STYLES ON VIDEO INC, 10QSB, 1997-05-15

STYLES ON VIDEO INC
10QSB, 1997-05-15
COMPUTER INTEGRATED SYSTEMS DESIGN

Previous: NORTHSTAR HEALTH SERVICES INC, NT 10-Q, 1997-05-15

Next: ZONAGEN INC, 10-Q, 1997-05-15

<PAGE>

================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997

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

Commission File Number 1-11836

STYLES ON VIDEO, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)

DELAWARE 95-4389082
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)

667 RANCHO CONEJO BLVD.
NEWBURY PARK, CALIFORNIA 91320
(Address of Principal Executive Offices)

(805) 375-0996
(Issuer's Telephone Number, Including Area Code)

(Former Name, Former Address and Fiscal Year, if Changed Since Last Report)

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

Yes [X] No [_]

State the number of shares outstanding of each of the issuer's classes of

common equity as of the latest practicable date.

Common Stock, $0.001 Par Value 8,852,759 shares as of May 14, 1997

Transitional Small Business Disclosure Format (Check One)

Yes [ ] No [X]
================================================================================
<PAGE>

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements STYLES ON VIDEO, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)

ASSETS
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- -----------------
<S> <C> <C>
Current assets:

Cash and cash equivalents $ 450,000 $ 590,000

Accounts receivable, less allowance of $172,000 and
$182,000 at March 31, 1997 and December 31, 1996,
respectively 100,000 106,000

Income taxes receivable 61,000 61,000

Inventories 339,000 395,000

Net assets of discontinued operations (104,000) 444,000

Prepaid expenses and other current assets 31,000 111,000
-------------- -----------------

Total current assets 877,000 1,707,000

Property and equipment, net 461,000 496,000

Long-term receivables, less allowance of $87,000 at
March 31, 1997 and December 31, 1996 - -

Goodwill, net of accumulated amortization of $873,000
and $805,000 at March 31, 1997 and December 31, 1996,
respectively 4,681,000 4,749,000

Debt issuance costs, net of accumulated amortization of
$201,000 and $163,000 at March 31, 1997 and
December 31, 1996, respectively 91,000 129,000

Other assets 27,000 31,000
-------------- -----------------

Total assets $ 6,137,000 $ 7,112,000
============== =================
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable $ 997,000 $ 785,000

Accrued expenses 503,000 560,000

Accrued interest payable 367,000 270,000

Customer advances 868,000 868,000

Current maturities of long-term debt 2,500,000 2,000,000

Notes payable 1,206,000 1,040,000
-------------- -----------------
Total current liabilities 6,441,000 5,523,000

Long-term debt 450,000 950,000

Minority interests in consolidated subsidiary 408,000 591,000

Commitments and contingencies

Stockholders' equity:
Preferred stock, par value $.001; 1,000,000 shares
authorized; 500 shares of Series A issued and outstanding
at March 31, 1997 and December 31, 1996, respectively - -

Preferred stock, par value $.001; 1,000,000 shares
authorized; 500 shares of Series B issued and outstanding
at March 31, 1997 and December 31, 1996, respectively - -
Common stock, par value $.001; 10,000,000 shares
authorized; 8,853,000 and 4,505,000 shares issued and
outstanding at March 31, 1997 and December 31, 1996,
respectively 4,000 4,000

Additional paid-in capital 16,237,000 16,237,000

Accumulated deficit (17,403,000) (16,193,000)
-------------- -----------------

Total stockholders' equity (1,162,000) 48,000
-------------- -----------------

Total liabilities and stockholders' equity $ 6,137,000 $ 7,112,000
============== =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

2
<PAGE>

STYLES ON VIDEO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31
-----------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Revenues
Systems and related software sales $ 47,000 $ 222,000
Camera sales 284,000 705,000
Other revenues 29,000 14,000
------------- -------------
Total revenues 360,000 941,000
Cost of revenues, excluding depreciation and amortization
Cost of systems and software sold 1,000 31,000
Cost of camera sales 286,000 543,000
------------- -------------
Total cost of revenues 287,000 574,000
------------- -------------
Gross profit 73,000 367,000
Operating expenses
Selling, general and administrative 646,000 876,000
Research and development 123,000 159,000
Depreciation and amortization 127,000 116,000
------------- -------------
Total operating expenses 896,000 1,151,000
------------- -------------
Loss from operations (823,000) (784,000)
Interest income 5,000 6,000
Interest expense (126,000) (122,000)
Minority interest in net losses of consolidated subsidiary 183,000 82,000
------------- -------------
Loss from continuing operations before income taxes and
extraordinary item (761,000) (818,000)
Provision for income taxes - 2,000
------------- -------------
Loss from continuing operations before extraordinary item (761,000) (820,000)
Forgiveness of debt, net of tax of $0 - 110,000
------------- -------------
Loss from continuing operations (761,000) (710,000)

Discontinued operations:

Loss from operations of discontinued business, net of tax of $0 (449,000) (871,000)
------------- -------------

Net loss $ (1,210,000) $ (1,581,000)
============= =============
Loss per common share:

Loss from continuing operations before extraordinary item $ (.09) $ (.18)

Extraordinary item - .02

Discontinued operations (.06) (.19)
------------- -------------
Loss per common share $ (.15) $ (.35)
============= =============
Weighted average shares of common stock outstanding 8,114,000 4,505,000
============= =============

</TABLE>

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

3
<PAGE>

STYLES ON VIDEO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 1997
(Unaudited)

<TABLE>
<CAPTION>
Series A Preferred Stock Series B Preferred Stock Common Stock
------------------------ ------------------------ -------------------------
No. of No. of No. of
Shares Par Value Shares Par Value Shares Par Value
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1996 500 $ - 500 $ - 4,505,000 $ 4,000

Issuance of Common Stock - - - - 4,348,000 -

Net loss - - - - - -
------ --------- ------ --------- --------- ---------

Balance,
March 31, 1997 500 $ - 500 $ - 8,853,000 $ 4,000
====== ========= ====== ========= ========= =========
</TABLE>

<TABLE>
<CAPTION>
Additional
Paid-in Accumulated Stockholders'
Capital Deficit Equity
----------- ------------ -------------
<S> <C> <C> <C>
Balance,
December 31, 1996 $16,237,000 $(16,193,000) $ 48,000

Issuance of Common - - -
Stock

Net loss - (1,210,000) (1,210,000)
----------- ------------ -------------

Balance,
March 31, 1997 $16,237,000 $(17,403,000) $ (1,162,000)
=========== ============ =============

</TABLE>

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

4
<PAGE>

STYLES ON VIDEO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
---------------------------------

March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,210,000) $(1,581,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 59,000 47,000
Amortization of goodwill 68,000 69,000
Amortization of debt issuance costs 38,000 37,000
Forgiveness of debt, net of tax - (110,000)
Minority interest in consolidated subsidiary (183,000) (82,000)
(Gain)/loss on disposal of equipment (5,000) 5,000
Changes in operating assets and liabilities:
Accounts receivable 6,000 (49,000)
Inventories 56,000 106,000
Net assets of discontinued operations 548,000 1,429,000
Prepaid expenses and other current assets 80,000 90,000
Long-term receivables and other assets 4,000 4,000
Accounts payable and accrued expenses 252,000 82,000
----------- -----------
Net cash (used in) provided by operating (287,000) 47,000
activities

Cash flows from investing activities:
Purchases of property and equipment (19,000) (24,000)
----------- -----------
Net cash used in investing activities (19,000) (24,000)

Cash flows from financing activities:
Proceeds received from issuance of notes payable 166,000 -
----------- -----------
Net cash provided by financing activities 166,000 -
----------- -----------
Net (decrease) increase in cash and cash
equivalents (140,000) 23,000
Cash and cash equivalents, beginning 590,000 1,378,000
----------- -----------
Cash and cash equivalents, ending $ 450,000 $ 1,401,000
=========== ===========

Supplemental disclosure of cash flow information:
- -----------------------------------------------------
Cash paid during the year for:
Income taxes $ 2,000 $ 2,000
Interest $ - $ -

</TABLE>

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

5
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

(1) General

(a) The accompanying unaudited consolidated financial statements of Styles
on Video, Inc. ("SOV") and subsidiaries (collectively, the "Company") have been
prepared in accordance with generally accepted accounting principles ("GAAP")
and in accordance with the instructions to Form 10-QSB. Accordingly, these
consolidated financial statements do not include all of the information and
footnotes required by GAAP for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included and all such adjustments are of a normal recurring nature. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.

(2) Related Party Transactions

IDI Financing Transactions. The Company and its wholly-owned subsidiary
Forever Yours, Inc. ("FYI") have entered into a series of transactions with
International Digital Investors, L.P. ("IDI") and certain related entities for
the purpose of raising capital to fund the Company's operations and those of
FYI. The general partner of IDI is IDI Corp., a Delaware corporation ("IDI
Corp,"), and its principal business is serving in such capacity. The sole
stockholder and chairman of IDI Corp. is Steven J. Green. At present, Mr.
Green's principal occupation is as an independent investor. Jeffrey A. Safchik
is President and the only other director of IDI Corp. Mr. Safchik was appointed
as Chief Executive Officer of the Company after the series of transactions in
1995 described below which gave IDI a majority of seats on the Company's Board
of Directors. Mr. Safchik resigned all positions with the Company in July 1996.
The present principal occupation of Mr. Safchik is serving as Managing Director
of Greenstreet Partners, a Florida general partnership. IDI beneficially owns
approximately 50.1% of the Company's outstanding Common Stock, including 132,000
shares of Common Stock held by Greenstreet Partners, an affiliate of IDI.
Additionally, upon exercise of warrants and conversion of the preferred stock,
IDI will own approximately 71% of the Company's outstanding Common Stock on a
fully diluted basis.

In September 1995, the Company and FYI received short-term bridge financing
of $300,000 from Multinational Trading Corp., a Florida corporation ("MTC"), MTC
and IDI are companies with overlapping management. The sole stockholder of MTC
is Steven J. Green. Jeffrey A. Safchik is a Vice President of MTC. Recently, MTC
discontinued its existence as an operating corporation. In October 1995, MTC
made additional advances of $75,000 to the Company. The Company repaid the
$375,000, plus interest accrued thereon and transaction fees, with a portion of
the $3,000,000 it received from IDI in the transaction described immediately
below. In November 1995, pursuant to a Note and Preferred Stock Purchase
Agreement, dated as of November 20, 1995 (the "1995 Agreement"), the Company and
FYI issued to IDI $2,950,000 principal amount of 10% Senior Notes due June 30,
1998 (the "1995 Notes"). Additionally, the Company issued to IDI 500 shares of
Series A Preferred for $50,000 and Common Stock Purchase Warrants (the "1995
Warrants") entitling IDI to purchase shares of the Company's Common Stock
equivalent to 40% of the fully diluted shares of Common Stock outstanding on
November 20, 1995. The exercise price of the 1995 Warrants was $1.12 per warrant
share, which represented the estimated consolidated per share book value per
issued and outstanding share of the Company on the date of the 1995 Agreement.

6
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

The exercise price of the 1995 Warrants was subsequently reduced to $.075 per
share as described below. The 1995 Warrants may be exercised at any time prior
to November 20, 2005.

The terms of the Series A Preferred give the holder of the Series A
Preferred the right to designate four of the Company's Board of Directors. IDI
has appointed Messrs. Geller, Porter and Shutler as its designees on the Board
of Directors and has the right to elect a director to fill one of the two
current vacancies on the Board.

Pursuant to a Note and Preferred Stock Purchase Agreement, dated as of May
14, 1996 (the "1996 Agreement"), as amended, the Company and FYI agreed to issue
up to $1,200,000 aggregate principal amount of 10% Senior Notes Due June 30,
1998 (the "1996 Notes" and together with the 1995 Notes, the "Notes") in a
series of purchases of such 1996 Notes between the Closing Date (as defined) and
September 15, 1996. Each purchase of 1996 Notes was contingent upon the Company
and FYI meeting certain minimum performance targets. IDI also purchased 500
shares of Series B Preferred, for $50,000 and received Common Stock Purchase
Warrants (the "1996 Warrants" and together with the 1995 Warrants, the
"Warrants"). The 1996 Warrants have an exercise price of $.075 per warrant
share and are exercisable until November 20, 2005.

On May 30, 1996, IDI purchased $371,712 principal amount of 1996 Notes, of
which $271,712 was used to repay principal and interest on certain interim loans
made to the Company and FYI by IDI and IDI-related entities in April 1996. IDI
purchased an additional $250,000, $100,000, $150,000 and $180,000 principal
amount of 1996 Notes in June, July, and August, 1996 and January 1997,
respectively.

The 1995 Agreement and the 1995 Warrants were amended in 1996 to conform to
the provisions of the 1996 Agreement and the 1996 Warrants, and the exercise
price of the 1995 Warrants was reduced to $.075, the exercise price of the 1996
Warrants.

The issuance of the 1996 Warrants and the Series B Preferred triggered the
anti-dilution provisions of the 1995 Warrants and the Series A Preferred,
resulting in the 1995 Warrants and the Series A Preferred being exercisable for
and convertible into 3,914,882 shares of Common Stock and 238,095 shares of
Common Stock, respectively, as of May 14, 1996. Additionally, the 1996 Warrants
were exercisable for 53,286,228 shares of Common Stock, and the Series B
Preferred was convertible into 666,666 shares of Common Stock. On a fully-
diluted basis, IDI held Warrants and Preferred Stock exercisable for and
convertible into 58,105,871 shares of Common Stock.

The authorized Common Stock of the Company consists of 10,000,000 shares,
all of which are issued and outstanding or reserved for issuance pursuant to
outstanding warrants or stock option plans, before taking into account the
Preferred Stock and the 1996 Warrants.

7
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

Pursuant to the terms of the 1996 Agreement, the Company agreed that by
October 31, 1996 it would take all corporate action, including obtaining
stockholder approval, necessary to authorize and reserve for issuance a number
of shares of Common Stock at least equal to the number of shares of Common Stock
into which the Series A Preferred, Series B Preferred, 1996 Warrants as well as
the other outstanding warrants may be converted or exercised. Originally,
failure of the Company to take all corporate action necessary to authorize and
reserve for issuance the number of share of Common Stock underlying all of the
foregoing Stock by October 31, 1996 constituted a breach of a restrictive
covenant in the 1996 Agreement, which could have caused, among other things,
acceleration of the 1996 Notes. The October 31, 1996 deadline has been extended
to May 1, 1997. Recently, the May 1, 1997 date was extended to June 15, 1997.

In addition, the 1996 Warrants and the other warrants issued in connection
with the 1996 financing transaction were to become exercisable upon the earlier
to occur of October 31, 1996 and the date on which all such corporate and
stockholder actions were taken by the Company. The October 31, 1996 date has
been extended to May 1, 1997. Recently, the May 1, 1997 date was extended to
June 15, 1997.

The Notes bear interest at the rate of 10% per annum, payable monthly. The
1995 Notes provide for principal payments of $500,000 on March 31, June 30,
September 30 and December 31, 1997 and March 31, 1998. On January 15, 1997, the
due date for the March 31, 1997 principal payment was extended to not later than
May 1, 1997. The 1996 Notes are payable in five equal quarterly installments
commencing June 30, 1997. The remaining principal is due and payable on June 30,
1998. The 1996 Agreement amended the 1995 Agreement to allow the Company to
defer interest payments due between May 31, 1996 and December 31, 1996, provided
that all deferred accrued and unpaid interest shall be paid in full on or before
December 31, 1996. On January 15, 1997, the interest deferral was extended from
December 31, 1996 to not later than May 1, 1997. Recently, the May 1, 1997 date
was extended to June 15, 1997. As of April 30, 1997, the principal amounts
outstanding pursuant to the 1995 Notes and 1996 Notes was $2,950,000 and
$29,000, respectively.

The Notes are subject to mandatory redemption (in whole or in part) under
certain circumstances, including upon receipt of proceeds from the issuance of
equity by the Company or FYI (subject to certain exceptions) or proceeds of a
sale or other disposition of assets (other than sales of inventory in the
ordinary course of business, certain sales of obsolete or worn out equipment and
certain approved sales). Holders of the Notes have a put right enabling them to
cause the Company and FYI to repurchase the Notes, at par, in the event of a
sale, merger, change of control or the public offering of securities involving
the Company of FYI.

Substantially all of the assets of the Company and FYI are pledged as
collateral for the Notes. The holder of the Notes has the right to foreclose on
such assets or take other protective measures upon the occurrence of an event of
default under 1995 Agreement or the 1996 Agreement which is not timely cured or
waived. The Company and FYI are subject to various restrictive covenants,
including limitations on the incurrence of additional indebtedness, capital
expenditures, investments, transactions with affiliates and consolidation,
merger and sale of assets. The Company and FYI also must satisfy certain
financial tests during the term of the Agreement, including the maintenance of
certain mandatory net worth and earnings levels, determined at the end of each
calendar quarter. The failure to comply with the restrictive covenants or pass
the financial tests constitute an event of default under the 1995 Agreement and
the 1996 Agreement. In January 1997, IDI subordinated its first priority
security interest

8
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

in FYI's hospital contracts and proceeds thereof to Hasco International, Inc.
("Hasco") in connection with the FYI Sale.

The holders of the Preferred Stock are entitled to receive dividends of $10
per share per annum prior to the distribution of any dividends to the holders of
Common Stock. Dividends accrue whether or not declared by the Board of
Directors of the Company. The Preferred Stock is subject to optional redemption
by the Company, at a redemption price of $100 per share plus any accrued
dividends. The Preferred Stock is convertible at any time, in whole or in part,
into shares of Common Stock, at a per share conversion equal to the higher of
the current market or book value of the Common Stock at the date of conversion.
The holders of the Series A Preferred, voting as a class, are entitled to elect
four of the Company's directors. In the event of a change of control, as
defined in the 1995 Agreement and the 1996 Agreement, the Company must offer to
redeem the Preferred Stock. The sale of the FYI assets constitutes a change of
control because the Company is selling a substantial amount of its assets. If a
change of control occurs, the Company must offer to redeem the Series A
Preferred and the Series B Preferred for $100 per share in addition to any
accrued dividends, which currently amount to $7,500 for the Series A Preferred
and $5,000 for the Series B Preferred. The holder of the Series A
Preferred and the Series B Preferred has 30 days from the date of the change of
control to elect redemption of the Preferred Stock.

IDI also received certain registration rights with respect to the Warrants,
the shares of Common Stock issuable upon conversion of the Preferred Stock and
the shares of Common Stock issuable upon exercise of the Warrants.

The 1996 Agreement was conditioned upon settlement of a suit brought by the
Company against its former outside accounting firm and certain individual
defendants entitled Styles On Video, Inc. v. Kellogg & Andelson, et al.,
---------------------------------------------------
Superior Court of the State of California, County of Los Angeles, Case No. BC
14268. Pursuant to the settlement of such suit, Kellogg & Andelson agreed to pay
$1,700,000 to the Company (the "Kellogg Settlement"). The funds were released
from escrow upon the settlement of the Class Action, as described below, in July
1996. Of the Kellogg Settlement proceeds, $870,000 was applied to repayment of
the 1996 Notes. After partial repayment of the 1996 Notes, and payment of
certain legal expenses in connection with the 1996 Agreement, the net proceeds
of the Kellogg Settlement to the Company were $430,000, which was added to the
Company's general working capital. In April 1995, the Company settled a class
action suit which was filed against the Company and certain of its officers and
directors in 1994 (the "Class Action") as well as a shareholders' derivative
suit which named the directors and certain of the officers of the Company (the
"Class Action Settlement"). Pursuant to the Class Action Settlement, the Company
agreed to deliver to the plaintiff class warrants to purchase 1,750,000 shares
of Common Stock and the Company recorded a promissory note in the principal
amount of $250,000. The exercise price on the warrants is $.075 per share and
the warrants are redeemable by the Company at any time over the five-year life
of the warrants for $5 per warrant. The Company's director and officer liability
insurance carriers also agreed to pay to the plaintiff class $2,250,000. In
connection with the settlement, Guy de Vreese, a former Chairman and Chief
Executive Officer of the Company, surrendered 250,000 shares of the Company's
Common Stock and options for 150,000 shares of the Company's Common Stock. The
shares of Common Stock are to be distributed to the plaintiff class and the
options were cancelled.

9
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

The Company and FYI have guaranteed each other's obligations under the 1995
Agreement and the 1996 Agreement.

In September 1996, the Company received a state income tax refund totaling
$301,000 which was used to partially repay the 1996 Notes.

On January 15, 1997, the Company, FYI and IDI entered into several
agreements (the "January 1997 Agreements"). The Company and IDI entered into a
Securities Exchange Agreement (the "Exchange Agreement") which provided for the
issuance of 4,347,427 shares of its Common Stock to IDI in exchange for all of
the 1995 Warrants and for 1996 Warrants with respect to 1,867,029 shares of
Common Stock. IDI remains the holder of 1996 Warrants for 51,419,199 shares of
Common Stock.

In addition, the Company, FYI and IDI agreed to increase the amounts
borrowed under the 1996 Notes by $180,000 to a total of $1,200,000. At the same
time, the obligation represented by the Bridge Note dated September 19, 1996, as
amended (the "Bridge Note"), between the Company, FYI and IDI, was decreased by
$180,000 under the Seventh Amendment to Bridge Note, dated January 15, 1997 (the
"Seventh Amendment"), from up to $1,157,000 to up to $977,000. Each successive
amendment to the Bridge Note, including the Seventh Amendment, amended the due
date and the amounts due pursuant to the Bridge Note. The Seventh Amendment
extended the due date to not later than May 1, 1997. Recently, the May 1, 1997
date was extended to June 15, 1997. As of April 30, 1997, the Company has
borrowed $927,000 pursuant to the Bridge Note and is entitled to draw the
remaining $50,000 upon receipt by the Company of certain income tax refunds.
Substantially all of the assets of the Company and FYI are pledged as collateral
for the Bridge Note. IDI has the right to foreclose on such assets or take other
protective measures upon the occurrence of an event of default under the Bridge
Note which is not timely cured or waived. In January 1997, IDI subordinated its
first priority security interest in FYI's hospital contracts and proceeds
thereof to Hasco in connection with the sale of the FYI business.

The Company, FYI and IDI also entered into a General Amendment and Waiver
Agreement to (i) amend specific provisions of the 1995 Agreement, the 1996
Agreement, the 1996 Warrants, and the Certificate of Designation for Series B
Preferred Stock of SOV (collectively, the "Agreements"), and (ii) waive each of
the breaches or defaults with respect to specific provisions of the Agreements
as of January 15, 1997. The amendments extended: (i) the date by which the
Company must take all corporate action necessary to authorize and reserve for
issuance the number of shares of Common Stock into which the Series B Preferred
Stock and 1996 Warrants may be converted or exercised from October 31, 1996 to
not later than May 1, 1997; (ii) the deferral of interest payments due pursuant
to the Notes from December 31, 1996 to not later than May 1, 1997; and (iii)
extended the first principal repayment date of the 1995 Notes from March 1, 1997
to not later than May 1, 1997. In addition, the amendments reduced certain
minimum performance targets in the 1995 Agreement and 1996 Agreement. Recently,
the May 1, 1997 dates were extended to June 15, 1997.

The Company also issued a Series D Warrant (the "Series D Warrant") to IDI
which is exercisable for up to 61,803,805 shares of the Company's Common Stock
at an exercise price of $.075 per share. The Series D Warrants are contingent
upon the occurrence of a proposed reverse stock split. If the reverse stock
split is approved and the Company and IDI complete the second exchange of
securities described below, then the Series D Warrants will not be exercisable.
However, if the reverse stock split is not approved by 5:00 p.m., Los Angeles
time, on April 15, 1997, then the Series D

10
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

Warrants may be exercised by IDI at any time prior to November 20, 2005.
Recently, the April 15, 1997 date was extended to June 15, 1997. IDI, as
beneficial owner of 4,479,427 shares (approximately 50.6% of the outstanding
shares) of the Company's Common Stock (including 132,000 shares held by
Greenstreet Partners, an affiliate of IDI), as advised the Company that it (and
Greenstreet Partners) intends to vote all of such shares in favor of the
proposed reverse stock split. Accordingly, the Company expects that the reverse
stock split will receive the requisite stockholder approval. However, if the
reverse stock split is not approved, the Company will not be able to honor its
commitments, and will be in default.

If the proposed reverse stock split is approved by the stockholders, the
Company intends to complete a second exchange of securities with IDI pursuant to
which the Company will issue an additional 3,934,246 (post-reverse split) shares
of its Common Stock to IDI in exchange for all of the remaining 1996 Warrants
with respect to 5,141,920 (post-reverse split) shares of the Company's Common
Stock, together with the surrender of the Series D Warrants. After the second
security exchange, IDI would continue to hold 500 shares of the Company's Series
A Preferred and 500 shares of the Company's Series B Preferred, as well as
4,368,989 (post-reverse split) shares of the Company's Common Stock, equivalent
to 67% of the shares anticipated to be outstanding on the date of the second
exchange, which is not expected to occur not later than June 15, 1997. The
Company intends to engage in the second exchange of securities with IDI as soon
as practicable after stockholder approval of the reverse stock split. IDI has
recently granted the Company an extension of time, from April 15, 1997 to June
15, 1997, by which it must be complete the second exchange. If the Company
requires additional time beyond the June 15, 1997 extension to obtain
stockholder approval, it intends to ask for an additional extension of time,
which it believes will be granted.

Cancellation of Certain FYI Common Stock. In connection with the
transactions contemplated by the 1996 Agreement, Dana Arnold, the then-President
of FYI, exchanged his shares of FYI common stock (20% of the outstanding shares)
for warrants exercisable for 7,749,449 shares of the Common Stock of the
Company. The shares of FYI previously held by Arnold were cancelled. As a result
of such transaction, FYI is now a wholly owned subsidiary of the Company. Due to
the triggering of certain antidilution provisions by the exchange agreement,
the warrants became exercisable for 7,597,508 shares of the Company's Common
Stock.

Loan Transaction With Former Chief Executive Officer. In December 1994,
the Company received a $200,000 advance from Guy de Vreese, the then-Chief
Executive Officer of the Company. Approximately $150,000 was repaid during the
three months ended March 31, 1995 and approximately $50,000 of this advance,
which was not memorialized in a written document, was outstanding as of December
31, 1995. In July 1996, the Company was released from the obligation in
connection with the Class Action Settlement.

Consulting Agreement. The Company entered into a consulting agreement (the
"Consulting Agreement") with K. Eugene Shutler, who subsequently became its
Chief Executive Officer, for services relating to the Company's business. The
Consulting Agreement required the Company to pay Mr. Shutler only if services
were actually performed by him for the Company. In exchange for services to the
Company, the consultant received $12,500 per month plus expenses. In addition,
pursuant to

11
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

the Consulting Agreement, the Company issued warrants to purchase 250,000 shares
of SOV's common stock at an exercise price of $.075 per share, which management
believes represents the fair market value at the date of issuance. The warrants
vest 100,000 in April 1996 and the remaining 150,000 on a pro-rata basis over
the subsequent twelve month period. The Company has granted the warrant holder
certain registration rights related to these warrants. The Consulting Agreement
terminated and warrants ceased vesting on August 1, 1996, at which time the
Company entered into an employment agreement with the consultant.

Loan Transaction with Dycam. In December 1994, Dycam made a secured loan of
$500,000 to the Company. Dycam determined that extending this loan was in the
best interest of Dycam and its stockholders, as the loan enabled the Company to
continue funding FYI, and thereby supported the development and manufacture of
the specialized digital camera which FYI would purchase from Dycam. In January
1995, Dycam made an additional secured loan of $500,000 to the Company. The two
loans have been memorialized in a single note (the "Secured Note") which bears
interest at the prime rate plus two percentage points and called for payments of
interest only for eight months with all principal and accrued interest due and
payable on September 1, 1995. In connection with the 1995 Agreement, Dycam
extended the maturity date of the Secured Note to December 31, 1998. The Company
did not pay the March and April 1997 interest payments on the Secured Note,
however, it intends to pay the past-due interest at the closing of the FYI Sale,
which is expected to occur in June 1997. The note is secured by a first priority
interest in the 1,916,667 shares of Dycam's common stock owned by the Company.
If the Company should default on its obligation pursuant to the Notes, Dycam may
not be repaid under the Secured Note and will be entitled to receive back up to
the 1,916,667 shares of Dycam's common stock held by the Company.

Issuance of Warrants to Director. In May 1996, the Company issued warrants
to purchase 80,000 shares of SOV's common stock to Ann Ehringer representing the
Independent Committee in connection with the 1996 Agreement. The exercise price
is $.075 per warrant. The warrants vest 40,000 in May 1996 and 40,000 in April
1997. The Company has granted the warrant holder certain registration rights
related to these warrants.

Intercompany Transactions Between FYI and Dycam. Under the terms of an
agreement with FYI, Dycam has agreed to provide FYI an exclusive right to use
Dycam technology in the hospital baby portrait market through April 2005. FYI
has received the option to purchase up to 5,000 Dycam cameras at predetermined
prices and to receive continual upgrades of camera technology and has agreed to
pay Dycam fees of 7.5% of net sales from all hospitals using FYI portrait
services. Dycam agreed to defer this fee until the earlier of the first month in
which FYI has positive operating cash flow and April 30, 1997. If FYI has its
camera system manufactured by someone other than Dycam, FYI has agreed to pay to
Dycam a "Camera Technology Fee" for each camera installed in a hospital served
by FYI, instead of the 7.5% royalty described above. Dycam has also agreed to
finance the first 150 cameras bought by FYI for terms of 36-48 months with equal
monthly payments of principal and interest, with interest computed at a rate of
2% over the Wall Street Journal prime rate. At the closing of the FYI Sale, FYI
and Dycam will terminate their existing contractual relationships, and Dycam
will enter into an agreement with Hasco whereby Dycam will receive $25,000 per
quarter from Hasco for a period of three years for a license and maintenance
services. Additionally, Hasco intends to assume all of the remaining obligations
payable pursuant to existing camera leases between FYI and Dycam.

12
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

Stock Options. In May 1996, certain stock options previously granted to
certain of the Company's officers, and employees were repriced from $3.00-$8.67
to $.075 per share, the fair market value as determined at the date of the
repricing.

Lease of Executive Offices. From January to April 1996, the Company's
executive offices were located at 101 Hodencamp Road, Thousand Oaks, CA 91360,
pursuant to a month-to-month sublease with rental payments of approximately
$1,000 per month, which approximated the current market rental rate for such
space. FYI's then-Chief Executive Officer is a significant stockholder and
officer of the privately-held company which subleases the executive offices to
FYI. The lease was terminated in April 1996.

Other. See "Contingencies."

(3) Subsequent Events

(a) Hasco Loan Agreement - In April 1997, Hasco International, Inc.
("Hasco") increased the maximum borrowing amount under the loan agreement from
$540,000 to $740,000, and extended the due date of the loan to not later than
June 1, 1997. In April and May 1997, FYI borrowed the remaining $200,000 from
Hasco pursuant to the loan agreement. The Company anticipates that the sale of
the FYI business to Hasco will close in June 1997.

(b) Other - See "Related Party Transactions" and "Contingencies."

(4) Contingencies

(a) In April 1995, the Company settled a class action suit which was filed
against the Company and certain of its officers and directors in December 1994
as well as a shareholders' derivative suit which named the directors and certain
of the officers of the Company. The settlement received final approval by the
District Court in July 1996. Pursuant to the terms of the final settlement, the
Company agreed to deliver to the plaintiff class warrants to purchase 1,750,000
shares of the Company's common stock and has recorded a promissory note in the
principal amount of $250,000 at December 31, 1994, payable in three equal
installments on July 1, 1996, January 1, 1997 and July 1, 1997 at 9% interest.
As of April 30, 1997, the Company has not make any payments on the obligation.
The Company will not have sufficient authorized shares of Common Stock to issue
upon exercise of these warrants unless it obtains stockholder approval of a
reverse stock split. The exercise price of the warrants os $.075 per share. The
warrants will have a five-year life and are redeemable by the Company at any
time for $5 per warrant. Also as part of the settlement, the Company's director
and officer liability insurance carriers agreed to pay $2,250,000. In the
settlement, Guy de Vreese, a former Chairman and Chief Executive Officer of the
Company, surrendered 250,000 shares of the Company's common stock held by him
and of options for 150,000 shares of the Company's common stock held by him. The
shares surrendered by Mr. de Vreese are to be distributed to the class
plaintiffs and the options have been cancelled.

13
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

(b) On October 20, 1995, Durian Technologies, Inc. and Durian Finance
(collectively, "Durian") filed a complaint against SOV for breach of contract,
fraud and negligent representation in connection with financing arrangements
with Durian for the benefit of Styles and seeks an accounting and declaratory
relief. Durian also seeks an unspecified amount of damages. The Company
responded to the complaint in January 1996. In late 1996, the parties agreed to
a conditional settlement of this action, under the terms of which the action was
dismissed without prejudice.

On April 8, 1997, Durian filed a complaint against the Company for
breach of contract, fraud and negligent misrepresentation in connection with
financing arrangements with Durian beginning in or about 1992 for the benefit of
Styles. Plaintiffs seek accounting and declaratory relief, as well as an
unspecified amount of damages. The Company intends to vigorously defend the
suit.

On April 8, 1997, Peter Henman Laufer and Richard G. Reinis, principals
of Durian, filed a suit against the Company; its Chief Operating Officer, James
E. O'Brien; its former Chief Executive Officer and Director, Dana I. Arnold;
Marc Arnold, and Hasco International, Inc. for breach of duty and self dealing.
Plaintiffs seek an unspecified amount of damages. The Company intends to
vigorously defend the suit.

(c) On March 8, 1996, FYI filed a suit against a competitor, Hasco.
The suit asserted claims for, among other things, unreasonable restraint of
trade, monopolistic practices, unfair competition, trade libel, and false and
misleading advertising. FYI sought compensatory damages relief in excess of $10
million, as well as punitive damages and injunctive relief. In the last quarter
of 1996, the suit was dismissed without prejudice and the parties entered into a
tolling agreement with respect to the statute of limitations. The terms of the
FYI Sale provide that upon closing this suit will be dismissed with prejudice.

(d) In 1996, a previous provider of the Company's excess director's and
officer's liability insurance filed a suit claiming that they are entitled to
$1,000,000 of the $1,700,000 received by the Company in connection with the
settlement of the suit against the Company's former independent accountants. In
October 1996, the Company filed a cross-complaint alleging bad faith and seeking
declaratory relief. SOV intends to vigorously defend the suit.

(e) The Company is also a party to various other actions arising in the
ordinary course of business which, in the opinion of management, will not have a
material adverse impact on the Company's consolidated financial condition.

(5) Wind-down of Certain Operations

In January 1996, the Company determined to terminate its hairstyle, beauty
imaging, and franchising operations. At this time, the Company does not expect
to incur any significant costs in 1997 in connection with the wind-down of its
hairstyle, beauty imaging, and franchising operations. In January 1997, the
Company and FYI entered into definitive agreements to sell the FYI business. The
FYI Sale is expected to close in April 1997, subject to the approval of the
Company's stockholders, and other customary terms and conditions. At this time,
the Company expects to incur costs of approximately $450,000 in 1997 in
connection with the FYI Sale. The Company does not expect to incur any
significant costs in connection with the FYI Sale after 1997. The Company's
future operating results and financial condition could be adversely affected by
management's inability to successfully terminate or sell its hairstyle and
beauty imaging operations, its franchising operations and its newborn infant
photography operations.

(6) Earnings Per Share

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," which is
effective for financial statements issued for periods ending after December 15,
1997. The effect of adopting SFAS 128 has not yet been determined by the
Company.

14
<PAGE>

STYLES ON VIDEO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)

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

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS MANAGEMENT'S DISCUSSION AND ANALYSIS ARE FORWARD LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES AND ARE BASED UPON JUDGMENTS
CONCERNING VARIOUS FACTORS THAT ARE BEYOND THE COMPANY'S CONTROL. FOR
INFORMATION REGARDING POTENTIAL FACTORS THAT COULD AFFECT THE COMPANY'S FUTURE
RESULTS AND FINANCIAL CONDITION, REFER TO THE SECTION ENTITLED "FACTORS THAT MAY
AFFECT FUTURE RESULTS AND FINANCIAL CONDITION" CONTAINED IN ITEM 6 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OF THE COMPANY'S
REPORT ON FORM 10-KSB/A FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 WHICH WAS
FILED WITH THE COMMISSION ON MAY 9, 1997

Three months ended March 31, 1997 compared to the three months ended March 31,
- ------------------------------------------------------------------------------
1996
- ----

Revenues
- --------

The following table summarizes the Company's revenues for the three months
ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
------------------------- --------------------------
Percentage of Percentage of
Company Company
Revenues Revenues Revenues Revenues
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Consolidated $360,000 100% $941,000 100%

SOV 47,000 13 222,000 24

Dycam 312,000 87 714,000 76

SSI 1,000 - 5,000 -

</TABLE>

. Consolidated Operations. In January 1996 the Company elected to wind-down
its hairstyle and beauty imaging systems and franchising operations. During
1996 and the first quarter of 1997, the Company focused its resources on its
operating subsidiaries, FYI and Dycam. In January 1997, the Company and FYI
entered into an agreement to sell the FYI business to Hasco, subject to the
approval of the Company's stockholders, and other customary terms and
conditions. The FYI Sale is expected to close in June 1997. After the wind-
down and sale are completed, SOV intends to sell access disks and act as a
holding company. The Company believes that its future revenues will be
primarily derived from the operations of its Dycam subsidiary.

The Company's future success substantially depends on Dycam's future
profitability. Dycam has recently announced that there is doubt concerning
its ability to operate as a going concern. The AMEX has recently advised
Dycam that it has fallen below listing guidelines and may be delisted. If
Dycam continues to suffer losses, it would have a material adverse effect on
the Company's future results of operations and financial condition. There
can be no assurance that

15
<PAGE>

the Company will be profitable in the future or that future revenues and
operating results will not also vary substantially.

. Styles on Video. Revenues from sales of SOV imaging systems ("Systems"),
software, and related products for the three months ended March 31, 1997
decreased $175,000, or 79%, compared to the three months ended March 31,
1996. The overall decrease in sales was primarily the result of the
decision in January 1996 to terminate sales of hairstyle and beauty imaging
systems, precipitated by the general lack of market interest in SOV's
existing products at their current price point. The Company currently only
sells access disks and ancillary products remaining in stock. The Company
anticipates that the SOV line of business will generate only a minimal
portion of the Company's revenues in subsequent periods.

. Dycam. Dycam's revenues are derived from sales of digital cameras and
supporting software and accessory products, technology licensing fees, and
contract engineering work. Dycam's total revenues for the three months ended
March 31, 1997 decreased $402,000, or 56%, compared to the three months
ended March 31, 1996. The decrease in revenues was primarily associated with
decreased camera sales volume and lower sales prices per unit. The decreased
volume is primarily attributible to the phase-out of the Model 10-C camera.
The decreased sales prices are primarily due to the impact of increased
competition. Dycam intends to continue to sell stock camera products. Dycam,
however, believes its strength lies in the custom and contract engineering
of digital imaging systems and intends to devote a substantial portion of
its resources in the future to pursuing the custom and contract engineering
business. Dycam derived less than 10% of its revenues from contract
engineering work during the three months ended March 31, 1997 and 1996. The
core element of the FYI camera system is a specialized digital camera
subsystem engineered and produced by Dycam under an exclusive contract with
FYI. The existing contractual relationship between FYI and Dycam provides
that Dycam shall receive revenue from cameras leased or sold to FYI, as well
as a license fee calculated at 7.5% of FYI's net sales. Payment of the
license fee is deferred by agreement for the period May 1, 1996 through
April 30, 1997. The existing FYI license fee deferral was approximately
$20,000 per month as of April 30, 1997. Under the Dycam Master Agreement
with Hasco, Dycam will receive $25,000 per quarter from Hasco for a period
of three years. Based on the level of the monthly license fee as of April
30, 1997, Dycam's license revenue would decrease by approximately $140,000
per year under the new agreement with Hasco. Dycam, however, has not
historically recognized revenues related to deferred license fees. It is
their policy to recognize the revenues when the fees are paid. It is the
Company's intention to pay deferred license fees payable to Dycam
(approximately $216,000 as of March 31, 1997) at the closing of the FYI
Sale. Hasco will not assume any of the amount owed to Dycam for deferred
license fees. Hasco intends, however, to assume all of the remaining
obligations payable pursuant to the existing camera leases between FYI and
Dycam. Dycam believes that arrangements such as the FYI and Hasco agreements
may lead to additional contract engineering revenues and custom camera sales
opportunities. Intercompany revenues and expenses are eliminated for
consolidated reporting purposes.

. SSI. SSI's revenues are primarily derived from the sale of franchises. SSI
has not sold any franchises since January 1995 and its Uniform Franchise
Operating Circular has not been updated. In January 1996, the Company
commenced the wind-down of the SSI line of business. The Company
anticipates that the SSI line of business will generate a minimal portion of
the Company's revenues in subsequent periods.

16
<PAGE>

Gross Profit
- ------------

Gross profit is comprised of revenues less direct costs and expenses. The
following table summarizes the Company's gross profit for the three months ended
March 31, 1997 and 1996:

<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
------------------------------- ---------------------------
Gross Profit as Gross Profit
Percentage of Percentage of
Gross Profit Revenues Gross Profit Revenues
------------ --------- ------------ --------

Consolidated $ 73,000 20% $ 367,000 39%

SOV 46,000 98 191,000 86

Dycam 26,000 8 171,000 24

SSI 1,000 100 5,000 100
</TABLE>

. Styles on Video. SOV's gross profit decreased for the three month period
ended March 31, 1997 compared to the three month period ended March 31, 1996
primarily due to the decision to terminate sales of hairstyle and beauty
imaging systems in January 1996.

. Dycam. Gross profit for the three months ended March 31, 1997 decreased
compared to the three months ended March 31, 1996 primarily as a result of
decreased revenues and gross margins from mature camera product sales.

. SSI. There are no significant direct costs associated with the sale of
franchises.

Selling, General and Administrative
- -----------------------------------

Selling, general and administrative expenses consist of administrative
expenses, the salaries of corporate officers, office staff and sales personnel,
advertising and promotion, accounting, legal and other professional expenses and
rent and occupancy costs. They exclude depreciation and amortization, which are
stated separately. The following table summarizes the Company's selling,
general and administrative expenses for the three months ended March 31, 1997
and 1996:
<TABLE>
<CAPTION>

Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
--------------------------- ---------------------------
Percentage of Percentage of
Expenses Revenues Expenses Revenues
--------- -------- -------- --------

<S> <C> <C> <C> <C>
Consolidated $646,000 179% $ 876,000 93%

SOV 300,000 638 582,000 262

Dycam 344,000 110 285,000 40

SSI 2,000 200 9,000 180
</TABLE>

17
<PAGE>

. Styles on Video. Selling, general and administrative expenses of SOV for the
three months ended March 31, 1997 decreased $282,000 or 48%, compared to the
three months ended March 31, 1996, and represented 46% of the Company's
total selling, general and administrative expenses. Salaries and benefits
decreased $134,000 to $33,000 due to a decrease in the number of employees
at all levels in all departments. Legal and accounting fees decreased
$102,000 to $189,000, primarily due to decreased accounting fees of $82,000,
as the result of completing the prior year audit and public filings.
Insurance expense decreased $30,000 to $31,000 due to reduced premiums.

In January 1996, the Company decided to terminate the Company's hairstyle
and beauty imaging systems operations. SOV ceased the marketing and sales
of its hairstyle and beauty imaging systems, and terminated the employment
of all employees involved in the marketing and sales of such systems.
Selling, general and administrative expenses related to SOV's operations
continue to exceed the gross profit derived therefrom. The Company
continues to make efforts to reduce SOV's expenses to a minimal level
consistent with its current operations, including its activities as a
holding company. SOV continues to sell access disks and ancillary products
remaining in stock, and intends to do so for the foreseeable future.

. Dycam. Selling, general and administrative expenses for the three months
ended March 31, 1997 increased $59,000, or 21%, compared to the three months
ended March 31, 1996 and represented 53% of the Company's total selling,
general and administrative expenses. The increase resulted primarily from
the hiring of a new Vice-President of Sales and Marketing, and increased
legal and professional expenses.

. SSI. Selling, general and administrative expenses of SSI for the three
months ended March 31, 1995 represented less than 1% of the Company's total
selling, general and administrative expenses. In January 1996, the Company
decided to terminate SSI's operations.

Research and Development
- ------------------------

Consolidated research and development expenses for the three months ended
March 31, 1997 were $123,000 (34% of consolidated revenues), a decrease of
$36,000, or 23%, compared to $159,000 (17% of consolidated revenues) for the
three months ended March 31, 1996. All research and development expenses during
the first quarter of 1997 and 1996 are attributable to Dycam. The decrease in
Dycam's research and development expenses is primarily the result of reductions
in the number of personnel, and the completion of development of certain
products introduced in 1996. Dycam believes that continuing research and
development is essential to maintaining its competitive position, and expects to
continue to expend funds in this area.

Depreciation and Amortization
- -----------------------------

The Company's depreciation and amortization expenses consist primarily of
the amortization of goodwill which resulted from the Company's acquisition of
Dycam. Such goodwill is being amortized over a twenty year term at the rate of
$23,000 per month. Depreciation and amortization expense (including amounts
charged to cost of revenues) for the three months ended March 31, 1997 was
$127,000, an increase of $11,000 from $116,000 for the three months ended March
31, 1996. The increase resulted primarily from depreciation of fixed assets
acquired by Dycam and FYI during the three months ended March 31, 1997.

18
<PAGE>

Discontinued Operations
- -----------------------

In January 1997, the Company and FYI entered into an agreement to sell the
FYI business to Hasco. Hasco operates First Foto, a competitor of FYI in the
hospital newborn photographic business. The results of operations of FYI are
shown as discontinued operations in the accompanying Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Report on Form 10-QSB.

FYI's revenues are derived from sales of newborn baby photographs and
ancillary products. Since its first sales in March 1995, revenues have
consistently grown as the customer base has increased to over one-hundred
twenty-five hospital accounts. FYI's revenues for the three months ended March
31, 1997 increased $502,000, to $810,000, from $308,000 for the three months
ended March 31, 1996. The Company devoted significant marketing efforts and
financial resources to the development and growth of the FYI business. The
Company anticipates that FYI will generate revenues through the closing of the
FYI Sale, which is anticipated to occur in June 1997, after which time no
revenues will be generated from FYI.

FYI's gross profit increased from $160,000 (52% of revenues) for the three
months ended March 31, 1996 to $608,000 (75% of revenues) for the three months
ended March 31, 1997 as FYI emerged from its start-up phase of operations. FYI's
gross profit excludes intercompany cost of revenues of $101,000 and $35,000 in
the first quarter of 1997 and 1996, respectively, related to Dycam.

FYI's selling, general and administrative expenses for the three months
ended March 31, 1997 increased $2,000 to $1,014,000 from the three months ended
March 31, 1996. Commissions paid to hospitals, which typically are based on a
percentage of FYI's revenues derived from each hospital, increased $202,000.
Other increased selling, general and administrative costs include legal and
professional fees with an increase of $50,000. Sales and marketing costs
decreased $50,000 for the quarter ended March 31, 1997 due to the reduction in
sales and marketing efforts based on the pending FYI Sale. Postage and delivery
costs decreased $49,000 for the quarter ended March 31, 1997 due to FYI's
implementation of handling fee charges.

Liquidity and Capital Resources
- -------------------------------

During the three months ended March 31, 1997, the Company relied primarily
upon cash on hand, advances from IDI and Hasco, and cash received from sales,
and intercompany advances to finance its cash operating losses.

At March 31, 1997, the Company had consolidated cash and cash equivalents of
$450,000, a decrease of $140,000 from $590,000 at December 31, 1996. The
Company's consolidated working capital was $(5,564,000) at March 31, 1997, a
decrease of $1,748,000 compared to $(3,816,000) at December 31, 1996. Working
capital reduction was primarily the result of cash used in operations. The
current ratio at March 31, 1997 was .1 to 1 compared to .3 to 1 at December 31,
1996.

. Styles on Video. SOV's cash and cash equivalents at March 31, 1997 were
$26,000, up $27,000 from $(1,000) at December 31, 1996. Accounts payable and
accrued expenses increased $81,000 primarily due to unpaid legal fees. Prepaid
expenses decreased $59,000 due to utilization of prepaid insurance premiums.
SOV's working capital at March 31, 1997 was $(1,819,000), a decrease of
$112,000, compared to $(1,707,000) at December 31, 1996.

In December 1994, Dycam made a secured loan of $500,000 to SOV. In January
1995, Dycam made an additional secured loan of $500,000 to SOV. These advances
were memorialized in a secured

19
<PAGE>

promissory note in the principal amount of $1,000,000 which was originally due
in September 1995 and later extended until December 1998. The purpose of the
loan was to enable SOV to continue funding FYI, and thus the development and
manufacture of the FYI digital camera by FYI and Dycam. For additional
information regarding the terms of the promissory note, refer to the discussion
that follows regarding the liquidity and capital resources of Dycam.

In September and October 1995, SOV and FYI received financing of $375,000
from Multinational Trading Corp., a Florida corporation ("MTC"), pursuant to a
short-term financing agreement. In November 1995, SOV, FYI and International
Digital Investors, L.P., a Delaware limited partnership ("IDI") entered into a
Note and Preferred Stock Purchase Agreement (the "1995 Agreement"). Pursuant to
the 1995 Agreement, IDI invested $3,000,000 in SOV and FYI. In consideration for
such investment, SOV and FYI issued 10% secured notes in the original principal
amount of $2,950,000, with interest payable monthly, and quarterly principal
payments of $500,000 commencing March 31, 1997 (the "1995 Notes"). Additionally,
SOV issued to IDI 500 shares of 10% Senior Series A Convertible Preferred Stock,
$100 par value, for $50,000 and warrants entitling IDI to purchase shares
equivalent to 40% of the Company's common stock on a fully diluted basis (the
"1995 Warrants"). FYI received net proceeds of $2,307,000 from the $3,000,000
financing, after repayment of the MTC financing, its associated interest, and
transaction fees. Pursuant to the 1995 Agreement, as amended March 1996, funds
totaling $750,000 were available to SOV, all of which had been advanced to SOV
by FYI as of August 31, 1996. The remaining funds were used for the furtherance
of FYI's expansion. The 1995 Agreement was amended again in May 1996 and January
1997 to provide, among other things, for the deferral of the first principal
payment and interest to not later than May 1, 1997, less restrictive covenants
and a reduction in exercise price of the 1995 Warrants to $.075 per share.
Recently, the May 1, 1997 date was extended to June 15, 1997.

In 1995, SOV entered into a settlement of certain class action and
derivative suits, whereby SOV agreed to deliver to the plaintiff class warrants
to purchase 750,000 shares of the Company's common stock at an exercise price of
$.075 per warrant share, and a $250,000 promissory note payable in three equal
semi-annual installments commencing July 1996. The number of warrants was
increased to 1,750,000 in May 1996 prior to the final settlement in July 1996.
The Company has not yet paid any amounts owed to the plaintiffs pursuant to the
class action settlement. The Company intends to satisfy its financial
obligations under the settlement of the class action and derivative suits with a
portion of the proceeds received from the sale of the business of its FYI
subsidiary. If the Company were unable to meet its obligations under the
settlement, the plaintiffs could seek to enforce the judgment, which could
materially adversely effect the Company's financial condition.

In January 1996, the Company decided to discontinue SOV's hairstyle and
beauty imaging systems operations. At this time, the Company does not expect to
incur any significant costs in 1997 in connection with the wind-down of its
hairstyle and beauty imaging systems operations. The Company anticipates that
SOV's holding company activities will continue to use cash and that its minimal
cash balance will continue to decline. Since the last quarter of 1995, the
Company has successfully negotiated significant discounts of certain of its
accounts payable balances, and intends to negotiate a reduction in a portion of
its remaining accounts payable. No guarantee, however, can be made that the
Company will be able to successfully negotiate reductions on any of its
remaining outstanding accounts payable.

Pursuant to a Note and Preferred Stock Purchase Agreement dated as of May
14, 1996 (the "1996 Agreement"), as amended, SOV and FYI agreed to issue up to
$1,200,000 aggregate principal amount of 10% Senior Notes due June 30, 1998 (the
"1996 Notes" and together with the 1995 Notes, the "Notes") in a series of
purchases of such 1996 Notes between the May 1996 closing date and September 15,
1996. Each purchase of 1996 Notes was contingent upon the Company and FYI
meeting

20
<PAGE>

certain minimum performance targets. IDI also purchased 500 shares of Series B
Preferred, for $50,000 and received Common Stock Purchase Warrants (the "1996
Warrants" and together with the 1995 Warrants, the "Warrants"). Payment of
interest is deferred to not later than May 1, 1997. Recently, the May 1, 1997
date was extended to June 15, 1997.

In May 1996, IDI purchased $520,000 principal amount of the 1996 Notes, of
which $270,000 was used to repay principal and interest on certain interim loans
made to the Company and FYI by IDI and IDI-related entities in April 1996. IDI
purchased an additional $250,000, $100,000 and $150,000 principal amount of the
1996 Notes in June, July and August 1996, respectively. The Company did not meet
the September 15, 1996 minimum performance targets and IDI did not purchase the
final series of 1996 Notes totaling $180,000 until January 1997, at which time
all available funds under the 1996 Notes had been borrowed.

In July 1996, the Company's suit against its former independent accountants
was settled and the accounting firm agreed to pay $1,700,000 to the Company. Of
the proceeds, $870,000 was applied to the repayment of the 1996 Notes. After
partial repayment of the 1996 Notes, and payment of certain legal expenses in
connection with the 1996 Agreement, the net proceeds of the settlement to the
Company were $430,000, which was added to the Company's general working capital,
and used to fund the operations of SOV and FYI. In September 1996, the Company
received a state income tax refund totaling $301,000, which was used to repay
the 1996 Notes. As of April 30, 1997, the unpaid balance of the 1996 Notes was
$29,000.

From September 1996 through January 1997, the Company and FYI borrowed an
additional $927,000 from IDI pursuant to a $977,000 Bridge Note due not later
than May 1, 1997. Recently, the May 1, 1997 date was extended to June 15, 1997.
The Company is entitled to draw the remaining $50,000 upon receipt by the
Company of certain income tax refunds. As of April 30, 1997, the unpaid balance
of the Bridge Note was $927,000.

At December 31, 1995 and 1996, the Company was not in compliance with the
1995 and 1996 Agreement's net worth and EBITDA financial covenants, however, the
Company has obtained a waiver of these defaults from IDI. The Company may
require additional covenant relief in the future. There can be no assurance that
IDI will grant a waiver for any future noncompliance. If defaults occur in
future periods, and waivers are not obtained, and the Company's assets are taken
in satisfaction of the amounts due pursuant to the 1995 and 1996 Agreements, and
no excess remains, funds will not be available to meet SOV's obligations,
including, without limitation, the repayment of a $1,000,000 note owed to Dycam.

On January 15, 1997, the Company, FYI and IDI entered into several
agreements. The Company and IDI entered into a Securities Exchange Agreement
which provided for the issuance of 4,347,427 shares of its Common Stock to IDI
in exchange for all of the 1995 Warrants and for 1996 Warrants with respect to
1,867,029 shares of Common Stock. IDI remains the holder of 1996 Warrants for
51,419,199 shares of Common Stock.

21
<PAGE>

Effective January 31, 1997, SOV and FYI entered into an agreement to sell
the FYI business to Hasco. From January through March 1997, FYI borrowed a total
of $540,000 from Hasco pursuant to the Loan Agreement whereby Hasco will lend to
FYI up to a total of $540,000 prior to the closing. In April 1997, Hasco
increased the maximum borrowing amount under the loan agreement to $740,000, and
extended the due date of the loan to not later than June 1, 1997. In April and
May 1997, FYI borrowed the additional $200,000 from Hasco pursuant to the loan
agreement. All amounts due under the loan agreement will be cancelled at the
closing of the sale through the assumption of these liabilities by Hasco, except
to the extent the principal amount borrowed exceeds $540,000. The Company
anticipates that the total principal amount borrowed will be $740,000 at the
closing, and that the consideration amount will, accordingly, be reduced by the
excess borrowings of $200,000. The proceeds of the FYI sale, net of transaction
costs and satisfaction of FYI's obligations (excluding its indebtedness to IDI),
will not be sufficient to fully repay the Company's and FYI's obligations to
IDI, or to fully satisfy the Company's other liabilities to its creditors.
The FYI Sale is expected to close in June 1997, subject to the approval
of the Company's stockholders and other customary terms and conditions.

Pursuant to the terms of its various loan agreements with the Company and
FYI, IDI is entitled to all of the cash proceeds from the sale of the FYI
business. At present, the Company has entered into discussions with IDI
regarding the use of the proceeds. The Company expects to use approximately
$1,290,000 of the cash proceeds received at the closing of the sale of the FYI
business to repay a portion of its indebtedness to IDI. The repayment includes
all principal amounts due to IDI pursuant to the Bridge Note and the 1996 Note,
and a scheduled repayment of $500,000 due pursuant to the 1995 Note.
Immediately after the repayment, the Company's remaining indebtedness to IDI is
expected to be $1,500,000, plus accrued interest (approximately $400,000 as of
April 30, 1997).

In order for the Company to continue its operations after the FYI sale, it
will be required to obtain additional financing from IDI or other sources, or
IDI will need to consent to postpone the repayments due from the Company and FYI
on all or part of the Company's and FYI's notes payable to IDI. Neither IDI nor
any other sources have indicated a willingness to loan additional funds to the
Company. Additionally, IDI has not indicated an intention to consent to the
postponement of the repayment it is entitled to on the Notes payable to IDI from
the Company and FYI. If IDI should fail to consent to another postponement of
repayment and if the Company should fail to obtain additional financing, SOV
will not have sufficient cash to continue its operations after the FYI Sale.

The Company's future success substantially depends on Dycam's future
profitability. Dycam has recently announced that there is doubt concerning its
ability to operate as a going concern. The AMEX has recently advised Dycam that
it has fallen below listing guidelines and may be delisted. If Dycam continues
to suffer losses, it would have a material adverse effect on the Company's
future results of operations and financial condition.

In addition, the Company believes that the combined cash impact of a
settlement of the Durian and AESIC loss contingencies, more fully described in
"Contingencies" will not be significant. If (a) a significant negative result is
achieved with respect to the Durian and/or AESIC matters, (b) management cannot
successfully wind-down its hairstyle and beauty imaging systems and franchising
operations and close the sale of its FYI business or (c) funding is not
available or proves insufficient to cover the shortfalls, the Company will find
it necessary to obtain additional financing or undertake other such actions as
may be appropriate, and will be otherwise unable to achieve its goals or
continue its operations.

. Dycam. At March 31, 1997, Dycam had cash and short-term investments on hand
of $424,000, down $166,000 from $590,000 at December 31, 1996.

22
<PAGE>

Inventories decreased $55,000 during the first quarter of 1997. Current
liabilities at March 31, 1997 increased by $50,000 from December 31, 1996 to
$347,000 primarily as a result of increased accounts payable. Dycam's working
capital (excluding intercompany balances) at March 31, 1997 was $524,000, a
decrease of $360,000 when compared to $884,000 at December 31, 1996. The current
ratio at March 31, 1997 was 2.5 to 1 compared to 6.0 to 1 at December 31, 1996.
Dycam does not have any long-term indebtedness and does not currently maintain
any credit facilities. During the first quarter of 1997, Dycam's international
sales were approximately $27,000 (7% of Dycam's revenues). There are no material
foreign exchange risks as all of Dycam's international sales are made in U.S.
dollars.

In December 1994, Dycam made a secured loan of $500,000 to SOV. Dycam
determined that it was in the best interests of Dycam and its shareholders that
it make this loan, which enabled SOV to continue funding FYI, and thus the
development and manufacture of the FYI digital camera by FYI and Dycam. In
January 1995 Dycam approved an additional secured loan to SOV of $500,000. The
two loans totaling $1,000,000 have been memorialized in a single note which
originally provided that the entire principal balance plus accrued and unpaid
interest thereon were due and payable on September 1, 1995. Dycam subsequently
extended the maturity date of the note to December 31, 1998. SOV did not pay the
interest payments due for March and April 1997, however, it intends to pay the
past-due interest at the closing of the FYI Sale, which is expected to occur in
June 1997. The note is secured by 1,916,667 shares of Dycam's common stock owned
by SOV. If SOV is unable to satisfy its obligations pursuant to the Agreement,
and IDI exercises its rights, Dycam may not be repaid and will be entitled to
the 1,916,667 shares of Dycam's common stock owned by SOV.

Dycam believes that its operating and research and development activities in
1997 will continue to use cash and expects that its cash balance will continue
to decline. However, Dycam also believes that its existing cash balances,
interest payments due from SOV under the intercompany loan, payments due from
FYI for deferred license fees, and cash flow from operations will be sufficient
to meet its cash requirements through September 1997, after which time it may be
required to raise capital. In addition, to the extent Dycam experiences growth
in the future, or its cash flow from operations is less than anticipated, Dycam
may be required to obtain additional sources of cash. There is no assurance
that additional sources of cash will be available.

. FYI. At March 31, 1997, FYI had cash and short-term investments on hand of
$70,000, up $7,000 from $63,000 at December 31, 1996. FYI relied primarily upon
cash on-hand, loans from IDI and Hasco, and cash received from sales to finance
its operations.

FYI's working capital at March 31, 1997 was $(4,696,000), a decrease of
$1,252,000 when compared to $(3,444,000) at December 31, 1996. The current ratio
at March 31, 1997 and December 31, 1996 was less than .1 to 1. FYI's working
capital decreased primarily as the result of cash operating losses, and the
reclassification of certain long-term debt to short-term to reflect current
maturities; net of borrowings from IDI of $166,000 and borrowings from Hasco of
$540,000.

As described above, in September and October 1995, SOV and FYI received
financing of $375,000 from MTC, pursuant to a short-term financing agreement.
In November 1995, SOV, FYI and IDI entered into the 1995 Agreement. FYI
received net proceeds of $2,307,000 from the $2,950,000 financing, after
repayment of the Bridge Financing, its associated interest, and transaction
fees. Pursuant to the transaction as amended in March 1996, up to $750,000 of
the funds were available to SOV, all of which had been advanced to SOV as of
August 31, 1996. In May 1996, SOV, FYI and IDI entered into the 1996 Agreement,
which provided additional financing of $1,200,000. Additionally,

23
<PAGE>

from September 1996 through January 1997, IDI advanced $927,000 to SOV and FYI
pursuant to a $977,000 Bridge Note due not later than May 1, 1997. The Company
was not in compliance with the Agreement's net worth and EBITDA financial
covenants at December 31, 1995 and 1996, however, the Company has obtained a
waiver of these violations from IDI.

FYI was in a development stage during 1994 and the first two months of 1995.
Revenues commenced in March 1995. FYI's revenues continued to grow and
contribute an increasing amount of cash to fund operations. FYI expects that
working capital requirements through the planned closing of the FYI Sale, which
is expected to occur in June 1997, subject to the approval of the Company's
stockholders and other customary terms and conditions, will continue to be
funded through a combination of cash on hand, cash receipts from product sales
and advances pursuant to the Hasco Loan.

Effective January 31, 1997, SOV and FYI entered into an agreement to sell
the FYI business to Hasco. Hasco operates First Foto, a competitor of FYI in the
hospital newborn photography business. The sale price of $4,533,060 is payable
to FYI $3,468,060 in cash at the closing and $1,065,000 in twelve equal
quarterly installments of $88,750 commencing three months after the closing. The
sale price is subject to adjustment for certain hospital contract terminations,
operating results prior to closing, and accounts payable and accrued expenses
assumed by the buyer at the closing. The amount of estimated proceeds,
$4,043,060 is based on the sale price less adjustments for estimated liabilities
of approximately $415,000 assumed by the buyer at the closing (including
$200,000 of the expected $740,000 borrowed pursuant to the Hasco loan
agreement), and other adjustments of approximately $75,000. The Company cannot
estimate the amount of adjustments to proceeds related to future contract
terminations which may occur during the twelve months following the closing of
the sale. The Company does not expect any other significant adjustments at this
time. From January through March 1997, FYI borrowed a total of $540,000 from
Hasco pursuant to a loan agreement whereby Hasco will lend to FYI up to a total
of $540,000 prior to the closing. In April 1997, Hasco increased the maximum
borrowing amount under the loan agreement to $740,000, and extended the due date
of the loan to not later than June 1, 1997. In April and May 1997, FYI borrowed
the additional $200,000 from Hasco pursuant to the loan agreement. All amounts
due under the loan agreement will be cancelled at the closing of the sale
through the assumption of these liabilities by Hasco, except to the extent the
principal amount borrowed exceeds $540,000. The Company anticipates that the
total principal amount borrowed will be $740,000 at the closing, and that the
consideration amount will, accordingly, be reduced by the excess borrowings of
$200,000. The proceeds of the FYI sale, net of transaction costs and
satisfaction of FYI's obligation (excluding its indebtedness to IDI), will not
be sufficient to fully repay the Company's and FYI's obligation to IDI, or to
fully satisfy the Company's other liabilities to its creditors. The FYI Sale is
expected to close on or about June 1, 1997 subject to the approval of the
Company's stockholders and other customary terms and conditions.

To the extent cash flow from operations is less than anticipated, or if
amounts available under the Hasco Loan prove insufficient to cover the
shortfalls, or if the FYI Sale is not consummated, FYI will be required to
obtain additional financing, or undertake other such actions as may be
appropriate, and will be otherwise unable to achieve its goals or continue its
operations.

SSI. At March 31, 1997, SSI had no cash and short term investments on hand.
SSI's working capital at March 31, 1997 was $(13,000). The current ratio
at March 31, 1997 and December 31, 1996 was less than .1 to 1. For the three
months ended March 31, 1997, SSI did not have any cash operating losses.

SSI stopped the sale of franchises in January 1995. SSI no longer has any
employees, and all corporate administrative matters are handled by SOV on behalf
of SSI. In January 1996, the Company commenced the wind-down of the SSI line of
business and expects cash provided and used by SSI to comprise only a minimal
portion of the Company's cash flow in subsequent periods.

24
<PAGE>

PART II. OTHER INFORMATION

Item 1 Legal Proceedings - (1)

Durian Technologies, Inc., et al. v. Styles on Video, Inc., Los Angeles County
- -----------------------------------------------------------
Superior Court, Case No. BC 168961

On April 8, 1997, Durian Technologies, Inc. and Durian Finance (collectively
"Durian") filed a complaint against the Company for breach of contract, fraud
and negligent misrepresentation in connection with financing arrangements with
Durian beginning in or about 1992 for the benefit of Styles. Plaintiffs seek
accounting and declaratory relief, as well as an unspecified amount of damanges.
The Company intends to vigorously defend the suit.

Peter Henman Laufer and Richard G. Reinis v. Styles on Video, Inc., et al.,
- ---------------------------------------------------------------------------
Los Angeles County Superior Court, Case No. BC 168960

On April 8, 1997, Peter Henman Laufer and Richard G. Reinis, principals of
Durian, filed a suit against the Company; its Chief Operating Officer, James E.
O'Brien; its former Chief Executive Officer and Director, Dana I. Arnold; Marc
Arnold, and Hasco International, Inc. for breach of duty and self dealing.
Plaintiffs seek an unspecified amount of damages. The Company intends to
vigorously defend the suit.

Item 2 Changes in Securities - None

Item 3 Defaults Upon Senior Securities - None

Item 4 Submission of Matters to a Vote of Security Holders - None

Item 5 Other Information- None

Item 6 Exhibits and Reports on Form 8-K - (1)

Exhibit No. Document
- ----------- --------
27.1 Financial Data Schedule

_________________
(1) Incorporated by reference from Styles on Video, Inc.'s Annual Report on Form
10-KSB/A for the Fiscal Year ended December 31, 1996 filed with the Commission
on May 9, 1997.

25
<PAGE>

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant,
Styles on Video, Inc., caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Signature Title Date
--------- ----- ----

/s/ K. Eugene Shutler Chairman of the Board
- --------------------- and Chief Executive May 14, 1997
K. Eugene Shutler Officer (Principal
Executive Officer)

/s/ Nancy H. Galgas Chief Financial Officer
- --------------------- (Principal Accounting May 14, 1997
Nancy H. Galgas Officer and Secretary)

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 450,000
<SECURITIES> 0
<RECEIVABLES> 272,000
<ALLOWANCES> 172,000
<INVENTORY> 339,000
<CURRENT-ASSETS> 877,000
<PP&E> 461,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,137,000
<CURRENT-LIABILITIES> 6,441,000
<BONDS> 450,000
0
0
<COMMON> 4,000
<OTHER-SE> (1,166,000)
<TOTAL-LIABILITY-AND-EQUITY> 6,137,000
<SALES> 360,000
<TOTAL-REVENUES> 360,000
<CGS> 287,000
<TOTAL-COSTS> 287,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126,000
<INCOME-PRETAX> (944,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (944,000)
<DISCONTINUED> (449,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,210,000)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0

</TABLE>