6.5
years and no expected  dividends.  The  effects of applying  SFAS123 in this pro
forma  disclosure are not indicative of future amounts.  SFAS 123 does not apply
to awards prior to 1995, and additional awards are anticipated.

      Employee Stock Plan - In November  1995, the Company  adopted the Employee
Stock Plan for the  purpose of issuing up to an  aggregate  of 16,500  shares to
former DowBrands employees at no cost to the employee.  As of December 31, 1996,
15,575 shares were issued pursuant to this plan.

      Noncash Credits-  Certain of the Company's  employees and consultants have
received  a  portion  of  their  salary  or fees,  respectively,  in the form of
non-cash  credits  which may be applied to 80% of the exercise  price of options
granted to them.  Such  credits,  $132,000 and $651,000 at December 31, 1996 and
1995,  respectively,  have been recorded as expense or cost of  acquisition  and
additional paid-in capital as the related salary or consulting fees were earned.
The Company ceased issuing any additional noncash credits at December 31, 1996.

      Stock Subscription  Receivable - In 1995, the Company issued 66,000 shares
of common stock for two 6% notes receivable of $50,000 each, due August 1996 and
July  2001,  respectively,  or 30 days  after  the  sale of such  common  stock,
whichever is earlier.

      Warrants - In November 1995, the Company borrowed  $225,000 from employees
and  stockholders.  The borrowings were repaid in February 1996 with interest at
12% (Note 10). In addition,  the lenders  received  warrants to purchase  74,250
shares of common stock at $3.03 per share.  The warrants  became  exercisable in
May 1996 and expire in November 1998.

8.    EMPLOYEE BENEFIT PLANS

      The Company  established  an  Employee  Savings  Plan  (401K)  during 1996
covering  substantially  all  employees.  Contributions  to this plan are at the
discretion  of the  Board of  Directors,  subject  to  certain  limitations.  No
contributions  were  made by the  Company  to the plan  during  the year  ending
December 31, 1996.
<PAGE>
F-13
      The  Company  does  not  provide  other  post-retirement  benefits  to its
employees.


9.    INCOME TAXES

      The provision  (benefit) for income taxes has been offset by the change in
the valuation  allowance for the years ended  December 31, 1996,  1995 and 1994,
because the Company's net operating  losses could not be carried back and future
profits are not yet  predictable  and utilization of deferred tax assets are not
determinable.

      The actual income tax provision  (benefit)  attributable  to earnings from
continuing  operations  for the years ended  December 31, 1996,  1995,  and 1994
differed from the amounts computed by applying the U.S. federal tax rate of 34 %
to pretax earnings from continuing operations as a result of the following;
<TABLE>

<CAPTION>
                                                               1996               1995               1994
                                                                             (In thousands)
        -----------------------------------------------
<S>                                                     <C>                 <C>                <C>
        Computed "expected" tax provision (benefit)..   $         188       $          (470)   $          (209)
        State income taxes, net of federal income tax
        provision (benefit)...........................             37                   (37)               (16)
        Other items...................................             26                    56                (16)
        Change in valuation allowance.................           (251)                  451                241
        Provision for income tax......................  $           -       $           -      $           -

        -----------------------------------------------
</TABLE>

      The significant  components of deferred income taxes as of December 31 are
as follows (prior year amounts have been adjusted to reflect  changes in current
and deferred tax assets and liabilities):
================================================================================

                                                      1996              1995
Tax effects of:                                            (In thousands)
----------------------------
Current deferred tax assets and liabilities:
 Accounts Receivable, principally due to
 reserves.                                         $   212            $   187
 Inventories, partially due to additional costs
 inventoried for tax purposes                          336                470
 Employee benefits                                     316                 29
 Other (includes contingencies, other assets and
 other accruals)                                       (86)                45
                                                   -----------        ----------
                                                       778                731
Long-term deferred tax assets and liabilities:
  License fee                                          380                380
  Noncash credits                                      297                254
  Federal and state operating loss                   1,089                758
  Property, plant and equipment                       (768)               (96)
                                                   -----------        ----------
                                                       998              1,296
                                                   -----------        ----------
Gross deferred tax assets                            1,776              2,027
 Valuation allowance                                (1,776)            (2,027)
 Net deferred taxes                                $     -           $      -

-------------------------------------------

     Due to the  Company's net  operating  losses,  the Company has not paid any
income taxes. The Company has accumulated  approximately $2.8 million of federal
and state operating loss  carryforwards  (NOLs) at December 31, 1996. These NOLs
expire as follows:
================================================================================


                                                           (In thousands)
2008....................................................   $         340
2009....................................................   $         598
2010....................................................   $       1,006
2011....................................................   $         877

<PAGE>
F-14
10.   RELATED PARTY TRANSACTIONS

      Related party obligations includes the following:

                                                           December 31,
                                                     1996                 1995
                                                         (In thousands)


Promissory note for license rights....       $     1,000           $     1,000
DowBrands Convertible Note 8%.........                 -                 5,000
DowBrands purchase credits............             1,500                 3,000
Short-term borrowings.................                 -                   225
                                             ------------          ------------
Total.................................             2,500                 9,225
Less current portion..................            (1,500)               (1,725)
                                             ------------          ------------

Long-term portion.....................       $     1,000           $     7,500
--------------------------------------

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

      Promissory  Note - In May  1993,  the  Company  licensed  its  proprietary
technology from Intertec Ltd., a limited partnership controlled by the Company's
Chairman of the Board, pursuant to an exclusive 30-year, nonassignable,  license
agreement  (the  "License  Agreement").  According  to the terms of the  License
Agreement,  the Company is  required to pay a $1.0  million  license  fee,  plus
royalties,  to  Intertec  Holdings,  L.P.  as agent  for  Intertec  Ltd.  Due to
uncertainty regarding recoverability from future operations, the license fee was
expensed in 1993.  A note for the license  fee  ("Intertec  Note") is payable in
four equal annual installments of $250,000 commencing in May 1997. Interest , at
5.5% , is payable in arrears on the date each  installment  of principal is due.
The  Company  will  pay a  royalty  to  Intertec  Ltd.  equal to (i) 1.0% of the
Company's  proceeds  from any  direct  sales made by the  Company  of  products,
instruments or components using, or derived from, the technology,  and (ii) 1.0%
of the "revenue base" of the Company's  sublicensees.  The "revenue base" is the
proceeds  received by the  sub-licensees  for their sales of products  using the
technology.  This  royalty  declines  in steps as the  revenue  base  increases,
ultimately  declining to 0.4% when cumulative  sales from all products using the
Company's  technology  reach $10.0  billion.  No royalty  fees have been paid to
date.

      Stock  Purchase  Agreement  - In March  1996,  the  Company  and  Intertec
Holdings,  L.P.  entered  into a stock  purchase  agreement  pursuant  to  which
Intertec  Holdings,  L.P.  agreed to purchase from the Company,  and the Company
agreed to sell to Intertec  Holdings,  L.P.  shares of common stock at $8.00 per
share. The aggregate  number of shares of common stock which Intertec  Holdings,
L.P.  is required to purchase  is 146,125  shares.  Intertec  Holdings,  L.P. is
obligated,  subject to there being no event of default under the Company's  loan
agreements and certain other  conditions,  to purchase and pay for the shares in
four equal  installments  commencing in May 1997.  The deferred  purchase  price
under the stock purchase  agreement  accrues interest from and after May 1996 at
5.5% per annum, payable with each installment. Intertec Holdings, L.P. may elect
to accelerate  one or more purchases  under the stock  purchase  agreement on 30
days' prior notice to the Company.  The Company may, at any time or from time to
time, terminate Intertec Holding,  L.P.'s purchase rights with respect to one or
more of the installments, on 10 days' prior notice to Intertec Holdings, L.P..


      DowBrands  Convertible  Note 8% - The $5.0 million  DowBrands  Convertible
Note had an interest rate of 8.0% per annum, due quarterly, and was subordinated
to any bank  borrowings.  Upon the  completion of the Company's  initial  public
offering, the $5.0 million DowBrands Convertible Note was converted into 763,500
shares of Series B preferred stock (Note 7).

      DowBrands Purchase Credits - In connection with the acquisition  described
in Note 1, DowBrands has agreed to purchase 100% of its requirements for certain
DowBrands products from the Company for a period of two years beginning November
16, 1995. In connection with this  requirements  agreement,  DowBrands agreed to
accept,  as part of the  purchase  price,  $3  million  of credits to be applied
against  future  purchases.  These  credits will be issued to DowBrands  through
credit memos each quarter in the amount of $375,000  until the credits are fully
used.  At  December  31,  1996 and  1995,  $1.5  million  of such  credits  were
classified as a current liability.  Revenues from this arrangement totaled $22.2
million  and $1.6  million  for the  years  ended  December  31,  1996 and 1995.
Services are priced based on direct  material and labor costs  incurred  plus an
agreed-upon profit margin.
<PAGE>
F-15
      Short-term  Borrowings - In November 1995, the Company  borrowed  $225,000
from employees and  stockholders.  The  borrowings  were repaid in February 1996
with interest at 12%. The lenders received warrants to purchase 74,250 shares of
common stock (Note 7).

      Leases - The Company  leases its offices and certain  office  equipment in
Mill Valley,  California,  from Innovative  Capital  Management,  Inc.,  (ICM) a
related  party,  under a  noncancellable  lease  expiring in September 1999 with
monthly  rentals  of  $10,786.  The  Company's  Chairman  of the Board and Chief
Executive  Officer,  and his  family own 100% of the  outstanding  stock of ICM.
Rental  expense was  $99,975,  $90,156,  and  $89,428  for 1996,  1995 and 1994,
respectively.

      Legal  Fees -  During  1996 and  1995,  the  Company  paid  legal  fees of
approximately  $676,000  and  $150,000,  respectively,  to a law firm in which a
Director  of the  Company  is a  partner.  The legal  fees  related  to  general
services, the acquisition of PCD, and the Company's initial public offering.


11.   COMMITMENTS AND CONTINGENCIES

         The Company has various purchase and sales  commitments and obligations
entered  into in the  ordinary  course of  business  which  management  does not
believe will have a material adverse effect on its financial position or results
of operations.





<PAGE>
F-16




                  INDEPENDENT AUDITORS' REPORT



The Dow Chemical Company:

         We have audited the  accompanying  statements of operations of PCD, the
Personal Care Division of DowBrands L.P.,  ("PCD"), a limited  partnership whose
managing  partner  is  DowBrands  Inc.,  a wholly  owned  subsidiary  of The Dow
Chemical  Company,  for the period from January 1, 1995 to November 30, 1995 and
for the year ended December 31, 1994, and the related statements of net invested
capital and cash flows for the periods then ended.  These  financial  statements
are the responsibility of PCD'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,  such  financial  statements  present  fairly,  in all
material respects,  the results of operations of PCD for the period from January
1, 1995 to November 30, 1995,  and for the year ended December 31, 1994, and the
changes in its net  invested  capital,  and its cash flows for the periods  then
ended, in conformity with generally accepted accounting principles.

         The  accompanying  financial  statements  have been  prepared  from the
separate  records  maintained by PCD and may not be indicative of the conditions
that would have existed or the results of operations if PCD had been operated as
an  unaffiliated  company.  As  discussed  in Note  1,  Statement  of  Financial
Accounting  Standards No. 109 requires that the  consolidated  amount of current
and deferred tax  expenses for a group that files a  consolidated  tax return be
allocated among members of the group when those members issue separate financial
statements.  On the basis that PCD is a division and not a separate  subsidiary,
current and deferred income taxes have not been provided for in the accompanying
financial statements.

DELOITTE & TOUCHE LLP
San Francisco, California
January 26, 1996



<PAGE>
F-17
<TABLE>


<CAPTION>
                                      PCD, THE PERSONAL CARE DIVISION OF DOWBRANDS L.P.
                                                   STATEMENTS OF OPERATIONS
                                       Period From January 1, 1995 to November 30, 1995
                                             and the Year Ended December 31, 1994


<CAPTION>


                                                             Period from January 1, 1995       Year Ended December
                                                             to November 30, 1995              31, 1994

               -----------------------------------------------
                                                                             (In thousands)

<S>                                                           <C>                               <C>
               Net Sales to DowBrands......................   $      19,783                     $      19,253
               Net Sales to Others.........................          89,913                           102,024
               Total Net Sales.............................         109,696                           121,277
               Cost of Goods Sold..........................          67,088                            71,735
               Gross Margin................................          42,608                            49,542
               Operating Expenses..........................          42,344                            57,830
               Write-down of Assets........................          11,000                           120,100
               Operating Loss..............................         (10,736)                         (128,388)
               Other:
                  Interest expense from Dow................          (1,603)                           (5,805)
                  Other income, net........................             101                               705
                     Total other...........................          (1,502)                           (5,100)
               Net Loss....................................   $     (12,238)                    $    (133,488)
               -----------------------------------------------

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

                          See notes to financial statements.



<PAGE>
F-18

                   PCD, THE PERSONAL CARE DIVISION OF DOWBRANDS L.P.
                        STATEMENTS OF NET INVESTED CAPITAL
                 Period From January 1, 1995 to November 30, 1995
                        and the Year Ended December 31, 1994



                                  Period From
                                  January 1, 1995
                                  to November 30,       Year Ended December 31,
                                  1995                  1994
                             ------------------------------------
                                             (In thousands)

Net invested capital, beginning of
period......................       $   47,493            $     169,058
Net loss for the period........       (12,238)                (133,488)
Net capital invested by (returned
to) Dow.....................           (3,489)                  11,923
                                    ----------            -------------
Net invested capital, end of period $  31,766            $      47,493
------------------------------------

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


                               See notes to financial statements.



<PAGE>
F-19
<TABLE>


<CAPTION>
                                      PCD, THE PERSONAL CARE DIVISION OF DOWBRANDS L.P.
                                                   STATEMENTS OF CASH FLOWS
                                       Period From January 1, 1995 to November 30, 1995
                                             and the Year Ended December 31, 1994




<CAPTION>
                                                                                  Period From
                                                                                  January 1, 1995
                                                                                  to November 30, 1995   Year Ended December 31,
                                                                                                                  1994

                                                                                                (In thousands)
<S>                                                                              <C>                    <C>
                       Cash Flows From Operating Activities:
                       Net loss.............................................     $     (12,238)          $    (133,488)
                       Adjustments to reconcile net loss to net cash provided
                          by (used in) by operating activities:.............
                          Write-down of assets..............................            11,000                 120,100
                          Depreciation......................................             2,010                   3,956
                          Goodwill amortization.............................                 -                   3,568
                         Changes in:
                             Accounts receivable............................             2,009                  (3,299)
                             Inventories....................................               792                  (1,342)
                             Prepaid expenses and other.....................               215                     101
                             Accounts payable and accrued expenses..........               268                    (790)
                             Net cash provided by (used in) operating activities         4,056                 (11,194)

                       Cash Flows Used In Investing Activities:.............
                          Additions to property, plant, and equipment.......            (1,011)                   (902)
                          Other.............................................               444                     173
                               Net cash used in investing activities........              (567)                   (729)
                       Cash Flows From Financing Activities:
                          Net capital invested by (returned to) Dow.........            (3,489)                 11,923
                       Net Change in Cash...................................
                       Cash at Beginning of Period..........................                 1                       1
                       Cash at End of Period................................     $           1           $           1
                       ----------------------------------------------------------

</TABLE>

                            See notes to financial statements


<PAGE>
F-20

                   PCD, THE PERSONAL CARE DIVISION OF DOWBRANDS L.P.
                           NOTES TO FINANCIAL STATEMENTS
                     Period From January 1, 1995 to November 30, 1995
                         and the Year Ended December 31, 1994



1.        ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

         Business - PCD, the Personal Care Division of DowBrands L.P., ("PCD") a
limited  partnership  whose managing  partner is DowBrands  Inc., a wholly owned
subsidiary  of  The  Dow  Chemical  Company  (collectively   "Dow"),   develops,
manufactures and markets hair care products.

         Effective November 15, 1995,  pursuant to an Asset Purchase  Agreement,
Dow sold  substantially  all of the assets and  liabilities of PCD to Electronic
Hair Styling,  Inc. (the "Company") for $28.8 million comprised of $12.3 million
in cash,  a $5.0  million  8.0%  subordinated  note  (convertible  into Series B
preferred stock), $8.5 million in Series A convertible  preferred stock and $3.0
million in credits to be issued to Dow for future purchases.  Through its Series
A convertible  preferred  stock  holdings,  Dow will maintain an approximate 18%
ownership  interest in the voting equity of the Company.  The sale was accounted
for as if it occurred on November 30, 1995.

         Basis of Presentation - The accompanying  financial  statements present
operations, net invested capital and cash flows of PCD on a historical basis. In
1987,  DowBrands L.P. acquired PCD's predecessor for approximately $183 million.
As a result of this  acquisition,  Dow's new  accounting  basis,  determined  in
accordance with the purchase method of accounting, was "pushed-down" to PCD and,
accordingly,  the assets and  liabilities  of PCD were adjusted to reflect their
fair values.  The excess of Dow's cost of PCD over the  estimated  fair value of
net assets  acquired was recorded as goodwill  and was being  amortized  over 40
years.  During 1994, in  contemplation  of Dow's sale of PCD, Dow wrote down its
investment in PCD by approximately $120 million.  This write-down was applied to
PCD's unamortized goodwill of $117 million and to property,  plant and equipment
of $3 million.  In 1995 the proposed buyer withdrew its offer.  During 1995, Dow
further wrote down its investment in PCD by an additional $11 million, which was
recorded as a reduction of property, plant and equipment.

         Relationship with Dow - PCD uses certain  resources and  administrative
staff of Dow, including accounting,  legal, tax, treasury, data processing, risk
management,  human resources and corporate  relations.  PCD is charged a fee for
these  services  at an amount that Dow  estimates  to be based on actual time or
costs  incurred.  These  charges  were  $1,465,000  in 1994 and $733,500 for the
period from  January 1, 1995 to November  30, 1995 and are included in operating
expenses.

         In  addition,  PCD is charged  interest by Dow on an imputed  amount of
debt  required to fund Dow's total  capital  investment  in PCD.  Such  interest
charges were  $5,805,000 in 1994 and  $1,603,000  for the period from January 1,
1995 to November 30, 1995.

         Income  Taxes - Statement  of Financial  Accounting  Standards  No. 109
requires that the consolidated  amount of current and deferred tax expense for a
group that files a consolidated tax return be allocated among the members of the
group  when  those  members  issue  separate  financial   statements.   However,
management  of PCD  believes  that such  requirement  applies  only to  separate
financial  statements of subsidiaries and since PCD is a division of Dow and not
a separate subsidiary,  current and deferred income taxes have not been provided
for in the accompanying financial statements.

         Concentration  of Credit Risk - PCD sells the  majority of its products
to large U.S. retailers. Excluding sales to Dow, sales to PCD's largest customer
were $22.3 million in 1994 and $19.7 million for the period from January 1, 1995
to November 30, 1995. No other customer accounted for more than 10% of net sales
in any period.  PCD performs  ongoing  credit  evaluations  of its customers and
generally  does not require  collateral.  PCD  maintains  reserves for potential
credit losses, which have been insignificant.

2.        RELATED PARTY TRANSACTIONS

         PCD provides  contract  packaging and  manufacturing  services for Dow.
Revenues from this arrangement  totaled  $19,253,000 in 1994 and $19,783,000 for
the period from January 1, 1995 to November 30, 1995.  Services are priced based
on direct material and labor costs incurred plus an agreed upon profit margin.


<PAGE>
F-21


3.        EMPLOYEE BENEFIT PLANS

         Through November 15, 1995, PCD's employees were eligible to participate
in Dow's retirement, 401(k) and postretirement health and welfare benefit plans.
Contributions   to  the  plans  by  PCD  on  behalf  of  PCD's   employees  were
approximately  $1,657,000 in 1994 and  $1,432,000 for the period from January 1,
1995 to November 30, 1995.

4.        COMMITMENTS AND CONTINGENCIES

         PCD has various purchase and sales commitments and obligations  entered
into in the ordinary  course of business which  management does not believe will
have a material adverse effect on PCD's financial statements.