STYLESITE MARKETING INC, S-1/A, 1999-09-30

STYLESITE MARKETING INC
S-1/A, 1999-09-30
MISCELLANEOUS FABRICATED TEXTILE PRODUCTS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1999

REGISTRATION STATEMENT NO. 333-80499

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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STYLESITE MARKETING, INC.
(NAME OF ISSUER AS SPECIFIED IN ITS CHARTER)

DIPLOMAT DIRECT MARKETING CORPORATION
(FORMER NAME OF ISSUER)

<TABLE>
<S> <C> <C>
DELAWARE 5137 13-3727399
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER I.D. NO.)
CLASSIFICATION CODE NO.)
</TABLE>

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<TABLE>
<S> <C>
WARREN H. GOLDEN, PRESIDENT
STYLESITE MARKETING, INC.
414 ALFRED AVENUE 414 ALFRED AVENUE
TEANECK, NEW JERSEY 07666 TEANECK, NEW JERSEY 07666
(201) 833-4450 (201) 833-4450
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES) (NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
</TABLE>

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Copies to:

<TABLE>
<S> <C>
JAY M. KAPLOWITZ, ESQ. MICHAEL D. DIGIOVANNA, ESQ.
GERSTEN, SAVAGE & KAPLOWITZ, LLP PARKER DURYEE ROSOFF & HAFT
101 EAST 52ND STREET 529 FIFTH AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
(212) 752-9700 (212) 599-0500
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: /x/

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED
NUMBER OF SHARES MAXIMUM OFFERING PROPOSED
TITLE OF EACH CLASS TO BE PRICE PER MAXIMUM AGGREGATE
OF SECURITIES BEING REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2)
<S> <C> <C> <C>
Common Stock.......................................... 2,300,000 3.575 8,222,500
Common Stock for Selling Security Holders............. 266,065 3.575 951,182
Representative's Warrants............................. -- -- --
Common Stock underlying Representative's
Warrants(3) .......................................... 200,000 3.575 715,000
Subtotal.............................................. 2,766,065 9,888,682
Amount Previously Paid................................
Amount Due............................................

<CAPTION>
TITLE OF EACH CLASS AMOUNT OF
OF SECURITIES BEING REGISTERED REGISTRATION FEE
<S> <C>
Common Stock.......................................... 2,285.86
Common Stock for Selling Security Holders............. 264.43
Representative's Warrants.............................
Common Stock underlying Representative's
Warrants(3) .......................................... 198.77
Subtotal.............................................. 2,749.06
Amount Previously Paid................................ 4,069.51
Amount Due............................................ 0.00
</TABLE>

(1) The number of shares being registered gives effect to the one-for-thirteen
reverse stock split to be effective upon the Registration Statement being
declared effective including the shares that may be sold if the
over-allotment option is exercised.

(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, based on the
average of the high and low sales prices of the Registrant's common stock on
The Nasdaq SmallCap Market for the five days preceding and including
September 27, 1999 multiplied by thirteen (13) which gives effect to the
one-for-thirteen reverse stock split to be effective upon the Registration
Statement being declared effective. This is the same fee that would have
been paid had the Registrant not given effect to the reverse stock split.

(3) Determined in accordance with Rule 457(g)(2).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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<PAGE>
EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus: (i) one to be
used in connection with an offering by StyleSite Marketing, Inc. of shares of
common stock (the "Prospectus") and (ii) one to be used in connection with the
sale of shares of common stock currently outstanding or issuable upon exercise
of warrants by certain selling security holders (the "Selling Security Holder
Prospectus"). The Prospectus and the Selling Security Holder Prospectus will be
identical in all respects except for the alternate pages for the Selling
Security Holder Prospectus included herein which are labeled "Alternative Page
for Selling Security Holder Prospectus."

<PAGE>

SUBJECT TO COMPLETION SEPTEMBER 30, 1999

PROSPECTUS

2,000,000 SHARES

[LOGO]

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This is an offering by StyleSite Marketing, Inc. We are selling
2,000,000 shares of our common stock. The underwriter may also purchase up to an
additional 300,000 shares from us at the public offering price, less the
underwriting discount, within 30 days to cover any over-allotments.

Our common stock is traded on the Nasdaq SmallCap Market under the symbol
"STLE". On September 27, 1999, the last reported sale price of our common stock
on Nasdaq was $3 1/4.

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INVESTING IN OUR COMMON STOCK IS RISKY. PLEASE SEE RISK FACTORS COMMENCING
ON PAGE 5.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

[CAPTION]

<TABLE>
<S> <C> <C> <C>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT STYLESITE
<S> <C> <C> <C>
Per Share....................... $ $ $
Total........................... $ $ $
</TABLE>

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DONALD & CO. SECURITIES INC.

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THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1999

The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement that
is filed with the Securities and Exchange Commission is declared
effective. This prospectus is not an offer to sell these securities and
it is not soliciting an offer to buy these securities in any state where
the offer or sale is not permitted.

<PAGE>

[inside front cover]

The graphics appearing here are covers of five different Lew Magram (Trademark)
catalogs and four different Brownstone Studio (Trademark) catalogs with the
StyleSite Marketing, Inc. logo.

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
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<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 5
Forward Looking Information................................................................................ 11
Where You Can Find More Information........................................................................ 11
Use of Proceeds............................................................................................ 12
Price Range of Common Stock................................................................................ 13
Dividend Policy............................................................................................ 13
Capitalization............................................................................................. 14
Selected Financial Data.................................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 26
Management................................................................................................. 37
Principal Stockholders..................................................................................... 45
Certain Transactions....................................................................................... 47
Description of Securities.................................................................................. 51
Shares Eligible for Future Sale............................................................................ 53
Underwriting............................................................................................... 54
Legal Matters.............................................................................................. 56
Experts.................................................................................................... 56
Indemnification for Securities Act Liabilities............................................................. 56
Financial Statements....................................................................................... F-1
</TABLE>

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You should rely only on the information contained in this prospectus. To
understand this offering fully, you should read this entire prospectus
carefully, including the financial statements and notes. We have included a
brief overview of the most significant aspects of the offering itself in the
Prospectus Summary. However, individual sections of the prospectus are not
complete and do not contain all of the information that you should consider
before investing in our common stock. We have not, and the underwriter has not,
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the common stock.

We are in the process of obtaining approval for a reverse split of our
common stock which is currently contemplated to be one share for not less than
each 13 shares outstanding. Except for the financial statements commencing on
Page F-1 and except where stated otherwise in this prospectus, the information
contained in this prospectus assumes the proposed 1-for-13 reverse split of our
common stock, to be completed immediately before the date of this prospectus.
The information contained in this prospectus does not assume that the
over-allotment option is exercised.

Unless otherwise indicated, all references to "StyleSite", "us", "our" and
"we" refer to StyleSite Marketing, Inc. and its subsidiaries Lew Magram Ltd.,
Brownstone Holdings, Inc., Ecology Kids, Inc. and Diplomat Holdings, Inc. On
August 24, 1999, we changed our name from Diplomat Direct Marketing Corporation
to StyleSite Marketing, Inc.

StyleSite Marketing(Trademark), Lew Magram(Registered), Brownstone
Studio(Registered) and Ecology Kids(Registered) are trademarks of StyleSite.
Other trademarks appearing in this prospectus are the property of their
respective owners.

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[This page intentionally left blank]

<PAGE>
PROSPECTUS SUMMARY

This summary does not contain all of the information that may be important.
You should read the detailed information appearing elsewhere in this prospectus.

OUR BUSINESS

We are a prominent specialty retailer of quality women's fashion apparel
and accessories sold through mail order catalogs, and soon through branded,
e-commerce websites. Currently, we target niche markets through our two
distinctive catalogs, Lew Magram and Brownstone Studio. Lew Magram was
established in 1948 as a men's clothier but by 1984 had converted its catalog to
solely offer women's apparel designed to appeal to fashion-oriented women.
Brownstone Studio, established in 1972, offers a broad range of fashions to the
affluent, more mature women. We generally publish 10 Lew Magram catalog editions
per year and nine Brownstone catalog editions per year. Each catalog includes
300 to 500 products and our annual circulation is over 45 million catalogs per
year. With the recent introduction of electronic commerce on the Internet, we
believe as a catalog marketer that we are well positioned to increase our market
penetration at a lower cost on the Internet. We believe that catalog consumers
are the ideal Internet customers because they are accustomed to purchasing
fashion merchandise from a non-store medium. In January 1999 we began offering
our products online at Catalogcity.com. We also design, manufacture and market
apparel and accessories for babies and toddlers to mass merchandisers such as
Toys "R" Us, Wal-Mart, Target and Walgreens, under the brand name "Ecology
Kids".

We have an experienced management team with over 140 years in the catalog
business, unique product lines and well-integrated infrastructure and
fulfillment capabilities. Over our history, we have compiled a wealth of
information with respect to our customers' buying patterns. By managing this
information, we can tailor the content of our catalogs, target catalog
distribution to particular customers, offer an expanded range of products to
certain customers, and test new products. Our database includes over 5 million
names of which 3.8 million are customers and 1.2 are gift recepients and catalog
inquirers.

We are currently completing the creation and design of our own e-commerce
websites for each of Lew Magram and Brownstone Studio with our strategic
partner, Tadeo Holdings, Inc. We anticipate these websites to be operational in
October 1999. These websites will be interactive, allow for online product
purchases from the catalogs and eventually provide content areas which we
believe will be of interest to our existing and prospective customers. With our
accumulated information on existing customers and the information we expect to
obtain through our Internet sites, we believe we will be able to customize each
website in accordance with the preferences of the respective target markets.
These are intended to be the primary websites to offer our products in addition
to Catalogcity.com.

Lew Magram products are marketed to fashion-conscious, value-oriented,
middle- and upper-income customers and career women. The Lew Magram customer on
average spends $160 per order. The Lew Magram catalog contains active wear,
career apparel, separates, outdoor wear, formal wear and footwear for a cross
range of lifestyles and women. Much of Lew Magram's apparel carries our brand
label but we do carry other labels as well, both in our apparel and footware
lines.

Brownstone Studio merchandise is marketed to affluent, sophisticated and
mature women. The Brownstone Studio customer on average spends $140 per order.
The Brownstone Studio catalog contains both classic and modern fashion apparel,
footwear, accessories and some intimate apparel. Brownstone Studio offers a
broad range of sizes in stylish merchandise which, we believe, are not readily
available to our customers in the retail market place.

Our principal executive offices are located at 414 Alfred Avenue, Teaneck,
New Jersey 07666. The phone number is (201) 833-4450.

<PAGE>
OUR STRATEGY

By implementing our operating strategy, we intend to capitalize on our
competitive strengths to increase sales to both existing and new customers and
continue to develop efficiencies. We also intend to expand our core business
through our growth strategy. The key elements of our strategies are as follows:

Operating Strategy

o Increase ability to fulfill orders through improved capitalization

o Reduce costs and increase operational efficiencies through improved liquidity

o Leverage and expand our proprietary customer database by managing the
information obtained from our customers

o Increase brand awareness

Growth Strategy

o Expand through diversifying product lines

o Implement our e-commerce strategy

o Form strategic relationships

o Expand Ecology Kids line of business

o Expand through acquiring complementary businesses

OUR INDUSTRY

In recent years, retailing in the United States has been characterized by a
shift to non-store sales through such media as printed catalogs, broadcast home
shopping channels and the Internet. According to the Direct Marketing
Association ("DMA"), an industry trade group, catalog sales are estimated to be
$93.27 billion for 1999, representing 3.3% of overall retail sales. The DMA
expects catalog sales to increase to $125 billion by 2004. The expected growth
for catalog sales is approximately 6.1% per year for the next five years.
According to the investment banking firm Gruppo, Levey, Incorporated, direct
marketing sales in the women's apparel category accounted for $8.4 billion in
1997. A DMA survey done in the first quarter of 1999 showed that women account
for 69.8% of all catalog sales, and women's apparel is the largest catalog
category representing 64% of all catalog purchases. In 1998, nearly 70% of the
women who shop via catalog made a purchase within that year. We believe that
direct marketing apparel sales to women will continue to grow, due to the
convenience and time savings afforded by catalog and recently introduced
e-commerce shopping. The U.S. Census Bureau is projecting the 35-64 year old
female population to grow 20.8% from 1995 to 2005. This is an attractive target
group for catalog distributors and e-commerce vendors such as ourselves,
particularly because more than 50 million women are in the work force and
therefore may have significant discretionary income.

Moving into e-commerce

International Data Corporation, a leading provider of information
technology data, projects worldwide commerce revenue on the Internet to increase
from $4.3 billion for 1997 to $11.0 billion in 1999 and to increase to
$84.2 billion by 2004. It is expected that online shopping will increase at a
rate of 50% per annum. Jupiter Communications LLC, a media research firm,
estimates that women accounted for 45% of all web users as of January 1998
accounting for 25% of all Internet sales and are estimated to account for 47% of
Internet sales by the year 2000. Forrester Research, Inc. a renowned independent
consumer and technology research firm, reported that women make 67% of all
household purchase decisions. According to a DMA study done in 1999, 43% of
their member companies are selling online and 49% of those are generating a
profit from online shopping. As a result of these factors, we believe that
apparel sales will be a major component of Internet commerce, and that women
will become a highly targeted customer for online stores and advertisers.

<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered by StyleSite......... 2,000,000 shares

Common Stock Outstanding Prior to the
Offering(1)............................. 5,061,034 shares

Common Stock Outstanding After the
Offering(1)............................. 7,061,034 shares

Use of Proceeds........................... Repay indebtedness, redeem preferred stock, finance inventory,
develop Internet business, and general corporate purposes

Risk Factors.............................. An investment in our shares involves a high degree of risk. See "Risk
Factors" commencing on page 5

Common Stock Symbol....................... Nasdaq SmallCap Market: STLE
</TABLE>

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(1) Based on shares outstanding as of September 27, 1999 after giving effect to
the proposed 1-for-13 reverse stock split. Excludes shares issuable upon the
exercise of options, warrants and the over-allotment option.

<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected historical financial data as of September 30, 1998,
September 30, 1997, September 30, 1996, December 31, 1995 and December 31, 1994
and for the periods then ended are derived from the audited financial
statements. The selected financial data as of June 30, 1999 and June 30, 1998
and for the nine months ended June 30, 1999 and June 30, 1998 are derived from
the unaudited financial statements of StyleSite included in this prospectus.
Such unaudited data includes, in management's opinion, all normal recurring
adjustments necessary to present fairly the results of operations and financial
position of StyleSite for such periods. Results from interim periods are not
necessarily indicative of the results to be expected for an entire fiscal year.
The data should be read in conjunction with the financial statements, related
notes, "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and other financial information included in this prospectus. The
per share data does not reflect the proposed 1-for-13 reverse stock split.

The following table summarizes the financial data for our business.

<TABLE>
<CAPTION>
YEAR
NINE MONTHS ENDED
NINE MONTHS ENDED YEAR ENDED ENDED DECEMBER
JUNE 30, SEPTEMBER 30, SEPTEMBER 30, 31,
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1999 1998(2) 1998(2) 1997(1) 1996(3) 1995
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<S> <C> <C> <C> <C> <C> <C>
STYLESITE'S CONSOLIDATED INCOME STATEMENT DATA:
Net sales........................................... $56,443 $57,119 $74,586 $17,468 $ 7,449 $11,301
Gross margin........................................ 26,830 26,030 40,152 8,744 57 4,388
(Loss) on discontinued operations(3)................ (870) (2,312) (2,322) (296) (1,150) --
(Loss) income from continuing operations before
income taxes...................................... (19,957) 2,112 1,260 1,262 (6,057) (721)
Net income (loss)................................... (22,324) (199) (1,063) 1,106 (7,225) (721)
Net income (loss) per common share from continuing
operations--basic and diluted..................... (1.60) 0.18 0.08 0.19 (1.34) (0.16)
Net income (loss) per common share--basic and
diluted........................................... (1.76) (0.04) (0.13) 0.14 (1.59) (0.16)

1994
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<S> <C>
STYLESITE'S CONSOLIDATED INCOME STATEMENT DATA:
Net sales........................................... $10,279
Gross margin........................................ 4,390
(Loss) on discontinued operations(3)................ --
(Loss) income from continuing operations before
income taxes...................................... (439)
Net income (loss)................................... (439)
Net income (loss) per common share from continuing
operations--basic and diluted..................... (0.11)
Net income (loss) per common share--basic and
diluted........................................... (0.11)
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1999 SEPTEMBER 30, DECEMBER 31,
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AS ADJUSTED(5) PRO FORMA(4) ACTUAL 1998(2) 1997(1) 1996(3) 1995
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<S> <C> <C> <C> <C> <C> <C> <C>
STYLESITE'S CONSOLIDATED BALANCE SHEET
DATA:
Total assets........................... $ 40,568 $ 40,568 $35,318 $50,959 $33,013 $4,848 $8,654
Total liabilities...................... 28,314 28,314 35,864 34,625 18,945 6,144 5,128
Working capital (deficiency)........... 4,847 4,847 (7,203) (4,662) (3,375) (3,145) 3,162
Long-term debt less current
maturities........................... 9,128 9,128 9,128 6,384 1,155 1,047 2,061
Stockholders' equity................... 10,254 3,304 (546) 16,334 14,068 2,523 3,526

1994
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<S> <C>
STYLESITE'S CONSOLIDATED BALANCE SHEET
DATA:
Total assets........................... $8,071
Total liabilities...................... 4,452
Working capital (deficiency)........... 3,154
Long-term debt less current
maturities........................... 1,993
Stockholders' equity................... 3,619
</TABLE>

1994
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<S> <C>
OTHER DATA:
E(L)BITDA(6)........................................... 240
</TABLE>

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(1) On February 19, 1998, StyleSite closed on the acquisition of Lew Magram,
Ltd. For accounting purposes, the acquisition was effected as of July 1,
1997. The acquisition was accounted for as a purchase.

(2) On October 30, 1997, StyleSite acquired out of bankruptcy all the assets of
Jean Grayson's Brownstone Studios, Inc. The acquisition was accounted for as
a purchase.

(3) On February 6, 1996, StyleSite completed the acquisition of Biobottoms, Inc.
The acquisition was accounted for as a purchase. On April 17, 1998,
StyleSite sold substantially all of the assets and certain of the
liabilities of Biobottoms, Inc.

(4) Reflects the conversion or exchange of 379,745 shares of preferred stock,
the proposed 1-for-13 reverse split of our common stock and the equity
investment of approximately $5.85 million for approximately 2.7 million
shares.

(5) Reflects the sale of 2,000,000 shares of common stock and the application of
the anticipated use of net proceeds as well, as the items discussed in
Note 4.

(6) E(L)BITDA is defined as earnings (loss) from continuing operations before
income taxes, interest expense, depreciation and amortization. We believe
that the presentation of E(L)BITDA facilitates an investor's understanding
of our operations. E(L)BITDA should not be considered by an investor as an
alternative to net income as an indicator of the operating performance or to
cash flows as a measure of liquidity. E(L)BITDA is not used in the
presentation of financial statements prepared in accordance with generally
accepted accounting principles and may not be comparable to similarly titled
measurements reported by other companies.

<PAGE>
RISK FACTORS

You should carefully consider the following factors before deciding to
invest in the shares. The risks and uncertainties described below are not the
only ones we face. Additional risks and uncertainties not presently known to us,
or that we consider immaterial or that are similar to those faced by other
companies in one or more of the same lines of business, may also impair our
business operations. The following risks could materially harm our business,
financial condition or future results. If that occurs, the trading price of our
common stock could decline, and you could lose all or part of your investment.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below and elsewhere in this
prospectus. Please refer to "Forward Looking Information" on page 11.

RISKS PARTICULAR TO STYLESITE

We have had operating losses in the past and may not be able to operate
profitably in the future. During the fiscal years ended September 30, 1998 and
1997 and the nine months ended September 30, 1996, we reported a net loss to
common stockholders of approximately $1.4 million (including net losses from
discontinued operations of $2.3 million), net income to common stockholders of
approximately $800,000, and a net loss to common stockholders of approximately
$7.2 million, respectively. For the nine months ended June 30, 1999, we had a
net loss to common stockholders of approximately $22.9 million. This loss
includes write-offs of approximately $9.7 million of goodwill, $1.5 million of
deferred tax credit and an $870,000 note receiveable in connection with
discontinued operations. We may not be able to operate profitably in the future.
In addition, we will record a financing charge of approximately $2 million
resulting from the issuance of common stock at a discount which will be offset
by an increase to paid-in-capital. The charge will result in a reduction in the
net income, or in an increase in the loss, for the year ended September 30,
1999. See Financial Statements.

Our inadequate working capital has caused, and may continue to cause,
inadequate availability of credit from vendors, cash reserves to be held by our
credit card processors for merchandise refunds, and delays in printing and
delivering catalogs. Our lack of working capital has resulted in a reluctance
of certain key creditors to extend us adequate credit. Because of this
inadequate credit, we have been unable to fulfill our orders in a timely manner,
resulting in substantial back orders and delayed payment of our obligations. The
inability to ship goods on a timely basis has resulted in increased customer
order cancellations, higher than normal returns of goods, damage to our
reputation and loss of repeat buyers. We may not be successful in securing
additional vendor credit and improving shipment of merchandise in the future. If
we cannot get additional vendor credit, we may continue to incur substantial
losses. Our credit card processors have established a $500,000 reserve against
any future non-payment of credit card refunds. We cannot assure that this
reserve will be released in the near future or that it will not be increased in
the event the number of returns increases. Finally, we have not been able to pay
our printers in a timely manner to ensure timely printing and delivery of our
catalogs. Because of these delays, we have reduced our catalog circulation
during the current fiscal year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

We may need additional working capital. While we believe the proceeds of
this offering will alleviate our working capital shortage and allow us to
establish our presence on the Internet, this shortage may arise in the future
particularly if vendors do not extend us sufficient credit. In addition, our
growth strategy may require substantial additional capital investment. We may
require capital for

o financing additional inventory for new product lines;

o obtaining new facilities;

o further developing our Internet presence;

o developing strategic relationships; and

o financing acquisitions.

5
<PAGE>

To the extent that the proceeds of this offering, cash generated internally
and cash available under the First Source Financial LLP loan facility are not
sufficient to provide the capital required for such purposes and to fund future
operations, we will require additional debt and/or equity financing in order to
provide such capital. Such financing, however, may not be available or, if
available, may not be on terms satisfactory to us. If we fail to obtain
sufficient additional capital in the future, we may not be able to implement our
business strategy. If we are able to obtain additional debt financing, we may
incur increased interest and amortization expense, increased leverage, increased
exposure to competitive pressures and increased exposure to economic downturns.
If we are able to obtain equity financing, such financing may dilute the equity
interest of our existing stockholders. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations".

Our business may continue to be affected by our substantial debt and
restrictions under loan covenants. We have a significant amount of debt. Our
debt service obligations could have material adverse consequences to our
security holders. As of September 27, 1999, we have approximately $18.1 million
of loans before payments contemplated by this offering and the conversion of the
collateral transferred to First Source by both of our chairman and our principal
stockholder to reduce outstanding loans. Of these loans, $12.9 million is owed
to First Source under our new loan facility and $5 million is owed under
debentures sold in June 1998 to Finova Mezzanine Capital, formerly known as
Tandem Capital. Both the First Source loan facility and Finova debentures impose
restrictions on us including limiting our payment of dividends.

The level of our indebtedness and debt covenants could have important
consequences to us and our stockholders including, but not limited to, the
following:

o our ability to obtain additional financing in the future may be impaired;

o a significant portion of our cash flow from operations must be dedicated
to the payment of principal and interest on our indebtedness, thereby
reducing the funds available to us for our operations;

o the First Source loan facility bears interest at variable rates, which
could result in higher interest expense in the event of increases in
interest rates;

o the First Source loan facility and Finova debentures contain financial
and restrictive covenants, which if not complied with, may result in an
event of default by us which, if not cured or waived, could have a
material adverse effect on us;

o we may be substantially more leveraged than certain of our competitors,
which may place us at a competitive disadvantage; and

o our substantial debt may limit our flexibility to adjust to changing
market conditions, reduce our ability to withstand competitive pressures
and make us more vulnerable to a downturn in general economic conditions
or our business.

Our ability to make scheduled payments and comply with our debt covenants
or to refinance our debt obligations will depend upon our future financial and
operating performance, which will be affected by prevailing economic conditions
and financial, business and other factors, certain of which are beyond our
control. Cash flow from operations and other capital resources may not be
sufficient for payment of our debt in the future. In the absence of such
operating results and resources, we could face substantial liquidity problems
and might be required to dispose of material assets or operations to meet our
debt service and other obligations. If we are unable to pay our debt, we may be
required to take actions such as reducing or delaying planned expansion and
capital expenditures, selling assets, restructuring or refinancing our
indebtedness or seeking additional equity capital. We can not predict whether
any of these actions could be effected on satisfactory terms, if at all. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

Our business may be affected as a result of security interests in our
assets. All of our assets, except for our Stony Point real estate, which is
also subject to mortgages, are pledged as collateral to secure the First Source
loan facility and Finova debentures. Unless these security interests are
released, such assets will not be available to secure future indebtedness, and
as such may adversely affect our ability to borrow money

6
<PAGE>

in the future. Moreover, in the event of a default by us on any of our
obligations, including with respect to the financial covenants contained in the
First Source loan facility and Finova debentures, such lender could foreclose on
our assets.

Our Stony Point real estate is subject to two mortgage liens. We owe
approximately $600,000 on the junior mortgage, which is due but has been
extended to October 10, 1999 by the lender. We are currently seeking to
refinance these mortgages but may not be able to do so. If we cannot refinance
the junior mortgage by October 10, 1999, we must pay the junior mortgage lender
or be in default. Default by us on either mortgage lien could result in the loss
of our real estate and also result in default under the First Source loan
facility and Finova debentures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations".

We are dependent on our vendors and the loss of certain vendors or
increases in the costs of postage, paper or printing could substantially hurt
our operations. We depend on the United Parcel Service and the United States
Post Office to timely deliver our merchandise to our customers. These package
delivery services each account for about one-half of our merchandise shipping. A
work stoppage or strike by either delivery service would have a material adverse
effect on us. Postal rates and paper and printing costs affect the cost of our
order fulfillment and catalog and promotional mailings. We rely heavily on
discounts from the basic United States Postal Service rate structure, such as
discounts for bulk mailings and pre-sorting by zip code and carrier routes. Like
others in the catalog industry, we pass on a significant portion of our shipping
and handling expenses directly to our customers, but we do not directly pass on
the costs of preparing and mailing catalogs and other promotional materials.
Historically, we have not entered into long-term contracts for our paper
purchases. Consequently, we could be subject to an increase in paper costs.
Significant increases in postal rates or paper or printing costs could have a
material adverse effect on our business, particularly if we are unable to pass
on such increases directly to our customers or to offset such increases by
either raising prices or reducing other costs.

Our broad range of merchandise requires that we maintain relationships with
many manufacturing sources and suppliers. Although we believe that we have
established satisfactory relationships with our principal manufacturing sources,
we do not have long-term contracts. Our inability to source quality goods in a
timely manner at favorable prices could adversely affect us.

We have not completed our websites and we lack experience in
e-commerce. To date, we have not hosted our catalogs on our own websites, nor
do we have any experience in the e-commerce industry. We are in the process of
testing our e-commerce concept, and cannot be sure that once launched, our
e-commerce objectives will be achieved. We have recently entered into a
strategic relationship with Tadeo Holdings, Inc. to develop and maintain our
branded Internet sites. We are dependent on them to develop our websites. If
Tadeo does not complete these websites and maintain them until we have developed
our own internal expertise in e-commerce, it may take some time for us to find
an alternative candidate. This would delay implementing our Internet strategy,
which is a core part of our growth program. See "Business--Our
Strategy--Internet Strategy".

We may be liable for unused merchandise credits. Because of our policy of
periodically writing off into income unused merchandise credits from the Lew
Magram and Brownstone Studio catalogs, we may be liable for future claims on
such amounts previously written off. The amounts written off into income for
1997 and 1998 were $742,000 and $3,398,000, respectively.

We need to recruit and retain additional personnel. We will require
additional personnel in order to implement our growth strategy and support
expanded operations, especially in implementing our e-commerce strategy.
Accordingly, we will need to recruit and retain additional operating, finance
and other personnel. There can be no assurance, that we will succeed in
recruiting and retaining the requisite qualified personnel as and when needed.

We are dependent on our key personnel. We depend upon our senior
management team as a whole, led by Warren H. Golden, our president and chief
executive officer, to successfully implement our business strategy. Although we
have employment agreements with some of these key employees, we may not be able

7
<PAGE>

to keep these people. We do not currently maintain key man life insurance on any
of our officers. See "Management".

We may not be able to acquire companies or develop strategic
relationships. We may encounter substantial competition in our efforts to
identify and acquire appropriate acquisition candidates, which could have the
effect of increasing prices for acquisitions. We may also be unable to identify
strategic partners on terms that will be favorable to us, which would prevent us
from pursuing certain business opportunities, especially in the e-commerce area.
There can be no assurance that we will succeed in identifying appropriate
acquisition candidates, or strategic partners, or that we will be able to
acquire any acquisition candidate that we do identify on terms that are
acceptable to us. See "Business--Our Strategy".

We may incur significant costs to integrate our new operations if
acquired. If we make an acquisition, we intend to focus substantial efforts on
its efficient integration, the elimination of duplicative costs and the
reduction of overhead. There can be no assurance, however, that we will be
successful in these efforts or that these efforts may not in certain
circumstances adversely affect existing operations. See "Business--Our
Strategy".

RISKS PARTICULAR TO OUR INDUSTRY

We may not be able to adjust to changing consumer preferences. The apparel
industry is cyclical. Purchases of apparel and related merchandise tend to
decline during recessionary periods and also may decline at other times. We may
not be able to achieve growth in revenues or earnings or become profitable in
the future. Further, a recession in the general economy or uncertainties
regarding future economic prospects could affect consumer spending habits and
have an adverse effect on our results of operations. Apparel sales have
historically been dependent, in part, upon discretionary consumer spending which
is affected by general economic conditions, consumer confidence, availability of
consumer credit and other factors beyond our control.

Our performance is subject to risks associated with changing fashion and
our ability to deliver fashion that is in demand in a timely manner. We believe
that our success depends in substantial part on our ability to originate and
define product and fashion trends as well as to anticipate, gauge and react to
changing consumer demands in a timely manner. We may not continue to be
successful in this regard. If we misjudge fashion trends or consumer
preferences, or if there is a downturn in discretionary consumer spending, our
business could be adversely affected. See "Business".

Internet security concerns could hinder our e-commerce strategy. The need
to securely transmit confidential information over the Internet has been a
significant barrier to electronic commerce and communications over the Internet.
Any well-publicized compromise of security could deter people from using the
Internet or using it to conduct transactions that involve transmitting
confidential information. We may incur significant costs to protect against the
threat of security breaches or to alleviate problems caused by such breaches.
See "Business--Our Strategy--Internet Strategy".

There is competition for Internet based businesses targeting women. The
number of websites competing for the attention and patronage of women on the
Internet has increased and will continue to increase. We will be competing with
online apparel stores and online community sites which are targeting women. Many
of these sites have an established presence on the Internet or have financial
resources that are greater than ours. An inability to attract women fitting our
customer profile to our Internet site would adversely affect our Internet
strategy and could result in a loss of or negate any investment in our website
development. See "Business--Our Strategy--Internet Strategy".

Our industry is competitive. The women's apparel industry is highly
competitive. We compete with traditional department-store retailers, as well as
specialty apparel and accessory retailers. We also compete with other direct
marketers, some of which may specifically target our customers. Many of our
competitors are larger and have substantially greater financial, distribution
and marketing resources than we do.

There are few barriers to entry in the women's apparel market. Other
catalogers, store-based retailers and apparel manufacturers may enter this
market. We also could face competition from manufacturers of women's apparel,
including our current vendors, who could market their products directly to
retail customers

8
<PAGE>
or make their products more readily available in retail stores or through other
catalogs. In addition, competitors could enter into exclusive distribution
arrangements with our vendors and deny us access to their products. Increased
competition could result in pricing pressures, increased marketing expenditures
and loss of market share, and could have a material adverse effect on us.

We expect that the direct marketing industry will be affected by
technological changes in distribution and marketing methods, such as on-line
catalogs, retail kiosks and Internet shopping. We believe that our long term
success will depend, in part, on our ability to adapt to new technologies and to
respond to competitive demands. We may need to incur substantial capital
expenditures to adapt to new technologies. We may not be able to remain
competitive in response to technological changes. See "Business--Competition".

If the computer systems we rely upon are not Year 2000 compliant, our
business may be adversely affected. Many currently installed computer systems
and software products are coded to accept only two-digit entries in the date
code field. Our computer equipment and software and devices with embedded
technology that are date-sensitive may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions. There can be no assurance
that our computer systems contain all necessary date code changes, or that, in
the year 2000, our computer systems will be compatible with third-party software
that may be integrated or used in conjunction with our computer systems.

There can be no assurance that the computer systems of our suppliers or
shippers will be year 2000 compliant. The failure of our computer systems or
those of our suppliers, service producers, or shippers to be year 2000 compliant
could have a material adverse effect on our business, financial condition,
results of operations or prospects. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Year 2000".

RISKS PARTICULAR TO OUR OFFERING

Our principal stockholder has granted an irrevocable proxy to vote a
substantial portion of our outstanding common stock to our director nominee who
may have a possible conflict of interest with us.
Our principal stockholder, the Rubin Family Irrevocable Stock Trust, the grantor
of which is Robert M. Rubin, our Chairman of the Board, has invested in excess
of $18 million and beneficially owns, after this offering, approximately 59% of
our voting stock. The Trust, at the request of the underwriter, Donald & Co.,
has granted, simultaneous with the closing of this offering, a two-year
irrevocable proxy to our independent director nominee, Anthony Towell, to vote,
with some exceptions, the number of our shares of common stock the Trust owns so
that the Trust will only have voting power up to a maximum of 25% of our
outstanding common stock. For example, after this offering we will have
outstanding approximately 7.1 million shares. The Trust will be able to vote
approximately 1.77 million shares and Mr. Towell will have the power to vote the
Trust's remaining 2.38 million shares. This irrevocable proxy gives Mr. Towell
voting power over approximately 34% of our voting shares which would give him
significant influence over the outcome of matters submitted to the stockholders
for approval, including the election of our directors, and, as a result, have
significant influence over our affairs and management. The irrevocable proxy
does not apply to matters concerning a change in control of the company, such as
an acquisition, and bankruptcy, and, as such, the Trust will be able to control
the outcome on any of these matters submitted to a vote of the stockholders. The
irrevocable proxy terminates two years from the closing of this offering or at
such time that the Trust's beneficial ownership in our common stock is less than
25% of the outstanding common stock, at which time, the Trust will have the
right to vote all of the stock it owns. See "Principal Stockholders". Neither
our certificate of incorporation nor our bylaws provide stockholders with
cumulative voting rights.

Although Mr. Rubin has disclaimed beneficial ownership of the Trust's
interest in us, there can be no assurance that Mr. Rubin's or Mr. Towell's
relationships with us will not give rise to conflicts with respect to future
transactions by us. If such conflicts arise, they may not be resolved in our
favor.

The market price for our common stock may be depressed when shares become
eligible for future sale. The market price of our common stock could decline as
a result of sales of a substantial number of shares of our common stock in the
market after this offering, or the perception that such sales could occur. Such
sales also might make it more difficult for us to sell equity securities in the
future at a time and at a

9
<PAGE>

price that we deem appropriate. After this offering, we will have approximately
7.1 million outstanding shares of common stock. Including the 2 million shares
being offered hereby, and up to an additional 300,000 shares that may be issued
to cover the underwriters' over-allotment, approximately 2.9 million shares will
be freely tradeable. See "Shares Eligible for Future Sale".

Our directors, officers and principal stockholder who hold an aggregate of
approximately 4.4 million shares and options to purchase approximately
1.2 million shares of common stock have entered into lock-up agreements pursuant
to which they have agreed that they will not sell, directly or indirectly, any
shares of common stock without the prior written consent of the underwriter,
Donald & Co., for a period of one year from the date of this prospectus. For one
year thereafter, these persons may not sell more than 25% of their
StyleSite shares in any three month period without Donald's consent. See
"Underwriting".

Our debt covenants may make a takeover difficult. The First Source loan
facility and Finova debentures contain covenants against certain changes in
control without prior consent. The First Source loan facility prohibits a change
in ownership of more than 50% of our voting stock, the removal or
non-re-election of two-thirds of our board or the resignation or termination of
any two of Warren H. Golden, Mark J. McSweeney or Irving Magram other than for
cause without First Source's consent. The Finova debentures prohibit termination
or resignation of either of Warren H. Golden or Robert M. Rubin other than for
cause without Finova's consent. Violation of these covenants triggers an event
of default effectively preventing a takeover without these lenders' consent. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".

We have discretion in reallocating use of proceeds. We intend to use the
net proceeds of this offering to pay debts, redeem preferred stock, finance
inventory, develop our websites and to fund general corporate purposes. See "Use
of Proceeds". We may, however, reallocate net proceeds for other purposes if, in
our view, the needs of our business require it.

We could be delisted from the Nasdaq Stock Market. The Nasdaq Stock Market
requires that, to maintain their continued listing, companies must have net
tangible assets of at least $2 million, market capitalization of at least
$35 million, or net income of $500,000 in the most recently completed fiscal
year or in two of the last three most recently completed fiscal years. We did
not meet any of the three alternatives as of June 30, 1999. Although as of the
date of this prospectus we have more than $2 million of net tangible assets, we
cannot assure you that Nasdaq will not seek to delist us.

Our common stock may become subject to the penny stock rules which would
impose significant restrictions on the broker-dealers and may affect the resale
of our common stock. In the event our common stock is delisted and no longer
included on the Nadaq Stock Market, our common stock may become subject to the
"penny stock" rules. A "penny stock" is generally a stock that

o is not listed on a national securities exchange or Nasdaq,

o is listed in "pink sheets" or on the NASD OTC Bulletin Board,

o has a price per share of less than $5.00 and

o is issued by a company with net tangible assets less than $5 million.

The penny stock trading rules impose additional duties and responsibilities
upon broker-dealers and salespersons effecting purchase and sale transactions in
common stock and other equity securities, including

o determination of the purchaser's investment suitability,

o delivery of certain information and disclosures to the purchaser and

o receipt of a specific purchase agreement from the purchaser prior to
effecting the purchase transaction.

Many broker-dealers will not effect transactions in penny stocks, except on
an unsolicited basis, in order to avoid compliance with the penny stock trading
rules. In the event our common stock becomes subject to the penny stock trading
rules

o such rules may materially limit or restrict the ability to resell our
common stock and

o the liquidity typically associated with other publicly traded equity
securities may not exist for our common stock.

10
<PAGE>
FORWARD LOOKING INFORMATION

To the extent that the information presented in this prospectus discusses
financial projections, information or expectations about our products or
markets, or otherwise makes statements about future events, such statements are
forward-looking. Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements. These include, among others:

o availability of sufficient vendor credit to obtain timely shipment of
inventory to meet customer demand;

o maintain customer loyalty to continue demand for our merchandise;

o reduce order cancellations from 25% of demand to 10%, the industry
average;

o successful expansion of product lines in our catalogs;

o consumer acceptance of our new products;

o successful implementation and consumer acceptance of our e-commerce
websites;

o price pressures and other competitive factors leading to a decrease in
anticipated revenues and gross profit margins; and

o a downturn in general economic conditions.

When considering such forward-looking statements, you should keep in mind
the risk factors and other cautionary statements in this prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements, and other
information with the SEC. Prior to August 24, 1999, these filings were under our
former name, Diplomat Direct Marketing Corporation. Our SEC filings are
available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the
public reference rooms. We are listed on the Nasdaq SmallCap Market. Our
periodic reports, proxy statements, and other information can be inspected at
the offices of Nasdaq at 1735 K Street, NW, Washington, DC, 20006, including
our:

o Annual Report on Form 10-K for the year ended September 30, 1998; and

o Quarterly Reports on Form 10-Q for the quarters ended December 31, 1998,
March 31, 1999, and June 30, 1999.

You may obtain a copy of these filings, without charge, by writing or
calling us at:

StyleSite Marketing, Inc.
414 Alfred Avenue
Teaneck, New Jersey 07666
(201) 833-4450

If you would like to request these filings from us, please do so at least
five business days before you have to make an investment decision.

You should rely only on the information provided in this prospectus. We
have not authorized anyone else to provide you with different information. We
are not making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other then the date on the front page.

<PAGE>
USE OF PROCEEDS

We estimate that the net proceeds to us from the sale of the 2,000,000
shares of common stock will be approximately $8.5 million. "Net proceeds" are
what we expect to receive after paying the underwriting discount and other
expenses of the offering. For the purpose of estimating net proceeds, we are
assuming that the public offering price will be $5.00 per share.

We intend to use the net proceeds from the sale of the shares as follows:

<TABLE>
<S> <C> <C>
To repay a portion of the outstanding balances due under the First Source loan
facility, to repay a loan by an investor and to prepay a portion of a litigation
settlement....................................................................... $1,700,000 20%
To redeem a portion of our redeemable preferred stock.............................. $1,550,000 18%
To finance the purchase of inventory............................................... $3,650,000 43%
To integrate and operate the Lew Magram and Brownstone Studio interactive
websites......................................................................... $ 750,000 9%
To fund general corporate purposes................................................. $ 850,000 10%
</TABLE>

If any or all of the overallotment option is exercised, we intend to use
the net proceeds from the overallotment option to fund working capital and
general corporate purposes.

We reserve the right to reallocate proceeds to different uses if, in our
view, the needs of the business so require. In addition, a large portion of the
proceeds is allocated to discretionary purposes. We are restricted under the
First Source loan facility from paying debt subordinated to First Source or
redeeming preferred stock. Although First Source has consented to our paying
subordinated debt or redeeming preferred stock described in the table above, any
additional payment of subordinated debt or redemption of prefered stock will
require First Source's consent.

We believe that the net proceeds of this offering, together with available
funds on hand, cash flow from operations and assuming our receipt of additional
vendor credit, will be sufficient to satisfy our current working capital
requirements for at least 12 months following this offering. Such belief is
based upon certain assumptions including assumptions as to our contemplated
operations, obtaining sufficient vendor credit, and economic and industry
conditions. We cannot be certain that such resources will be sufficient for such
purpose. We are seeking to refinance the junior mortgage on our Stony Point
property. If we are able to do so by October 10, 1999, we anticipate using
approximately $600,000 of proceeds initially intended for repayment of debt to
be for general corporate purposes. Funds allocated for general corporate
purposes may also be used for possible acquisitions. No acquisition has yet been
identified. If we were to make significant acquisitions for cash, we would
require additional capital. In addition, contingencies may arise that may
require us to obtain additional capital. We cannot be certain that we will be
able to obtain such capital on favorable terms or at all. Please see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business".

<PAGE>
PRICE RANGE OF COMMON STOCK

Our common stock is traded on The Nasdaq SmallCap Market under the symbol
"STLE". The following table sets forth, for the two most recent fiscal years and
the first three quarters of fiscal year 1999, the high and low bid prices per
share of the common stock as reported by Nasdaq for each quarter. The prices
represent inter-dealer quotations without adjustments for mark-ups, mark-downs
or commission and may not represent actual transactions. These prices are not
adjusted to reflect the proposed 1-for-13 reverse stock split or the conversion
or exchange of preferred stock.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1997
First Quarter.................................................................................. 2 7/8
Second Quarter................................................................................. 2 3/8 7/8
Third Quarter.................................................................................. 3 1/2 1 5/8
Fourth Quarter................................................................................. 3 5/8 2 5/8

Fiscal 1998
First Quarter.................................................................................. 4 11/32 3 1/4
Second Quarter................................................................................. 4 3/16 2 11/16
Third Quarter.................................................................................. 3 3/4 2
Fourth Quarter................................................................................. 2 1/2 31/32

Fiscal 1999
First Quarter.................................................................................. 2 13/32 1 9/16
Second Quarter................................................................................. 2 15/32 1
Third Quarter.................................................................................. 1 11/16 21/32
</TABLE>

As of September 27, 1999, there were approximately 141 holders of record of
the 17,046,414 outstanding shares of our common stock before giving effect to

o the proposed 1-for-13 reverse stock split,

o the issuance of approximately 14.0 million pre-split shares upon
conversion or exchange of preferred stock, and

o the issuance of approximately 35.1 million pre-split shares for the
recent investment of $5.85 million.

On September 27, 1999, the last sales price for our common stock as
reported on the Nasdaq SmallCap Market was 1/4 without giving effect to the
proposed 1-for-13 reverse stock split.

DIVIDEND POLICY

Since June 1992, we have never paid or declared dividends on our common
stock. The payment of cash dividends, if any, in the future is within the
discretion of our Board of Directors and will depend upon our earnings, capital
requirements, financial condition and other relevant factors. Our existing loan
agreements with our lenders generally restrict our ability to pay dividends or
make other distributions on our common stock without their prior approval. We
intend, for the foreseeable future, to retain future earnings for use in our
business.

<PAGE>
CAPITALIZATION

The following table sets forth:

o under the column "Actual", our capitalization as of June 30, 1999, before
giving effect to the proposed 1-for-13 reverse split of our common stock;

o under the column "Pro Forma", our capitalization as of June 30, 1999
after giving effect to the conversion or exchange of 379,745 shares of
preferred stock, the proposed 1-for-13 reverse split of our common stock
and the equity investment of approximately $5.85 million for
approximately 2.7 million shares. This column also reflects a financing
charge of approximately $2.0 million resulting from the discount on
issuance of common stock (see "Certain Transactions"). The charge will
result in an increase in the loss, for the year ended September 30, 1999;
and

o under the column "As Adjusted", our capitalization as of June 30, 1999
pro forma as described above and after giving effect to the sale of
2,000,000 shares of common stock offered hereby (after deducting the
underwriting discount, commissions and estimated offering expenses) and
the application of the anticipated use of the net proceeds. See "Use of
Proceeds".

The table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and the related notes appearing elsewhere in this prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------------------------
ACTUAL PRO FORMA AS ADJUSTED
------------ ------------ ------------
<S> <C> <C> <C>
Current maturities of long-term debt.............................. $ 1,811,758 $ 1,811,758 $ 1,811,758
------------ ------------ ------------
Long-term debt less current maturities............................ 9,127,847 9,127,847 9,127,847
------------ ------------ ------------
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 1,000,000 shares authorized
396,645 shares issued and outstanding actual; 17,300 shares
issued and outstanding pro forma; and 1,400 shares issued and
outstanding as adjusted...................................... 3,966 173 14
Common stock, $.0001 par value; 50,000,000 shares authorized,
17,046,414 shares issued and outstanding actual; common
stock, $.0013 par value; 80,000,000 shares authorized,
5,061,034 shares issued and outstanding pro forma; and
7,061,034 shares issued and outstanding as adjusted.......... 1,700 6,579 9,179
Additional paid-in capital...................................... 31,838,557 37,687,471 44,644,223
Accumulated deficit............................................. (32,390,493) (34,390,493) (34,390,493)
------------ ------------ ------------
Total stockholders' equity (deficit)......................... (546,270) 3,303,730 10,253,730
------------ ------------ ------------
Total capitalization......................................... $ 10,393,335 $ 14,243,335 $ 21,193,335
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

<PAGE>
SELECTED FINANCIAL DATA

StyleSite's selected consolidated financial data presented below for the
years ended September 30, 1998 and September 30, 1997, the nine months ended
September 30, 1996, and the years ended December 31, 1995 and December 31, 1994
have been derived from StyleSite's audited consolidated financial statements.
The selected financial data of Lew Magram Ltd. presented below for the six
months ended June 30, 1997, the year ended January 4, 1997, the six months ended
December 30, 1995, the year ended July 1, 1995 and the year ended July 1, 1994
have been derived from Lew Magram Ltd.'s financial statements. StyleSite's
selected consolidated financial data presented below for the nine months ended
June 30, 1999 and June 30, 1998 are derived from StyleSite's unaudited
consolidated financial statements.

For financial accounting reporting purposes, we effectively acquired Lew
Magram Ltd. on July 1, 1997, and Lew Magram Ltd. is considered, for financial
accounting reporting purposes, as the predecessor issuer. The information
contained in the selected consolidated financial data is qualified by reference
to, and should be read in conjunction with, the Management's Discussion and
Analysis of Financial Condition and Results of Operations, the consolidated
financial statements and notes thereto, and other financial information
appearing elsewhere in this prospectus. Percentages are percent of net sales.

We believe that the unaudited financial statements from which we derived
the unaudited statement of operations and balance sheet information presented
below were prepared on a basis consistent with our audited consolidated
financial statements and include all adjustments consisting only of normal
recurring adjustments necessary for a fair presentation of our financial
position for the unaudited statement of operations periods and the unaudited
balance sheet dates indicated below. Results for the nine month period ended
June 30, 1999 are not necessarily indicative of the results that may be expected
for the complete 1999 fiscal year.

The per share figures are not adjusted to reflect the proposed 1-for-13
reverse stock split or conversion or exchange of the preferred stock.

STYLESITE'S CONSOLIDATED INCOME STATEMENT DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
NINE MONTHS
NINE MONTHS ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
-------------------------------- ----------------------------- ------------- ------------
1999(4) % 1998(2) % 1998(2) % 1997(1) % 1996(3) % 1995 %
---------- ---- ------- ---- ------- ----- ------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 56,443 100 $57,119 100 $74,586 100 $17,468 100 $7,449 100 $11,301 100
Gross margin................... 26,830 48 26,030 46 40,152 54 8,744 50 57 1 4,388 39
SG&A expenses.................. 35,370 63 28,018 49 37,537 50 7,061 40 3,672 49 4,409 39
Write off of goodwill.......... 9,716 17 -- -- -- -- -- -- -- -- -- --
(Loss) income from continuing
operations before income
taxes........................ (19,957) (35) 2,112 4 1,260 2 1,262 7 (6,057) (81) (721) (6)
Net income (loss).............. (22,324) (40) (199) -- (1,063) (1) 1,106 6 (7,225) (97) (721) (6)
Net income (loss) per common
share from continuing
operations--basic and
diluted...................... (1.60) 0.18 0.08 0.19 (1.34) (0.16)
Net income (loss) per common
share--basic and diluted..... (1.76) (0.01) (0.13) 0.14 (1.59) (0.16)
OTHER DATA
E(L)BITDA(5)................... (6,986) (8) 4,479 8 4,625 6 2,444 14 (4,143) (69) (21) --

1994 %
------- ---
<S> <C> <C>
Net sales...................... $10,279 100
Gross margin................... 4,390 43
SG&A expenses.................. 4,129 41
Write off of goodwill.......... -- --
(Loss) income from continuing
operations before income
taxes........................ (439) (4)
Net income (loss).............. (439) (4)
Net income (loss) per common
share from continuing
operations--basic and
diluted...................... (0.11)
Net income (loss) per common
share--basic and diluted..... (0.11)
OTHER DATA
E(L)BITDA(5)................... 240 2
</TABLE>

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

(1) On February 19, 1998, we closed on the acquisition of Lew Magram, Ltd. For
accounting purposes, the acquisition was effected as of July 1, 1997. The
acquisition was accounted for as a purchase.

(2) On October 30, 1997, we acquired out of bankruptcy all the assets of Jean
Grayson's Brownstone Studios, Inc. The acquisition was accounted for as a
purchase.

(3) On February 6, 1996, we completed the acquisition of Biobottoms, Inc. The
acquisition was accounted for as a purchase. On April 17, 1998, we sold
substantially all of the assets and certain of the liabilities of
Biobottoms, Inc.

(Footnotes continued on next page)

15
<PAGE>
(Footnotes continued from previous page)

(4) In June 1999, the Company wrote-off approximately $9.7 million of goodwill
relating to the acquisitions of Lew Magram and Brownstone and $400,000
relating to other assets.

(5) E(L)BITDA is defined as earning (loss) before income taxes, interest
expense, depreciation and amortization. We believe that the presentation of
E(L)BITDA facilitates an investor's understanding of our operations.
E(L)BITDA should not be considered by an investor as an alternative to net
income as an indicator of our operating performance or to cash flows as a
measure of liquidity. E(L)BITDA is not used in the presentation of financial
statements prepared in accordance with generally accepted accounting
principles and may not be comparable to similarly titled measurements
reported by other companies.

STYLESITE'S CONSOLIDATED BALANCE SHEET DATA (000'S)

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30, DECEMBER 30,
------------------ ------------------------------- -----------------
1999 1998 1998 1997 1996 1995 1994
------- ------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets.................... $35,318 $48,257 $50,959 $33,013 $ 4,848 $ 8,654 $8,071
Total liabilities............... 35,864 30,473 34,625 18,945 6,144 5,128 4,452
Working capital (deficiency).... (7,203) (1,316) (4,662) (3,375) (3,145) 3,162 3,154
Long term debt.................. 9,128 6,049 6,384 1,155 1,047 2,061 1,993
Stockholders' equity
(deficit)..................... (546) 17,783 16,334 14,068 2,523 3,526 3,619
</TABLE>

LEW MAGRAM LTD.'S INCOME STATEMENT DATA (000'S)

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, JANUARY 4, DECEMBER 30, JULY 1, JULY 2,
1997 1997 1995 1995 1994
---------------- ---------- ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 19,643 $ 51,927 $ 23,145 $ 57,616 $ 49,680
Gross margin........................ 7,682 26,815 11,941 28,883 26,501
Net income (loss) from continuing
operations........................ (6,988) (1,482) (761) (2,107) 2,239
(Loss) income before income taxes... (7,206) (790) (480) (1,485) 2,755
Net (loss) income................... (7,276) (790) (465) (1,494) 2,636
</TABLE>

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere in this
prospectus. In addition to the information contained herein the following
discussion contains forward looking statements that involve certain risks and
uncertainties which may cause our actual results in future periods to differ
materially from forecasted results. See "Forward Looking Information" on page
11.

We are a prominent specialty retailer of quality women's fashion apparel
and accessories sold through mail order catalogs and we recently commenced sales
on the Internet. Currently, we target niche markets through our two distinctive
catalogs, Lew Magram, designed to appeal to fashion-oriented women, and
Brownstone Studio, designed to appeal to a broad range of fashions for the
affluent and mature women. We recently acquired the Lew Magram and Brownstone
Studio catalogs. We acquired out of bankruptcy all of the assets of Jean
Grayson's Brownstone Studios, Inc. on October 30, 1997. We effectively took
control over Lew Magram in July 1997 and completed the acquisition on February
19, 1998.

We also manufacture and distribute, primarily to major mass merchandisers,
cloth diapers, diaper covers, layettes, infant and child travel products and
other infant accessories marketed primarily under the Ecology Kids name. On
April 17, 1998, we sold substantially all of the assets of our wholly owned
subsidiary Biobottoms, Inc.

We are currently experiencing significant delays in fulfilling merchandise
orders. This is a result of our difficulty in obtaining timely shipment of
inventory from our vendors to meet customer demand. Some of our vendors and
their lending institutions have been reluctant to extend credit to us in such
amounts and upon such terms as to support timely delivery of inventory as needed
to meet orders. This reluctance is principally a result of our working capital
being insufficient.

Our inability to timely deliver merchandise has resulted in increased order
cancellations, which, for the last 18 months have been approximately 25% of
demand compared to 10% as the industry standard. For the nine months ended June
30, 1999, order cancellations remained high at 25% of demand. This excess order
cancellation may represent as much as $11 million in lost revenue. As a result,
we have recognized increased charges in both the second and third quarters of
fiscal 1999 for the write-off of catalog expenditures disproportionate to the
net sales realized.

We are taking steps to improve our working capital. In May 1999, we
restructured our asset based credit facility to improve our working capital
position. From March 1999 through September 1999, we have obtained approximately
$11 million in equity investments. We anticipate that our restructured debt and
additional equity, along with the proceeds of this offering, will strengthen our
ability to obtain improved credit availability on more favorable terms, timely
deliver merchandise to our customers, reduce order cancellations, and improve
initial customer response. It is too early, however, to determine whether such
additional capital will yield such results.

RESULTS OF OPERATIONS

COMPARISON OF OUR NINE MONTHS ENDED JUNE 30, 1999 TO OUR NINE MONTHS ENDED
JUNE 30, 1998

Net Sales

Consolidated net sales from continuing operations for the nine months ended
June 30, 1999, decreased slightly by 1% to $56.4 million from $57.1 million for
the nine months ended June 30, 1998. Net sales for Brownstone increased from
$15.7 to $22.5 primarily because we owned Brownstone for less than nine months
for the nine month period ended June 30, 1998. Net sales for Lew Magram
decreased from $35.9 to $30.0 during this period. This is primarily due to
increased order cancellations and sellouts as a result of our inability to
timely ship merchandise in this period. Net sales for Ecology Kids decreased
from $5.6 million to $3.9 million also due to our inability to ship merchandise
in a timely fashion to our customers.

17
<PAGE>

Gross Profit

Consolidated gross profit from continuing operations decreased by 11% from
$31.1 million for the nine months ended June 30, 1998 to $26.8 million for the
nine months ended June 30, 1999. Gross profit from continuing operations as a
percentage of net sales decreased from 54% for the nine months ended June 30,
1998 to 48% for the nine months ended June 30, 1999 due to a decrease in margins
on goods sold. This decrease was primarily a result of a higher proportion of
clearance merchandise sales due to an increase in returns of late delivered
merchandise resulting from our inability to obtain vendor credit.

Selling, General and Administrative Expenses

Selling, general and administrative expenses from continuing operations as
a percentage of net sales increased from 49% for the nine months ended June 30,
1998 to 63% for the nine months ended June 30, 1999. The increase in expenses is
attributable to the increase in catalog production costs which are typically
written off over the sales life of the catalog. The life of the catalog in this
period was reduced as a result of our inability to fulfill orders received
during this period. For the nine months ended June 30, 1999, these costs were
$21.2 million as compared to $15.7 million for the nine months ended June 30,
1998.

Interest expense as a percent of net sales increased from 2% for the nine
months ended June 30, 1998 as compared to 3% for the nine months ended June 30,
1999. This increase is due primarily to the interest expense attributable to the
Finova debentures.

During the nine months ended June 30, 1999, there was a write-off of
goodwill of approximately $9.7 million relating to the acquisitions of Lew
Magram and Brownstone Studio. Since the acquisition, we have not realized the
profit generated from the acquisitions and future operating forecasts can not
justify maintaining the current amount of the goodwill assets on the balance
sheet.

Income (Loss) from Continuing Operations

Loss from continuing operations for the nine months ended June 30, 1999 was
approximately $21.5 million as compared to income from continuing operations of
$2.1 million for the nine months ended June 30, 1998 primarily due to the write
off of approximately $9.7 million of the goodwill attributable to the Lew Magram
and Brownstone acquisitions, write off of deferred tax assets of approximately
$1.2 million as well as an increase in catalog production costs chargeable to
that period and to lower margins attributable to unshipped backorders.

Net (Loss)

Net loss for the nine months ended June 30, 1999 was approximately
$22.3 million, as compared to net loss for the nine months ended June 30, 1998
of $0.2 million. This increase in net loss is principally due to the write off
of goodwill as well as the decrease in net revenues and the increase in catalog
production costs, discussed above.

COMPARISON OF OUR FISCAL YEAR 1998 TO OUR FISCAL YEAR 1997

Net Sales

Consolidated net sales from continuing operations for fiscal year 1998
increased by 327% to $74.6 million from $17.5 million in fiscal year 1997. This
significant sales growth was primarily due to the acquisition of Lew Magram,
Ltd. effective July 1, 1997, and the acquisition of the assets of Jean Grayson's
Brownstone Studio out of bankruptcy as of October 30, 1997. These two new
subsidiaries accounted for sales of $68.8 million in 1998.

Maintaining the prior circulation of both acquired catalogs while
streamlining catalog and operational expenses allowed us to be profitable in the
year of acquisition where both companies suffered substantial losses in the year
preceding acquisition. Unfortunately, we lost the opportunity in 1998 to even
further increase sales and profits in this segment of the business due to
excessive customer order cancellations caused by inadequate credit which limited
timely delivery of merchandise.

18
<PAGE>
Gross Profit

Consolidated gross profit from continuing operations increased by 359% from
$8.7 million in 1997 to $40.2 million in 1998 primarily as a result of our
acquisitions. Gross profit from continuing operations as a percentage of net
sales increased from 50% in 1997 to 54% in 1998 due to the higher margins
generally available in the women's apparel catalog marketplace.

Selling, General and Administrative Expenses

Operating expenses net of other income but before depreciation,
amortization and interest from continuing operations as a percent of net sales
increased from 40% for 1997 to 50% for 1998. A major increase in expenses for
the year is attributable to the increase in the catalog production costs which
are typically written off over the sales life of the catalog. In 1998 these
costs were $21.1 million or 28% of net sales. As noted above, order
cancellations resulted in lost net sales and an inflated catalog cost
relationship.

Other operating expenses as a percent of net sales increased in 1998 due
primarily to an increase in depreciation and amortization of tangible and
intangible assets as well as interest expense.

Income from Continuing Operations

Income from continuing operations before income taxes for 1998 was
approximately $1.3 million and was approximately the same as that of 1997,
despite a period of consolidation and re-structuring to assimilate the newly
acquired women's apparel catalog businesses.

COMPARISON OF OUR FISCAL YEAR 1997 TO OUR FISCAL YEAR 1996

These results of operations compare the twelve months ended September 30,
1997 with the nine months ended September 30, 1996.

Net Sales

Consolidated net sales from continuing operations for fiscal year 1997 of
$17.5 million increased $10.0 million or 135% from fiscal year 1996 of $7.5
million, as a result of the Lew Magram sales of $10.6 million from July 1, 1997.
Diplomat took effective control of Lew Magram on July 1, 1997 even though the
acquisition was not completed until February 19, 1998.

Gross Profit

Gross profit in 1996 was essentially non-existent due to inventory write
downs while restructuring, and rose to 50% in 1997 due to normal Ecology Kids
operations and increased margins made available in the last fiscal quarter due
to the Lew Magram acquisition.

Selling, General and Administrative Expenses

Operating expenses from continuing operations were very high in 1996 due to
restructuring costs. These expenses normalized as a percentage of net sales to
40% in 1997 due to normal operations of Ecology Kids and expenses applicable to
Lew Magram for the final quarter.

Interest expense decreased from $0.7 million in 1996 to $0.4 million in
1997 as a result of the conversion of debt to preferred stock by a principal
stockholder.

Income from Continuing Operations

The net income from continuing operations for 1997 was approximately
$1.4 million as compared to a net loss of approximately $6.1 million for 1996.

At September 30, 1997, we recorded deferred tax assets of $1.3 million. The
full utilization of such deferred tax assets is dependent upon our realizing
taxable income in future years. The total amount of future

19
<PAGE>
taxable income necessary for utilizing such deferred tax assets will be
approximately $3.4 million. Based on the current year's operations, such
realization would take approximately six years.

COMPARISON OF LEW MAGRAM LTD.'S SIX MONTHS ENDED JUNE 30, 1997 TO YEAR ENDED
JANUARY 4, 1997

Net sales

Lew Magram Ltd. had begun to feel the effects of insufficient working
capital. Net sales decreased from $51.9 million, which was a full year to $19.6
million, which was a six month period, due to Lew Magram's inability to purchase
all of the merchandise needed for timely delivery to customers.

Gross Profit

Gross profit as a percent of net sales decreased from 52% to 39% primarily
due to the premium Lew Magram Ltd. paid for some merchandise which could not be
delivered in a timely manner at normal prices, as well as the need to clear
excess inventory, once delivered, at lesser margins.

Selling, General and Administrative Expenses

Selling general and administrative expenses net of other income as a
percent of net sales increased from 55% to 75%. This increase is a result of Lew
Magram Ltd.'s inability to timely ship merchandise resulting in increased
returns or failure to ship merchandise at all resulting in cancellations while
it was still incurring the catalog production and operating expenses to mail
catalogs and take and maintain catalog orders.

Net Loss

Net loss increased from $0.8 million to $7.3 million, or, as a percent of
net sales increased from 2% to 37%.

LIQUIDITY AND CAPITAL RESOURCES

Our principal source of working capital has historically been asset based
loan facilities provided by Congress Financial Corporation. On May 12, 1999, we
entered into a Secured Credit Agreement with First Source Financial LLP
providing us with a $17 million asset based loan facility replacing our existing
asset based loan facilities provided by Congress.

The First Source loan facility provides us with a $13 million revolving
loan with an interest rate at prime plus 1 1/2%, a $3 million three year term
loan with an interest rate at prime plus 2% and a $1 million three year term
loan with an interest rate at prime plus 2% increasing to prime plus 3% on
November 15, 1999. We may convert any or all of the loans to a LIBOR (London
interbank offer rate)-based rate. The revolving loan may be converted to LIBOR
plus 3 1/4%, the $3 million term loan may be converted to LIBOR plus 4% and the
$1 million term loan may be converted to LIBOR plus 4% increasing to LIBOR plus
5% on November 15, 1999.

The loan facility is secured by substantially all of our assets, a personal
guarantee by Robert M. Rubin, our Chairman of the Board, up to $1 million and an
additional $1 million cash collateral deposit by Mr. Rubin.

The amount of funds available for us to borrow under the revolving loan is
based on a percentage of our inventory and qualified receivables plus 100% of
Mr. Rubin's cash collateral. As of September 27, 1999, the aggregate
availability under the revolving loan was approximately $9.2 million of which
there was no unused availability.

We have amended the Secured Credit Agreement to allow for an additional
$2.0 million in funds available under the loan facility and to waive certain
financial and other covenant defaults. The additional availability was secured
by a pledge by the Rubin Family Irrevocable Stock Trust of 900,000 shares of
Tadeo Holdings, Inc. common stock.

20
<PAGE>

In September 1999 our Chairman, Robert M. Rubin, and our majority
stockholder, the Rubin Family Irrevocable Stock Trust, transferred to First
Source $1,000,000 cash collateral, approximately $825,000 in marketable
securities and 900,000 shares of Tadeo Holdings common stock initially pledged
to secure a portion of the First Source loan facility. These assets, when
liquidated by First Source, will pay down the First Source loan facility.
Because Tadeo Holdings common stock is thinly traded, the Tadeo Holdings common
stock may not be sold immediately and may not be completely liquidated until
November 1999. Any decline in Tadeo Holdings stock price would reduce the amount
that the First Source loan facility would be paid down. Conversely, we would
benefit from any price increase prior to the liquidation of the Tadeo Holdings
stock. In addition, we will only obtain approximately $1.1 million in additional
availability under the revolving loan as a result of the pay down, assuming
Tadeo Holding's stock price is $3.25 per share. The $1 million cash collateral
will pay off a $1 million term loan and we had received availability under the
revolving loan of 100% of the value of the pledged marketable securities. We had
received availability from First Source under the revolving loan of 60% of the
value of the Tadeo Holdings common stock. See "Certain Transactions".

Under the Secured Credit Agreement, we are obligated to comply with
numerous covenants including (i) providing current information to First Source;
(ii) maintaining corporate status, books and records and minimum insurance;
(iii) complying with tax and other laws and regulations; (iv) maintaining our
real estate; (v) maintaining a minimum net worth of $14 million increasing
periodically to $16.5 million; (vi) maintaining an interest coverage ratio of 2
to 1; and (vii) maintaining a fixed charge coverage ratio of 1.1 to 1.

We are also prohibited, except under certain circumstances, to (i) redeem
any of our outstanding common or preferred stock; (ii) prepay any subsidiary's
debt; (iii) pay dividends on our common stock; (iv) make investments in other
companies; (v) acquire other companies; (vi) amend our charter; (vii) engage in
other types of businesses; (viii) engage in transactions with our officers,
directors, control persons and other affiliates; (ix) incur debt other than debt
in the ordinary course of business and purchase money debt of more than
$1 million; (x) create any liens against our property with certain exceptions;
(xi) move our assets; (xii) sell our assets other than in the ordinary course of
business; (xiii) hire management consultants; (xiv) make capital expenditures in
excess of $500,000 per year; or (xv) incur lease obligations in excess of
$1.5 million per year.

The loan facility will terminate and the loans become due and payable in
the event of a default. Events of default include, with limited exceptions,
(i) failure to pay any of the loans when due, (ii) failure to pay any other
debts when due; (iii) breach of certain material agreements; (iv) insolvency;
(v) breach of any guaranty under the loan facility; (vi) breach of a covenant in
the loan facility; (vii) breach of a representation in the loan facility; (viii)
change to our pension plan; (ix) breach of any of the other agreements delivered
in connection with the loan facility; (x) suffering judgments or levies of more
than $50,000; (xi) destruction of our assets representing more than 15% of our
revenues; (xii) any event resulting in any lien securing the loan facility to
cease to have a first priority position; or (xiii) a change in control. A change
in control includes (i) more than one-half of our voting stock is transferred;
(ii) two-thirds of our board is removed or not re-elected; or (iii) any two of
Warren H. Golden, Mark J. McSweeney or Irving Magram resigns or is terminated
without cause.

On June 29, 1998, we issued $5,000,000 principal amount of our 12%
subordinated secured debentures to Finova Mezzanine Capital, formerly known as
Sirrom Capital Corporation, d/b/a Tandem Capital. The debentures are due June
29, 2003, and bear interest at 12%, payable quarterly. The debentures are
secured by all of our personal property and include certain restrictive
covenants, including restrictions on dividends and distributions, additional
debt financing and transactions betweenus and our affiliates. We also issued
warrants in connection with the issuance of the debentures. At the time of the
loan, we issued a warrant to purchase up to 208,300 shares of our common stock
exercisable at $2.35 per share for five years. The exercise price is to be
adjusted downward if our common stock price is below this exercise price to an
exercise price equal to the greater of 80% of the market price on June 29, 1999
or $2.00 per share. On June 29, 1999, the warrants were repriced to $2.00 per
share. Because the debentures were outstanding on February 28, 1999, we issued
an additional warrant to purchase 416,600 shares of common stock exercisable at
$1.59 per share for five years. Because the debentures were outstanding on June
29, 1999, we issued to Finova an additional warrant

21
<PAGE>

to purchase 200,000 shares of common stock exercisable at $2.00 per share. After
giving effect to the 1-for-13 reverse stock split Finova has warrants to
purchase 31,408 shares at $26.00 per share and 32,406 shares at $20.67 per
share. Finova will also receive 40,000 warrants each June 29 commencing in 1999
while the debentures remain outstanding.

We have also relied on equity investment for our working capital. In March
1999, we raised approximately $3.2 million by issuing our Series F Preferred
Stock and common stock purchase warrants. Approximately $2.7 million is being
exchanged for common stock and $500,000 is being redeemed out of the proceeds of
this offering.

In June 1999, we received a cash investment of $1,050,000 by issuing our
Series G Preferred Stock. The Series G Preferred Stock is convertible into
common stock based on the average of the closing bid prices for the lowest five
of the twenty trading days immediately preceding the date of conversion. For
example, assuming a conversion price of $5.00, the Series G Preferred Stock
holders would receive on conversion an aggregate of 210,000 shares of common
stock. The Series G Preferred Stock is redeemable at our option, but must be
redeemed out of the proceeds of any public offering in excess of $9 million.

In September 1999, we raised $1.1 million by issuing common stock and an
additional $400,000 from a short term subordinated loan. See "Certain
Transactions" and "Use of Proceeds".

We recently settled a lawsuit brought by Paul Russo. Mr. Russo alleged that
he is entitled to the Unit Purchase Option granted to the underwriter in
connection with our intitial public offering in November 1993. As part of the
settlement, Mr. Russo gave up any claim he had under the Unit Purchase Option.
We agreed to pay Mr. Russo $600,000, payable in monthly installments of $25,000,
with 8% interest, commencing September 1, 1999. We also agreed to prepay
$300,000 of the $600,000 out of the proceeds of this offering.

We, however, continue to experience working capital shortages and require
additional capital resources to fund our existing operations. As of September
17, 1999, we have borrowed the maximum amounts available under the First Source
loan facility and there is no unused loan availability. We are pursuing
financing alternatives, although there can be no assurance that such efforts
will result in necessary financing or that the terms of such financing will be
on terms favorable to us or our stockholders. The failure to secure additional
working capital could materially adversely affect our business and financial
condition. Insufficient working capital may require us to alter operations
significantly.

We can not guaranty that we will be able to operate profitably in the
future or that cash from operations will become the principal source of funds
for operations.

LIQUIDITY CONSIDERATIONS AND MANAGEMENT'S PLANNED ACTIONS

We have formulated certain planned actions and taken various steps toward
mitigating the effect of the consolidated working capital and stockholder's
deficit at June 30, 1999 as well as attaining profitable operations and
improving our cash flows. The plans and steps taken include, among other things,
the following:

o We anticipate improving, with the proceeds of this offering, credit
availability from our vendors, thereby timely delivering merchandise and
reducing order cancellations.

o We implemented a cost containment program in 1998. We anticipate $2.65
million in annual savings by reducing selling, general and administrative
expenses.

o In September 1999, Mr. Robert Rubin and the Trust transferred to First
Source certain pledged assets to pay down approximately $5 million of the
loan facility. In addition, Mr. Rubin purchased 461,538 shares of our
common stock for $1 million.

o We are in the process of building and testing branded e-commerce sites
for each of Lew Magram and Brownstone Studio with our strategic partner,
Tadeo Holdings, Inc. We believe that Internet commerce will ultimately
allow us to significantly reduce our largest non-merchandise expenses
such as catalog printing costs, postage and customer communications.

22
<PAGE>

In addition, if this offering is not completed, our chairman of the board
intends to provide us limited financial support for a period of one year from
the date hereof to the extent cash generated internally and cash available under
the First Source loan facility are not sufficient to provide the capital
required for such purposes and to fund future operations.

SEASONALITY

Our business does not follow the seasonal pattern typical of the retail
apparel industry, but is, instead, more closely related to the timing and
distribution of catalog mailings. Through 1997 there were significant variations
in our seasonal sales volume with the largest volume period being first quarter,
ending December 31. In 1998, the Lew Magram and Brownstone acquisitions helped
to spread out the volume evenly throughout the year since mail order volume
varies only in proportion to the orders generated and merchandise shipped.
Accordingly, we are now less susceptible to seasonable variations. The combined
net sales of Lew Magram, Brownstone and Ecology Kids for each quarter of the
fiscal years ended September 30, 1996, September 30, 1997, and September 30,
1998, presented as a percentage of net sales for each such year, were as
follows:

PERCENTAGE OF ANNUAL SALES

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL YEAR QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
September 30, 1996............................................... 27% 24% 30% 19%
September 30, 1997............................................... 33% 25% 24% 18%
September 30, 1998............................................... 24% 23% 28% 25%
</TABLE>

INFLATION

There was no significant impact on our operations as a result of inflation
during fiscal year 1996, fiscal year 1997 or fiscal year 1998.

YEAR 2000

Year 2000 Compliance

Beginning in the Year 2000, the data fields coded in some software products
and computer systems will need to accept four digit entries in order to
distinguish 21st century dates from 20th century dates and, as a result, many
companies' software and computer systems may need to be upgraded or replaced in
order to comply with such Year 2000 requirements. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. Significant uncertainty exists in the software industry concerning the
potential effects associated with such compliance issues.

State of Readiness

We have developed a remediation plan for the Year 2000 issue that involves
identification, assessment and testing of the equipment and systems affected:

o an assessment of information technology (IT) equipment and systems has
been done;

o an assessment of non-information technology (non-IT) embedded systems
such as telephones, voice mail and building security systems has been
completed; and

o the readiness of significant third party vendors and suppliers of
services is being analyzed.

The evaluation, which is expected to be completed by December 1999, covers
the following phases:

o development of an inventory of all IT equipment and systems and non-IT
systems that are potentially affected (100% complete);

o determination of those systems that require repair or replacement (70%
complete);

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o repair or replacement of those systems (25% complete); and

o creation of contingency plans in the event of Year 2000 failures (25%
complete).

To date, less than 10% of assessed systems have required repair or
replacement. Non-IT systems and internally developed programs have been
reviewed, and are not considered to be date sensitive to the Year 2000. Based on
this evaluation, we do not believe that our systems and programs present Year
2000 issues, and generally believe that we will be Year 2000 compliant.

Although we believe that we will be Year 2000 compliant, third party
equipment and software is used that may not be Year 2000 compliant. An
evaluation of the Year 2000 compliance of the third party products used in our
internal systems and major vendors have begun, but we are unable to predict the
extent to which:

o the Year 2000 issue will affect suppliers; or

o we would be vulnerable to the suppliers' failure to remediate any Year
2000 issues on a timely basis.

All our vendors and suppliers have been placed in a priority category
according to their importance to our business. Letters will be sent to all
vendors and suppliers with an operating impact seeking details of the status of
their Year 2000 program. Vendor and supplier readiness is being assessed and
tracked. Vendors have generally indicated that they are making best efforts
toward Year 2000 compliance. We expect to have certification that all vendors
and suppliers with an operating impact are Year 2000 compliant by December 1999.
Plans are being developed to ensure continued availability of service through
alternate channels in the event that satisfactory commitments are not received
from vendors and suppliers with an operating impact. For the highest priority
vendors and suppliers, where business risk warrants it, we are planning to
conduct, in the fourth quarter, an integration test of Y2K compliance where
specific dates are simulated. These vendors and suppliers include merchandise
suppliers such as Call Center Services, Convergys Group, CommercialWare, Inc.
and Clairicom and package delivery services such as United Parcel Service and
the United States Postal Service. The failure of one of these highest priority
vendors or suppliers to convert its systems on a timely basis or in a manner
compatible with our systems could cause us to incur unanticipated expenses to
remedy any problems and could adversely affect its business. In addition, the
software and hardware products used by affiliate Web sites, advertisers,
customers, governmental agencies, public utilities, telecommunication companies
and others, may not be Year 2000 compliant. If these products are not Year 2000
compliant, customers' ability to use our Web site may be disrupted.

Costs to Address Year 2000 Compliance

To date, we have incurred approximately $100,000 in connection with
identifying or evaluating Year 2000 compliance issues. Most of these expenses
have related to the opportunity cost of time evaluating software, the current
versions of our products and Year 2000 compliance matters generally. We expect
that our future Year 2000 costs will be approximately $250,000 and will be
funded out of cash on hand. However, the full impact of the Year 2000 issues
cannot be determined at this time. The failure by certain third parties to
address their Year 2000 issues on a timely basis could adversely affect our
business.

Contingency Plan

We have not yet completed our Year 2000 contingency plans. Such plans
include, but are not limited to, using alternative suppliers and establishing
contingent supply arrangements. We expect to have such plans in place by the end
of December 1999. The worst case scenario related to Year 2000 issues would
involve a major shutdown of the telecommunication companies, which would result
in the loss of our principal revenue source until the shutdown was resolved.

NEW ACCOUNTING STANDARDS

We adopted Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," which established standards for reporting and display of
comprehensive income, its components and accumulated balances. Comprehensive
income is defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures, SFAS
No. 130

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requires that all items that are required to be recognized under current
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The adoption of SFAS 130 did not have any effect on our
financial statements.

We adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," which establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of enterprises
about which separate financial information is available that is evaluted
regularly by our management in deciding how to allocate resources and in
assessing performance. The adoption of SFAS 131 did not have any effect on our
financial statements.

Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for derivative instruments. We have not in the past nor do
we anticipate that we will engage in transactions involving derivative
instruments which will impact our financial statements.

<PAGE>
BUSINESS

We are a prominent specialty retailer of quality women's fashion apparel
and accessories sold through mail order catalogs, and soon through branded,
e-commerce websites. Currently, we target niche markets through our two
distinctive catalogs, Lew Magram and Brownstone Studio. Lew Magram was
established in 1948 as a men's clothier but by 1984 had converted its catalog to
solely offer women's apparel designed to appeal to fashion-oriented women.
Brownstone Studio, established in 1972, offers a broad range of fashions to the
affluent, more mature women. We generally publish 10 Lew Magram catalog editions
per year and nine Brownstone catalog editions per year. Each catalog includes
300 to 500 products and our annual circulation is over 45 million catalogs per
year. With the recent introduction of electronic commerce on the Internet, we
believe as a catalog marketer that we are well positioned to increase our market
penetration at a lower cost on the Internet. We believe that catalog consumers
are the ideal Internet customers because they are accustomed to purchasing
fashion merchandise from a non-store medium. In January 1999 we began offering
our products online at Catalogcity.com We also design, manufacture and market
apparel and accessories for babies and toddlers to mass merchandisers such as
Toys "R" Us, Wal-Mart, Target and Walgreens, under the brand name "Ecology
Kids".

We have an experienced management team with over 150 years in the catalog
business, unique product lines and well-integrated infrastructure and
fulfillment capabilities. Over our history, we have compiled a wealth of
information with respect to our customers' buying patterns. By managing this
information, we can tailor the content of our catalogs, target catalog
distribution to particular customers, offer an expanded range of products to
certain customers, and test new products. Our database includes over 5 million
names of which 3.8 million are customers and 1.2 million are gift recepients and
catalog inquirers.

We are currently completing the creation and design of our own e-commerce
websites for each of Lew Magram and Brownstone Studio with our strategic
partner, Tadeo Holdings, Inc. We anticipate these websites to be operational in
October 1999. These websites will be interactive, allow for online product
purchases from the catalogs and eventually provide content areas which we
believe will be of interest to our existing and prospective customers. With our
accumulated information on existing customers and the information we expect to
obtain through our Internet sites, we believe we will be able to customize each
website in accordance with the preferences of the respective target markets.
These are intended to be the primary websites to offer our products in addition
to Catalogcity.com.

Lew Magram products are marketed to fashion-conscious, value-oriented,
middle- and upper-income and above customers and career women. The Lew Magram
customer on average spends $160 per order. The Lew Magram catalog contains
active wear, career apparel, separates, outdoor wear, footwear and formal wear
for a cross range of lifestyles and women. Much of Lew Magram's apparel carries
our brand label but we do carry other labels as well, both in our apparel and
footware lines.

OUR STRATEGY

We intend to capitalize on our competitive strengths to increase sales to
both existing and new customers and continue to develop operating efficiencies.
The key elements of our strategy are as follows:

BUSINESS STRATEGY

Increase ability to fulfill orders through improved capitalization

We have invested significant capital to acquire the businesses of Lew
Magram and Brownstone Studio. We have been unable to realize all of the benefits
of these investments because a substantial amount of the assets acquired have
been treated as goodwill, an intangible asset. As a result, vendors have been
reluctant to extend us the credit necessary to fully realize the potential of
these acquisitions. The completion of this

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offering will provide the tangible net worth necessary to obtain vendor credit
to increase our inventory levels to meet expected customer demand and reduce
merchandise returns and order cancellations. We believe our improved capital
structure will also enable us to accelerate fulfillment of customer orders,
expand merchandise offerings within each catalog, expand our proprietary Lew
Magram and Brownstone Studio Frequent Buyers Club loyalty programs and offer
other promotions to prospective customers. We believe that these efforts will
increase revenues from our current customers and also attract new customers.

Reduce costs and increase operational efficiencies through improved liquidity

We believe the additional capital generated from this offering will allow
us to take advantage of discounts and flexible payment terms from vendors and
service providers, increase the number of vendors available to us, reduce our
fulfillment cost per order, reduce customer service costs and reduce interest
expense. We intend to operate more efficiently by maximizing use of our in-house
capabilities, improving inventory management, better utilizing our warehouse
space, reducing the number of shipments required to fulfill customer orders and
reducing the use of outside services.

Leverage and expand proprietary customer database

We intend to leverage our proprietary customer database through statistical
modeling and market segmentation techniques. This will enable us to increase our
customer response rate, the dollar amount of purchases per catalog mailed and
the gross profit margin per catalog. We intend to expand our proprietary
customer database by test marketing to specific target audiences which we
believe meet the criteria of our traditional customer base.

Increase brand awareness

We intend to increase brand awareness by expanding the assortment of
available products under the Lew Magram and Brownstone Studio private labels,
increasing merchandise categories offered in each catalog, providing exclusive
product offerings tailored to specific customer profiles and increasing the
usage of our branded private label credit cards. We also intend to utilize our
planned e-commerce Internet sites, our strategic relationship with
Catalogcity.com and other strategic alliances to increase our brand awareness.

GROWTH STRATEGY

Expand through diversifying product lines

We plan to diversify our current Lew Magram and Brownstone Studio product
offerings through the addition of complementary product lines which we believe
will be of interest to our target markets. These product lines will be added
over time and will be subject to the results of our in-house test marketing
programs, some of which will be performed through the Internet, to determine
customer acceptance on additional items before they are included as a regular
segment of our catalogs and online stores. Complementary products which we may
add include cosmetics, fragrances, jewelry and additional fashion accessories.
We are currently in the process of testing the introduction of cosmetics to our
customers. If this proves to be successful, we will introduce our own line of
cosmetics for each of our Lew Magram and Brownstone customers. We believe that
the addition of new product lines to our Lew Magram and Brownstone Studio
catalogs will lead to additional sales to our regular customers and create a
greater level of buying interest from prospective customers. We expect that this
will further enhance our brand names by broadening the range of products with
which they are associated.

Expansion of Ecology Kids line of business

We are attempting to locate licensing partners for products in our Ecology
Kids line to increase the marketability of these products. In addition, we are
continuing to develop a prototype of a business-to-business catalog for the
direct marketing of the Ecology Kids product line to our wholesale customers. We
believe that a well designed business-to-business catalog will allow us to use
our existing infrastructure to build our Ecology Kids operation. We also expect
to launch our Ecology Kids products on the Internet

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through strategic relationships with online baby stores and as specialty
features on our Lew Magram and Brownstone Studio websites, as well as to
wholesale customers on a business-to-business format.

Expand through purchasing complementary businesses

We intend to continue to pursue strategic acquisitions of additional
businesses which complement our current businesses. Our primary focus will be
catalogs that expand our current customer profile, introduce new product
offerings and generate greater operational efficiencies. In addition, we may
seek to purchase catalogs offering products that are compatible with our Lew
Magram and Brownstone Studios product lines, such as additional accessories,
cosmetics, fragrances or jewelry. We also may seek to acquire businesses that
are compatible with Ecology Kids and expand the range of products offered to our
extensive customer base, although such businesses or products have not yet been
identified.

INTERNET STRATEGY

We believe that catalog consumers are logical customers for Internet
commerce because they are accustomed to purchasing fashion products from a
non-store medium. We anticipate that a substantial portion of our existing
customer base will in the future become Internet consumers of our Lew Magram and
Brownstone product offerings. We also believe that our extensive experience with
the presentation of fashion products in an appealing format will help us to
design unique, attractive websites for Lew Magram and Brownstone. The Internet
provides us the opportunity to market our products to a substantially greater
audience than we would otherwise have access to, at a relatively low cost. The
technology available through the Internet provides the customer the ability to
visualize products, colors and styles according to her individual preferences,
and track order status. The Internet also allows us to communicate directly with
our customers through personalized communications and customized product
offerings. This enables us to react to changing business conditions, alter
merchandise selection, pricing and presentation on a virtually real-time basis
without of being subject to catalog lead times.

We believe the Internet will ultimately allow us to significantly reduce
our largest non-merchandise expenses such as catalog printing costs, postage and
customer communications. These costs represented more than 35% of our revenues
for the fiscal year ended September 30, 1998. We can also use the Internet as a
lower cost and a more efficient method of testing new products, new product
lines, special events and promotions and increasing access to prospective
customers.

Our e-commerce sites

We are currently completing the creation and design of our own e-commerce
websites for each of Lew Magram and Brownstone Studio with our strategic
partner, Tadeo Holdings, Inc. We anticipate these websites to be operational in
October 1999. Each website captures the look and feel of its target market,
offering customers shopping and order processing capabilities, as well as
offering additional interactive and community features such as personal shopping
capabilities, daily planners and gift registries. We also intend to augment our
mail order customer profile database through information we obtain through our
Internet sites. We believe this data will make our website communities
attractive destinations for other vendors and e-commerce companies that want
access to our customers. The Internet should also increase brand identity as we
cross market through strategic relationships and online marketing efforts. Cross
marketing should increase as we add product categories such as cosmetics,
fragrances and additional fashion accessories. We believe that leveraging our
existing distribution center and customer service center will support our online
fulfillment performance and compliment our e-mail customer service.

Strategic relationships

We recently entered into a joint venture with Tadeo Holdings, Inc. under
which Tadeo will build our Lew Magram and Brownstone Studio websites and provide
ongoing maintenance and hosting capabilities. We have also entered into an
agreement with Catalogcity.com, the largest online catalog destination on the
Internet, which, since February 1999, has provided customers access to the Lew
Magram and Brownstone Studio catalogs over the Internet. We intend to develop
other strategic relationships relating to our Internet strategy.

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OUR INDUSTRY

In recent years, retailing in the United States has been characterized by a
shift to non-store sales through such media as printed catalogs, broadcast home
shopping channels and the Internet. According to the DMA, catalog sales are
estimated to be $93.27 billion for 1999, representing 3.3% of overall retail
sales. The DMA expects catalog sales to increase to $125 billion by 2004. The
expected growth for catalog sales is approximately 6.1% per year for the next
five years. According to the investment banking firm Gruppo, Levey,
Incorporated, direct marketing sales in the women's apparel category accounted
for $8.4 billion in 1997. A DMA survey done in the first quarter of 1999 showed
that women account for 69.8% of all catalog sales, and women's apparel is the
largest catalog category representing 64% of all catalog purchases. In 1998,
nearly 70% of the women who shop via catalog made a purchase within that year.
We believe that direct marketing apparel sales to women will continue to grow,
due to the convenience and time savings afforded by catalog and recently
introduced e-commerce shopping. The U.S. Census Bureau is projecting the 35-64
year old female population to grow 20.8% from 1995 to 2005. This is an
attractive target group for catalog distributors and e-commerce vendors such as
ourselves, particularly because in excess of 50 million women are in the work
force and therefore may have material discretionary income.

MOVING INTO E-COMMERCE

International Data Corporation projects worldwide commerce revenue on the
Internet to increase from $4.3 billion for 1997 to $11.0 billion in 1999 and is
expected to increase to $84.2 billion by 2004. It is expected that online
shopping will increase at a rate of 50% per annum. Jupiter Communications
estimated that women accounted for 45% of all web users as of January 1998
accounting for 25% of all Internet sales and are expected to account for 47% of
Internet sales by the year 2000. Forrester Research reported that women make 67%
of all household purchase decisions. According to a DMA study done in 1999, 43%
of their member companies are selling online and 49% of those are generating a
profit from online shopping. As a result of these factors, we believe that
apparel sales will be a major component of Internet commerce and that women will
become a highly targeted customer for online stores and advertisers.

OUR BRANDS

We currently offer our products through three operating
subsidiaries--direct mail catalog and Internet retail sales of apparel under the
Lew Magram and Brownstone Studio brands and sales of apparel and accessories for
infants and toddlers to mass merchandisers under the Ecology Kids tradename. For
financial information on the operations of our lines of business, see our
consolidated financial statements commencing on page F-1 and the notes thereto.

LEW MAGRAM

Lew Magram is a leading catalog for stylish career women. Founded in 1948
as a men's clothier, by 1984 Lew Magram converted its catalog to become a
premier women's apparel direct marketer. We began managing the operations of Lew
Magram in July 1997 and completed the acquisition of its assets in
February 1998. We offer our Lew Magram customers unique, fashionable, affordable
women's apparel and accessories, including active wear, career apparel,
separates, outdoor wear and dressy wear that is selected to appeal to a
cross-range of lifestyles and women. Our Lew Magram proprietary database
contains approximately 2.2 million names, of whom 1.6 million are customers,
550,000 are gift recipients and catalog inquirers.

Based on information we regularly gather from our customers, we believe our
typical Lew Magram customer is about 40 years old, works outside the home on
either a full or part-time basis, is well educated, lives in a single family
home, and has a household income of approximately $60,000 per year. Our Lew
Magram customer base is both fashion conscious and value oriented. A particular
niche for our Lew Magram catalog is career suits and dresses. This apparel is
offered in the newest styles, colors and fabrics at prices geared toward the
target customer. As this customer has a busy social and professional life, she
also looks to Lew Magram as a source to provide her with her "day to dinner" and
special occasion dressing needs. In addition, we believe Lew Magram is renowned
in the catalog industry for having a premier selection of

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leather and suede sportswear and outerwear at competitive prices. We have also
recently expanded our size offerings for certain products. Based on positive
response from our customers, we believe this represents a growth opportunity.

The average order from the Lew Magram catalog for fiscal years 1997 and
1998 was $158 and $160, respectively. Our database includes more than 500,000
customers who have made at least two purchases from Lew Magram. In addition to
accepting all major credit cards, Lew Magram also sells its merchandise through
a private label credit card which was launched in 1993. Approximately 110,000
people have the Lew Magram credit card, which accounts for approximately 25% of
Lew Magram's sales.

BROWNSTONE STUDIO

Since 1972, "Jean Grayson's Brownstone Studio" and "Studio Collection" have
been among the largest direct catalog marketers of upscale mature women's
apparel in the United States. We believe this is due principally to superior
merchandising to our target customers, focusing on high quality presentation in
our catalogs, frequently utilizing location shots to display our merchandise in
an appropriate mood and tone, and providing a large and unique selection of
merchandise, including larger sizes which our customers often have difficulty
purchasing elsewhere.

Brownstone has chosen to focus on a relatively narrow but rapidly growing
segment of the consumer catalog market--upscale mature women's fashions--in
order to develop a strong image and identity with our customers. On Brownstone's
proprietary customer list, 79% are age 55 and older. According to American
Demographics magazine, there were approximately 17 million women between the
ages of 50 and 64 in 1997. Also according to American Demographics, the portion
of the US female population ages 50 and over is forecast to increase from
33 million in 1997 to 52 million in 2010. Brownstone seeks to increase market
share in this growing segment of the consumer market. Approximately 49% of
Brownstone's customers have annual household income of $50,000 or more, and
about 86% own their own home.

Our Brownstone proprietary customer database contains approximately 2.8
million names, of whom 2.2 million are customers, 180,000 are gift recipients
and 420,000 are catalog inquirers. For the Fall 1997 season, Jean Grayson's
Brownstone Studio, Inc. was not operational and, as a result, incurred damage to
its customer base. We have since begun recirculating and have had positive
customer response. In addition, we introduced the Brownstone Studio private
label credit card in September 1998. We mailed a total of approximately
22 million Brownstone catalogs in ten different issues during fiscal year 1998,
with an average order value of approximately $140, and we plan to mail a similar
number in 1999. By strengthening customer relations with Brownstone customers,
we believe that we can improve initial customer response and increase average
orders for the Brownstone catalogs.

ECOLOGY KIDS

Our Ecology Kids subsidiary designs, develops, markets and distributes
apparel and accessories for infants and toddlers, such as bathing suits, infant
sleepwear, bedding, garment bags, teething rings and other related products. We
contract manufacture most of our products and the remainder is either assembled
or produced within our own facility at Stony Point, New York. These products are
sold directly to general mass merchandisers, toy retailers, selected chain
stores and independent retail stores. We create customized point-of-purchase
displays for our customers, which include broad selections of branded products
in a variety of categories. We develop uniform packaging with branded product
identification designed to promote a theme of one-stop shopping for all infant
needs.

We believe that customer service is an important component of our Ecology
Kids marketing strategy and tends to be a significant factor in gaining access
to large chain store accounts. As a result, we design our service strategy to
assist those chain stores through the development of improved packaging, product
mix, display, and pricing strategies and effective promotional programs.

We market our Ecology Kids products directly through an internal sales
force and to a lesser extent through independent sales organizations, which are
given principal responsibility for maintaining accounts in specific geographic
regions. Due to a change in the retail marketplace, Ecology Kids has experienced
a

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reduction in the number of retail accounts from prior periods, with an increased
emphasis on mass merchandisers and chain stores. We have approximately 500
retail accounts consisting primarily of mass merchandisers and toy retailers,
and, less significantly, drug store chains, catalog showrooms, mail order
operations and food store chains. In addition to American Drug Stores,
Burlington Coat Factory, Eckerd Drugs, Kids "R" Us, Publix Supermarkets, Toys
"R" Us and Wal-Mart, customers include Target Stores, Walgreen Drug, and
Winn-Dixie Supermarkets.

We are currently developing wholesale direct marketing of Ecology Kids
products through catalog offerings, utilizing our direct marketing expertise.

OUR CATALOG OPERATIONS

PROPRIETARY CUSTOMER DATABASE

We have developed our proprietary customer database over many years through
a variety of techniques, including referrals, gift certificates, catalog
requesters, customers from other mailing lists who have made a purchase and
targeted classified advertising. We have found that our database generates a
greater response rate than purchased or rented mailing lists. Our database
currently includes approximately five million names, of which approximately 3.8
million are customers who have made at least one purchase from us and
approximately 1.2 million are catalog inquirers and gift recipients.

We use traditional mail order techniques to grow our catalog businesses by
mailing catalogs to a combination of names on our customer file and prospect
lists. We employ industry standard segmentation techniques for mailing our
catalogs to names on our proprietary customer database. Typical mailing criteria
include recency of purchase, frequency of purchase and monetary value of the
customer's purchase. This allows us to assign the segmented names to the
appropriate number of mailings as well as the appropriate promotions and page
counts. We use third party providers for merge and file services and maintaining
our customer list rental files. Our best prospects are sourced from other mail
order companies in the women's apparel market. Recent successes with cooperative
databases offer additional sources of economical names. Typically, one third to
one-half of our catalog mailings are to prospect names.

As is common throughout the direct mail industry, we routinely exchange
names with our competitors and rent our list to our competitors and other
businesses. Approximately two-thirds of prospects to whom our catalogs were
mailed in 1998 were obtained on an exchange basis, requiring no cash outlay by
us. Income from list rentals has been over $1 million in each of the last three
years.

CATALOG CONFIGURATION

We believe we are an industry leader in efficiency of catalog
configuration. Most catalogers mail a single edition of their book per mailing,
along with perhaps a few different covers or a signature change for a remail. We
utilize selective binding in order to mail multiple versions of our catalogs. In
the Lew Magram catalog, a typical book would comprise one large assemblage of
pages in common to the entire mailing, plus an additional supplemental set of
pages to a narrower targeted audience, plus one or two other supplements to yet
a narrower audience, plus perhaps a clearance supplement. Any of these parts
might appear in any drop of a book, depending on a number of variables, such as
testing, prospect mailing and special offerings to holders of our proprietary
credit cards, all selectively bound and mailed as parts of a greater whole. This
technique is used to a lesser degree for Brownstone.

MARKETING

Our primary means of marketing is through distribution of our catalogs. Our
marketing department uses certain industry criteria to plan our distribution,
including our overall circulation, number of pages in each book, gross demand
(before returns and cancellations), cost per book, dollars per book, cost per
page per

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book and dollars per page per book. These enable us to prepare our annual budget
and forecast actual contribution dollars to overhead and profit. The following
table illustrates our results for fiscal year 1998:

<TABLE>
<CAPTION>
LEW MAGRAM BROWNSTONE STUDIO
----------- -----------------
<S> <C> <C>
Circulation........................................................... 27,490,000 22,111,000
Average Pages Per Book................................................ 68.5 74.0
Gross Demand.......................................................... $ 76,635 $ 63,660
Cost Per Book......................................................... $ 0.56 $ 0.59
Dollars Per Book...................................................... $ 2.79 $ 2.88
Cost Per Page Per Book................................................ $ 0.0082 $ 0.0080
Dollars Per Page Per Book............................................. $ 0.0406 $ 0.0389
</TABLE>

Our marketing department uses various special promotions to increase
revenues. For example, we have instituted our private label credit card, which
provides deferred payment plans, accelerated shipping and toll free customer
service. The average private label credit card customer typically spends 25% to
30% more than our other customers. Credit card billing inserts with special
promotions have also generated significant customer response. We also use
"bounceback catalogs", which are catalogs delivered with a customer's
merchandise delivery, accompanied by short-term discount offers, to generate
additional revenues. We also deliver other materials with customers' merchandise
packages, such as clearance merchandise offer inserts and other retailers'
offerings. We have recently introduced a point system, similar to the airline
industry's frequent flyer miles, which allows customers to earn gift
certificates for purchases on our proprietary credit card. Our marketing team is
also devoting time and attention to the use of data base marketing to launch our
new e-commerce business.

MERCHANDISING

Merchandise Selection Process

The merchandise selection process for our Lew Magram and Brownstone
catalogs takes into account the following factors:

o Same season performance for the prior year, which analysis includes the
overall success of a given category, the performance of new versus repeat
items, space productivity, price point and best and worst selling items;

o Current sales trends on all the above criteria plus an overview from the
marketing department on current customer database productivity, customer
profile trends, circulation and mail date plans; and

o A trend and fashion direction presentation highlighting the most
important and customer-appropriate styles, colors and fabrics for the
upcoming season.

Our merchandising staff actively considers 1,500 to 2,000 new products in a
given season to develop an exclusive assortment of styles that reflects the
customer's taste at prices she can afford.

Most of our merchandise is sold under our Lew Magram and Brownstone Studio
brand names. The remainder are branded products from other design houses and
market sources. We purchase from over 300 vendors, with no one vendor
representing more than 10% of our sales volume. As we increase the amount and
type of merchandise offered in our catalogs, we anticipate that we will increase
the number of vendors we use, thereby reducing reliance on any particular
vendor.

We are currently in the process of testing a cosmetics line in our
catalogs. If this is successful, our buyers will assist in the design of our
unique cosmetics line "Absolutely Lew". We anticipate doing a similar test for
fine jewelry in the future.

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Creative Processes

Our in-house creative team designs the Lew Magram and Brownstone catalogs
and controls all aspects of their preparation. This in-house capability allows
us the flexibility to direct the production schedule and reduce production lead
time and costs. Once the merchandise is decided upon for an upcoming catalog, we
begin to photograph the merchandise, sometimes on location at exotic
destinations. We utilize the latest computer technology to modify features of
products offered such as changing a dress color, narrowing a waist, changing the
model's shoes or sleeve length. By utilizing ISDN high-speed transmission,
changes are immediately accessible to all parties allowing for last minute
adjustments. Once finalized, the print file is transmitted to the printer. We
can complete a catalog, from the finish of photography through printing, in
about two to four weeks.

Quality Control

Every item selected undergoes a rigorous quality control review that
addresses the fit, styling, quality, and construction of the merchandise. Our
technical design team works with our product specialists to fit each garment on
a live model in advance of production. Upon our receipt of the goods, they are
once again inspected and fit before they are shipped to the customer.

Operations

The primary components of the Lew Magram and Brownstone integrated
operations are its call center services, merchandise returns, distribution and
fulfillment, inventory management, and management information systems.

CALL CENTER SERVICES

Customer orders are received at our call center by phone, fax and mail.
Approximately 87% of all orders are placed by phone; the balance is received by
mail and fax. We provide our customers with 24-hour, seven-days-a-week,
toll-free telephone access for placing orders through voice activation or key
pad depression. Customer service representatives process orders directly into
our management information system, which provides customer information and order
history, product specifications, available substitutes and accessories, expected
ship date and order number. To capitalize on each customer contact, we provide
telemarketing services to other retailers and are compensated with a fee for
each such customer contact. In May 1999, we entered into such a strategic
relationship with Magazine Direct, Inc., a leading magazine subscription agency,
for a joint marketing program through which our call center representatives
offer discount magazine subscriptions to our customers. This generates income to
us based on the number of subscriptions obtained. In addition, Magazine Direct
pays for all calls in which a solicitation is made, which we believe will result
in significant cost savings for us.

Our call center operates on a system with over 160 incoming and outgoing
telephone lines. Approximately 5,000 calls are received per day in our Teaneck,
New Jersey facility. We currently have 84 in-house phone stations which operate
on weekdays from 8:00 a.m. to 10:30 p.m., Eastern Time, with abbreviated
schedules on weekends and holidays. The call center is supported by two outside
service bureaus which handle overflow orders and orders placed when our in-house
call center is closed. Our system processes orders in approximately two to four
minutes, depending upon the nature of the order and whether the customer is a
first-time or repeat customer. Our telephone system automatically routes calls
to the overflow centers after twenty seconds if no in-house customer service
representative is available and our voice recognition unit allows customers to
access status of orders or item availability without involvement of an operator.
We have recently renegotiated our toll-free telephone rates, reducing these
costs by approximately 30%.

MERCHANDISE RETURNS

We have a liberal return policy allowing customers to return regular-priced
merchandise for a full refund within 60 days of receiving the merchandise.
Customers may return sale-priced items for merchandise credits which are good
for one year and are redeemable for our merchandise only. Certain sales of
discounted

33
<PAGE>
merchandise are final. Over 95% of returned items are either replaced in
inventory for future sale, generally after minimal refurbishing, or returned to
their vendors.

DISTRIBUTION AND FULFILLMENT

Our distribution center in Teaneck, New Jersey is integrated with our order
entry system, enabling us to fulfill orders for in-stock merchandise in a timely
manner. Once a customer's telephone order is accepted, our management
information system forwards the order to our distribution center, where all
necessary distribution and shipping documents are printed to facilitate
processing. Shipped orders are bar-coded and scanned and the merchandise ship
date and weight are entered automatically into the customer order history file
and to create United Parcel Service and United States Postal Service billing
information. Our system also employs "least cost routing" which automatically
determines the most cost effective means of shipping merchandise. Each shipment
is packed in a corrugated box with customized tissue paper and sealed with an
embossed foil seal with the Lew Magram or Brownstone logo. Each shipment also
contains a current catalog, a thank-you note which is a turnaround postcard
inviting customer comments, and a packing slip.

A majority of orders for in-stock merchandise are shipped within 48 hours.
Customers generally receive their merchandise within three to five business days
after shipping. Credit card customers receive their merchandise within two days.
Approximately one-half of our products are shipped through the United Parcel
Service and one-half through the United States Postal Service.

INVENTORY MANAGEMENT

We attempt to maintain sufficient quantities by size and color of each item
in our inventory to fill projected orders within the shortest possible lead
time. Our management information system enables our marketing department to
forecast four catalogs simultaneously within each catalog title and make
constant adjustments to update selling curves and needs by item. When overstocks
do occur, we use the following process for their liquidation:

o Strong selling items are re-introduced in the catalogs at a 10-20%
discount;

o Items that have reached the end of their selling-life cycle are eligible
for sales inserts inside of our regular-priced catalogs, at markdowns of
35%-60%;

o Smaller quantities can be liquidated at a very low-cost, high-return
manner through the use of package inserts;

o Items that are not in significant quantity to be placed in a catalog or
package inserts are sent to our outlet stores located in Teaneck and
Secaucus, New Jersey, and are sold at a 30-70% discount; and

o Merchandise that is not sold in the stores is sold to a liquidator to
recover approximately 15-20% of the cost.

MANAGEMENT INFORMATION SYSTEMS

Our mail order operations are supported by a leading mail order software
for order-taking, shipping, credit card authorization, billing, inventory
control and maintenance of online perpetual inventory. Lew Magram was one of six
development partners involved with the development of this software program. The
software program operates on an IBM AS400. The system has recently been upgraded
and is Year 2000 compliant, and we believe that it will adequately provide for
future growth and expansion.

GOVERNMENTAL REGULATION

Our direct marketing business and the catalog industry in general are
subject to regulation by a variety of state and federal laws relating to, among
other things, advertising, imports and sales taxes. The U.S. Federal Trade
Commission regulates our advertising and trade practices and the Consumer
Product Safety Commission has issued regulations governing the safety of our
products. We are also subject to Department of Treasury customs regulations with
respect to goods that it directly imports, including customs duties, quotas and
other import restrictions.

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<PAGE>
As a seller of infants products, we are subject to laws and regulations
administered by various states and the Federal Trade Commission. As a seller of
bedding products, we are also required to maintain licenses in the various
states where it conducts business. These licenses subject us to compliance with
a variety of laws and regulations regarding the labeling and cleanliness of its
infants products. In addition, we have all of our bedding products produced to
the upholstered product specifications required by the flammability laws of the
State of California, which we believe to be the most stringent in the United
States. We believe that we comply with applicable laws and applicable
regulations in all material respects.

INTELLECTUAL PROPERTY

Our success depends, in part, upon the continued development of strong
brand identification for our catalogs and products. We have registered trademark
protection for the names Ecology Kids, Lew Magram, Jean Grayson's Brownstone
Studio, and Studio Collection among other trademarks, as well as many supporting
trade names. We may apply to register other trademarks as we deem appropriate.

COMPETITION

The markets in which Lew Magram and Brownstone participate are highly
competitive. These markets are served by a number of catalog companies and
retailers including traditional department stores, discount retailers, and
specialty chains. We compete generally in the retail women's apparel market and,
more specifically, the direct mail catalog market, with such companies as
Brylane, Inc., DM Management, Inc., Lands-End, Inc., Delias, Inc. and Coldwater
Creek, Inc. Lew Magram directly competes with catalog retailers that target the
market for women ages 35 to 55, which include J. Jill, Spiegel, Victoria's
Secret, Chadwick's of Boston and Clifford & Wills. Brownstone directly competes
with catalog retailers which target the mature women's market, which include
Talbot's, Nicole Somers, Damon's & Draper's, Papillon, as well as specialty
store catalogs such as Nordstrom's, Saks and Nieman Marcus. Many of our
competitors have substantially greater resources, name recognition and market
share than Lew Magram and Brownstone. In the e-commerce area we will compete
with companies or sites which are primarily focused on targeting women online
such as iVillage.com, Women.com networks, a joint venture between Women.com
networks and The Hearst Corp., Microsoft Corporation's womencentral.msn.com,
condenet.com and Oxygen Media's Web sites, as well as all apparel companies that
sell women's clothing to our target markets on the Internet. Our competitive
advantage is the combination of our experienced marketing team, talented
merchandising and operational efficiencies. We believe that we can maintain and
improve our competitive position in the market by utilizing our proprietary
customer database, soliciting new customers, identifying distinct fashion trends
and continuing to address the needs and fashion tastes of our customers and
leveraging this core business on the Internet.

The infant products industry is highly competitive. Ecology Kids faces
substantial competition in each of its product lines. Ecology Kids competes in a
variety of segments within these product categories, including diapers. Ecology
Kids competes by focusing on product quality, promotions, name recognition and
service. Many of Ecology Kids competitors have substantially greater resources,
name recognition and market share than Ecology Kids.

EMPLOYEES

As of August 27, 1999, we had approximately 321 full-time and 45 part-time
employees. Of these employees, twelve were senior executives of StyleSite two of
which were employed by Ecology Kids, and three of which were employed by Lew
Magram and Brownstone. Lew Magram, Brownstone and Ecology Kids had 48 employees
related to marketing and merchandising (including store employees), 153 in its
call center, 112 in operations and distribution, and 41 in other administrative
positions. None of our employees are represented by a labor union. We consider
relations with our employees to be good.

PROPERTIES

Our executive offices and Lew Magram and Brownstone operations are located
at 414 Alfred Avenue, Teaneck, New Jersey, where we lease approximately
72,000 square feet of warehouse and office space. Total fixed monthly charges
are approximately $52,000 subject to annual escalation clauses. The lease
expires in

35
<PAGE>
August 2001, subject to a three-year renewal option. We also lease approximately
11,000 square feet in the Garment District in New York City at $19,000 per month
for its Lew Magram and Brownstone operations.

We own our warehouse and distribution facilities for Ecology Kids, which is
located at 25 Kay Fries Drive, Stony Point, New York. We pay approximately
$26,000 per month for both mortgage payments and real estate taxes on our Stony
Point facilities. We also operate two retail stores, one located at its Teaneck
facility and one located in Secaucus, New Jersey. The Secaucus store is
approximately 4,300 square feet. Monthly rent and other fixed charges are
approximately $5,000.

LEGAL PROCEEDINGS

We have no notice of any pending material litigation.

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<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL

The following table sets forth certain information about our directors,
executive officers and key personnel:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- --------------------------------------------------
<S> <C> <C>
Robert M. Rubin............................ 58 Chairman of the Board
Warren H. Golden........................... 57 Chief Executive Officer, President and Director
Mark J. McSweeney.......................... 41 Chief Financial Officer
Julia Aryeh................................ 32 Chief Strategic Officer and Director
Irving Magram.............................. 48 Director of Catalogs
Michael J. Rayno........................... 52 Vice President of Operations
Sherry Dolin-Shikora....................... 50 Vice President of Creative Services
Robert Kramer.............................. 45 Vice President of Marketing
Kenneth Grossman........................... 55 Divisional President of Brownstone
Stuart A. Leiderman........................ 55 Divisional President of Ecology Kids and Director
David Abel................................. 57 Director
Irwin Selinger............................. 58 Director
Anthony Towell............................. 68 Director Nominee
</TABLE>

Robert M. Rubin has served as a Director since June 1992 and has been
Chairman since November 1996. Since December 5, 1995, Mr. Rubin has been a
Director of Help at Home, Inc., a public company engaged in the business of
providing homemaker and general housekeeping services to elderly and disabled
persons at home. Since 1997, Mr. Rubin has been Chairman of the Board of IDF
International, Inc., a company that specializes in civil engineering for federal
and state government projects. In October 1996, Mr. Rubin became a director of
Med-Emerg International Inc., an operator of nursing homes and related
healthcare services. Mr. Rubin has served as a Director of Western Power and
Equipment Corporation, a construction equipment distributor, since November 20,
1992. Between November 20, 1992 and March 7 1993, Mr. Rubin served as Chief
Executive Officer of Western Power. Since October 1990, Mr. Rubin has served as
the Chairman of the Board and Chief Executive Officer of American United Global
Inc., a telecommunications and software company. Mr. Rubin was formerly a
Director and Vice Chairman, and is a minority stockholder of American Complex
Care, Incorporated, a public company which provided on-site health care
services, including intradermal infusion therapies. In April 1995, the principal
operating subsidiaries of American Complex petitioned in the Circuit Court of
Broward County, Florida for an assignment for the benefit of creditors.
Mr. Rubin, a principal stockholder of ERD Waste Corp., a public company
specializing in the management and disposal of municipal solid waste, industrial
and commercial nonhazardous solid waste and hazardous waste, was ERD Waste
Corp.'s Chief Executive Officer until July 1997. In September 1997, ERD Waste
Corp. filed for protection under Chapter 11 of the Bankruptcy Code. Mr. Rubin
subsequently resigned as Chairman.

Warren H. Golden was appointed our Chief Executive Officer and President in
May 1999 and had been Executive Vice President, Chief Operating Officer and a
Director of StyleSite since February 1998. Mr. Golden had been with Lew Magram
since 1991 as its Executive Vice President. From 1989 to 1991, Mr. Golden was
with S.C. Corporation, most recently as President. From 1983 to 1989, he was
Vice President of Operations, Chief Financial Officer and Treasurer of Honeybee,
Inc. Prior thereto, Mr. Golden was Senior Vice President, Operations and
Control, for Plymouth Shops, a New York apparel retailer. Mr. Golden is a
graduate of Long Island University.

Mark J. McSweeney has been Chief Financial Officer since May 1999. From
1998 to 1999, he was Executive Vice President with Atlantic Rancher Co., an
upscale men's apparel cataloger. From 1990 to 1998 he was with New England Serum
Co., a business to business and consumer multi-title cataloger of pet supplies,
as its Vice President of Finance/Administration. From 1986-1990, he was
Controller with Woodcraft Supply Corp., a woodworking tool cataloger. From 1982
to 1986, he was with Markline Co., Inc, a consumer electronics cataloger as its
controller. Mr. McSweeney is a graduate of Suffolk University, Boston, MA.

Julia Aryeh has been the Chief Strategic Officer since February 1999. From
1996 through February 1999, Ms. Aryeh was a Vice President of Investment Banking
at Josephthal and Co. Inc. where she acted as

37
<PAGE>

our financial advisor from April 1998 until joining Diplomat. Prior to
Josephthal, Ms. Aryeh practiced securities and corporate law at the Law Firm of
Shereff Friedman Hoffman & Goodman LLP from January 1995 through January 1996.
Prior to that Ms. Aryeh practiced securities law at the law firm of Kelly Drye &
Warren from July 1992 through December 1994.

Irving "Erv" Magram became President of menswear cataloger Lew Magram Ltd.
in 1980. From 1981 to 1984, Lew Magram Ltd. reinvented itself to become a
leading direct marketer of women's fashions. Under his leadership, the company
grew to over $50 million in sales. Lew Magram Ltd. was acquired in 1997. Mr.
Magram is currently our Director of Catalogs.

Michael J. Rayno rejoined our company in 1999 as Vice President of
Operations. From 1997 to 1999, he was Vice President of Operations for
1-800-Present, a gift certificate direct marketer. From 1991 to 1997, he was Lew
Magram Ltd.'s Vice President of Operations. From 1989 to 1991, Mr. Rayno was
Vice President of Operations for Micro Warehouse, a computer hardware and
software direct marketer. From 1987 to 1989, he was Director of Operations for
Honeybee by Mail, a direct mail apparel company. From 1975 to 1987, he was
Manager of Operations of W. Atlee Burpee Co., a garden supplies direct marketer.

Sherry Dolin-Shikora has been Lew Magram's Vice President of Creative
Services since 1988. Prior to that, she served as Director of Retail and Catalog
Advertising and Marketing for Coward Shoe. She spent a number of years with
consumer advertising agencies specializing in the casino/hotel industry, where
she was Account Supervisor, as well as Radio and TV Copywriter and Producer.
Ms. Dolan has a Master's Degree in Literature from Temple University in
Philadelphia.

Robert A. Kramer joined Lew Magram in 1991 as Marketing Manager and became
Vice President in 1993. From 1976 to 1986, he held numerous merchandising
positions at Saks Fifth Avenue, including management, buying, and catalog
administration. During his next four years, he was Circulation Manager, then
Marketing Manager for the cataloger Comfortably Yours. He was educated at
Washington University, St. Louis.

Kenneth Grossman founded the Brownstone Studio catalog in 1972 and served
as its president until October 1997. Mr. Grossman became divisional President of
our Brownstone subsidiary when we acquired the assets of Wilroy Inc. and Jean
Grayson's Brownstone Studio, Inc. in October 1997. Mr. Grossman holds a
bachelors degree from Princeton University and a law degree from New York
University Law School.

Stuart A. Leiderman was appointed as Divisional President of Ecology Kids,
Inc. in October 1998. Previously to that date he served as Executive Vice
President of Sales and Marketing since July 1989, and has been a Director of
StyleSite since June 1992. From 1985 to 1989, Mr. Leiderman was a Divisional
Vice President for Hasbro, Inc., Playskool Baby Division, a company engaged
primarily in the development, sales and marketing of toys.

Irwin Selinger has been a director since September 1999. Mr. Selinger is
the president of Selinger Capital Management, LLC, a management consulting firm.
He was founder of Graham-Fields Health Products, a health care products
manufacturer and distributor and, from 1987 to 1998, its Chairman and Chief
Executive Officer. From 1982 to 1987, he was Chairman and Chief Executive
Officer of Patient Technology, Inc. From 1968 to 1979, he was Chairman and Chief
Executive Officer of Surgicot, Inc., a manufacturer of sterilization indicators,
which was sold to Squibb Corporation.

David Abel has been a Director since May 1998. Mr. Abel has been president
of United Realty since its inception in 1972, an industrial and commercial real
estate company. Mr. Abel has served as a director of numerous companies, and is
currently a director of M.S. Farrell Holdings, Inc. and Innapharma, Inc.
Mr. Abel is a member of the Society of Industrial Realtors and The Commercial
Industrial Brokers Society. Mr. Abel received his BA from the Bernard Baruch
School of Business in 1962.

Anthony Towell was appointed as a director in September 1999 effective upon
the closing of this offering. For more than five years he has been the Vice
President of Finance, Treasurer, Chief Financial Officer, Co-Chairman, and a
Director of Eastco Industrial Safety Corp., a public manufacturing company
specializing in industrial safety. Since July 1991, Mr. Towell was also a
director of Ameridata Technologies, Inc., until its recent sale to General
Electric Capital, Inc. He had also been in the petroleum business with the Royal
Dutch Shell group since 1957. Mr. Towell is also a director of Gulf West Oil and
Windswept Environmental Group, Inc.

We currently have two independent directors and a third effective with this
offering. Directors are elected for one-year terms or until their successors are
elected, and officers serve at the pleasure of the Board of Directors.

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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of StyleSite's Compensation Committee is a current or former
officer or employee of StyleSite. Robert Rubin, a member of the Compensation
Committee, has made substantial equity and debt investments in StyleSite, has
personally guaranteed a portion of the First Source loan facility, was a
controlling stockholder of Lew Magram, Ltd. immediately prior to the acquisition
by StyleSite, and has a consulting agreement with StyleSite. See "Certain
Transactions."

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

To our knowledge, no officers, directors, beneficial owner of more than ten
percent of any class of our equity securities registered pursuant to Section 12
of the Securities Exchange Act of 1934, as amended, or any other person subject
to Section 16 of the Exchange Act with respect to Diplomat, failed to file on a
timely basis reports required by Section 16(a) of the Exchange Act during the
most recent fiscal year, which ended September 30, 1998.

EXECUTIVE COMPENSATION

The following table sets forth certain information regarding compensation
paid by StyleSite during each of the last three fiscal years to our Chief
Executive Officer and to each of our four most highly compensated executive
officers who earned in excess of $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL ---------------------------------
COMPENSATION SECURITIES
--------------------- OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY COMPENSATION OPTIONS/SARS (#)
- -------------------------------------------------- ------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Warren H. Golden
Chief Executive Officer and President........... 9/30/98 245,387 0 0
9/30/97 50,000(1) 0 0

Irving Magram
Director of Catalogs............................ 9/30/98 245,387 0 0
9/30/97 50,000(1) 0 0

Kenneth Grossman
Divisional President--Brownstone................ 9/30/98 183,502 0 26,923

Stephanie Sobel(2)................................ 9/30/98 193,025 0 0
9/30/97 43,125(1) 0 0

Jonathan Rosenberg(3)............................. 9/30/98 225,000 0 0
9/30/97 190,769 0 19,231
9/30/96 130,804 0 5,769

Sheldon R. Rose(4)................................ 9/30/96 159,375 0 0
</TABLE>

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

(1) Salaries for Irving Magram, Warren H. Golden, and Stephanie Sobel for the
fiscal year ending September 30, 1997 are included only for the period from
July 1, 1997, the effective date StyleSite acquired Lew Magram, Ltd.,
through September 30, 1997. Prior to the acquisition of Lew Magram Ltd. on
July 1, 1997, their annual salaries were as follows: Irving Magram,
$300,000; Warren H. Golden, $287,500; Stephanie Sobel, $172,500.

(2) Ms. Sobel resigned as Executive Vice President in July 1999.

(3) Mr. Rosenberg served as President and Chief Executive Officer from November
1996 to May 1999. In May 1999, Mr. Rosenberg left StyleSite and is entitled
to six months salary, payable weekly, as part of his severance arrangement.

(4) Mr. Rose resigned as President and Chief Executive Officer in November 1996.

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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning stock options granted
to each of the executives named in the Summary Compensation Table for the fiscal
year ending September 30, 1998:

<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL OF POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SHARES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM(1)
OPTIONS DURING FISCAL PRICE PER EXPIRATION --------------------------
NAME GRANTED YEAR SHARE DATE 5%
- --------------------------- ---------- ------------- --------- ---------- --------------------------
<S> <C> <C> <C> <C> <C>
Kenneth Grossman(2)........ 26,923 50% 35.75 3/24/03 $266,000

NAME 10%
- --------------------------- --------------------------
<S> <C>
Kenneth Grossman(2)........ $588,000
</TABLE>

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

(1) The amounts shown in these columns represent the potential realizable values
using the options granted and the exercise price. The assumed rates of stock
price appreciation are set by the Securities and Exchange Commission's
executive compensation disclosure rules and are not intended to forecast
appreciation of the common stock.

(2) Of the options granted to Kenneth Grossman, 7,692 are exercisable over a
four year period subject to Brownstone reaching certain earnings criteria,
and 19,231 options are exercisable over time, of which 7,692 are currently
exercisable. Excludes 26,923 options granted to Joan Grossman, Kenneth
Grossman's wife and an employee of Brownstone, which options are on the same
terms as the options granted to Kenneth Grossman.

FISCAL YEAR-END OPTION VALUES

As of September 30, 1998, no options have been exercised by the executives
named in the Summary Compensation Table. The following table sets forth certain
information concerning the number of shares covered by both exercisable and
unexercisable stock options as of September 30, 1998. Also reported are values
of "in-the-money" options that represent the positive spread between the
respective exercise prices of outstanding stock options and the fair market
value of our common stock as of September 30, 1998.

<TABLE>
<CAPTION>
NUMBER OF SHARES SUBJECT TO VALUE OF IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT FISCAL YEAR
FISCAL YEAR-END END(1)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jonathan Rosenberg(2)............................. 16,538 10,000 $18,750 $12,500
Kenneth Grossman.................................. 7,692 19,231 0 0
</TABLE>

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

(1) Based on the closing bid price of our common stock of $1.125 per share on
September 30, 1998 multipled by thirteen to give effect to the 1-for-13
reverse stock split.

(2) As part of Mr. Rosenberg's severance agreement (entered into subsequent to
September 30, 1998), all of his options become immediately exercisable,
contain a cashless exercise feature and the underlying stock has
registration rights.

EMPLOYMENT AGREEMENTS

Warren H. Golden has an employment agreement with us which provides that
Mr. Golden will be employed as StyleSite's Chief Operating Officer and Executive
Vice President and Lew Magram's Executive Vice President, subject to annual
renewals, at an annual salary of $235,000 subject to certain periodic increases
based on performance. The employment agreement, which terminates in February
2001, may only be earlier terminated by us for cause as defined in the
agreement. Mr. Golden was appointed as StyleSite's Chief Executive Officer and
President on May 21, 1999.

Irving Magram has an employment agreement with us which provides that
Mr. Magram will be employed as Divisional President of Lew Magram, subject to
annual renewals, at an annual salary of $235,000 subject to certain periodic
increases based on performance. The employment agreement, which terminates in
February, 2001, may only be earlier terminated by us for cause as defined in the
agreement. Mr. Magram was appointed as StyleSite's Director of Catalogs in July
1999.

40
<PAGE>

In accordance with their respective employment agreements, Messrs. Golden
and Magram will also receive cash bonuses based on Lew Magram meeting certain
profitability criteria. The maximum aggregate cash payment to Messrs. Golden and
Magram under this bonus arrangement is $185,000 per year.

Julia Aryeh has an employment agreement with us which provides that
Ms. Aryeh will be employed as our Chief Strategic Officer and Secretary, subject
to annual renewals, at an annual salary of $200,000 subject to certain periodic
increases based on performance. The employment agreement, which terminates in
February, 2002, may only be earlier terminated by us for cause as defined in the
agreement.

Kenneth S. Grossman has an employment agreement with us which provides that
Mr. Grossman is employed as Brownstone's Divisional President at an annual
salary of $200,000, plus certain other benefits, including an annual bonus of up
to $250,000 based on Brownstone meeting certain income criteria. Mr. Grossman's
agreement also provides for Mr. Grossman to receive $10,000 per year for
merchandise consulting. The employment agreement, which terminates in October
2002, may only be earlier terminated by us for cause as defined in the
agreement.

Each of the foregoing employment agreements contain a provision prohibiting
such employee from competing with us for one year after the employee terminates
his or her position with us or our subsidiaries other than for cause, as defined
in the respective employment agreement.

Robert M. Rubin, Chairman of the Board, has a financial consulting
agreement with us pursuant to which Mr. Rubin is paid $200,000 per annum. The
agreement terminates in December, 2002.

On May 21, 1999, we entered into a severance agreement with Jonathan
Rosenberg. The agreement provides that Mr. Rosenberg will be paid six months
severance equal to $112,500 plus twelve months of health and other benefits. The
agreement terminated Mr. Rosenberg's employment agreement which would have
expired on February 15, 2002. Mr. Rosenberg resigned as Chief Executive Officer,
President and Director on May 21, 1999.

On July 21, 1999, we entered into a severance agreement with Stephanie
Sobel. The agreement terminated Ms. Sobel's employment agreement that would have
expired on February 19, 2001. Ms. Sobel was released from her non-compete
obligations under her employment agreement in return for, among other
consideration, waiving any rights she may have had for future salary or cash
bonuses under the employment agreement. Ms. Sobel resigned as Executive Vice
President and Director on July 13, 1999.

STOCK OPTION PLANS

1998 Stock Option Plan

Our 1998 stock option plan was adopted by the Board of Directors in
February 1998 and approved by the stockholders in May 1998. Under the 1998 plan,
we are authorized to issue options to purchase up to 92,308 shares of common
stock. All officers and other employees and as well as other persons who perform
significant services for or on behalf of us are eligible to participate in the
1998 plan. The plan is administered by the Board or a committee of the Board of
two or more non-management directors.

We may grant under the 1998 plan both incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended, and
stock options that do not qualify for incentive treatment under the Code.

The exercise price of each incentive stock option under the plan will be
determined by the committee, but will be not less than 100% of the fair market
value of common stock on the date of grant (or 110% in the case of an employee
who at the time owns more than 10% of the total combined voting power of all
classes of capital stock). The nonstatutory option exercise price will be
determined by the committee, but will not be less than 85% of the common stock
on the date of grant.

In the discretion of the committee and upon receipt of all regulatory
approvals, an optionee may be permitted to utilize a cashless exercise or
deliver as payment in whole or in part of the exercise price certificates for
shares of common stock (valued for this purpose at its fair market value on the
day of exercise) or other property.

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<PAGE>
An incentive stock option granted under the plan may not be exercisable
after the expiration of ten years from the date it is granted. Without limiting
the generality of the foregoing, the committee may provide in the stock option
agreement that the option subject thereto expires 30 days following the
termination of employment for any reason other than death or disability or
twelve months following a termination of employment for disability or death;
provided, however, that in no event shall any option granted under the plan be
exercised after the expiration date of such option set forth in the applicable
stock option agreement.

If the outstanding shares of common stock are changed into, or under the
plan, exchanged for cash or different number or kind of our securities or
another corporation's securities through reorganization, merger,
recapitalization, reclassification, stock split-up, reverse-stock split, stock
dividend, stock consolidation, stock combination, stock reclassification or
similar transaction, an appropriate adjustment will be made by the committee in
the number and kind of shares as to which options may be granted. In the event
of such change or exchange, other than for securities or of another corporation
or by reason of reorganization, the committee will also make a corresponding
adjustment in the number or kind of shares, and the exercise price per share
allocated to unexercised options or portions thereof, of options which have been
granted prior to such change. Any such adjustment, however, will be made without
change in the total price applicable to the unexercised portion of the option
but with a corresponding adjustment in the price for each share (except for any
change in the aggregate price resulting from rounding-off of share quantities or
prices).

Under the plan, we have outstanding options to purchase an aggregate of
92,308 shares of common stock, 53,846 of which are exercisable at $35.75 per
share and 38,461 of which are exercisable at $13.00, all of which are held by
our employees. Options to purchase 33,333 shares of common stock become
exercisable upon Brownstone meeting certain minimum net income. The remaining
outstanding options become exercisable over four years.

1992 Stock Option Plan

Our 1992 stock option plan provides for the issuance of up to 15,385 shares
of common stock. The terms of the plan are substantially similar to the 1998
Plan. We have outstanding options to purchase an aggregate of 10,000 shares,
exercisable at $19.50 per share, all of which are held by affiliates or
employees of StyleSite at the time of grant.

August 1996 Stock Option Plan

We also established a stock option plan providing for the issuance of
options to purchase up to 115,385 shares of common stock to our directors,
officers, key employees and consultants. We have granted directors, officers and
key employees an aggregate of 11,538 nonstatutory options at an exercise price
of $32.50 per share. Excluding the fact that options granted under the plan
cannot qualify as incentive stock options, the terms of the August 1996 Plan are
substantially similar to the 1998 Plan.

November 1996 Stock Option Plan

Under our November 1996 stock option plan, options to purchase up to
1,192,308 shares of common stock may be granted to employees, officers,
directors and other persons who provide services to us. To date, 69,231 of such
options are exercisable at an exercise price of $13.00 and 50,000 are
exercisable at $30.875. The options to be granted under the plan may be
designated as incentive stock options or nonstatutory options. Other than the
fact that officers and directors who currently own more than 5% of the issued
and outstanding stock are not eligible to participate in the plan, the terms of
the November 1996 plan are substantially similar to the 1998 plan. In September
1999, the board of directors increased the number of shares reserved under the
plan by one million after giving effect to any reverse split. We anticipate
granting options to purchase one million shares to directors, officers and key
employees at 110% of the offering price, but the allocation has not yet been
determined.

42
<PAGE>
EMPLOYEE BENEFIT PLANS

Employee Pension Plan

In 1985, we instituted a pension plan, which is a defined benefit pension
plan maintained for all employees. Benefits are payable based on 60% of average
compensation for the three highest paid consecutive years of service, reduced
for less than 29 years of service retirement. The pension plan is funded as
required by the Employee Retirement Income Security Act of 1974 and does not
require employee contributions. Full vesting occurs immediately upon joining the
plan. As of February 1993, the pension plan was curtailed and no additional
pension benefits will accrue.

Profit Sharing and 401(k) Plans

Lew Magram has a profit sharing program established on April 1, 1981. On
July 1, 1993, Lew Magram amended the Plan to include 401(k) provisions. All
employees servicing either the Lew Magram or Brownstone subsidiaries are invited
to participate in the plan after the required waiting period and while they work
the minimum hours required. Lew Magram and Brownstone match employee 401(k)
contribution on the basis of 25% of the employee's first 5% of 401(k)
withholdings. As of December 31, 1998, the entire plan had assets of
approximately $2.3 million. Benefits vest on a 5-year schedule. Vesting and
eligibility for matching requires the employee to be employed as of the last day
of each plan year.

We also have a 401(k) plan in effect for employees of the Ecology Kids
subsidiary, which was established on January 1, 1997. As of December 31, 1998,
the plan had assets of approximately $175,000.

DIRECTORS' COMPENSATION AND COMMITTEES

In May 1997, we issued to Howard Katz and Wesley C. Fredericks, Jr. options
to purchase up to 3,846 shares and 7,692 shares of common stock, respectively.
The options are exercisable at $30.875 per share and terminate in 2001. In June
1998, we issued to David Abel options to purchase 7,692 shares of common stock
at $13.00 per share which options terminate in May 2003. The options were
granted in connection with each of Messrs. Katz, Fredericks and Abel agreeing to
serve on the Board of Directors. Mr. Fredericks resigned as a director in
December 1998 and Mr. Katz resigned in September 1999. We have not paid and do
not presently propose to pay compensation to any director for acting in such
capacity, except for the grant of options and reimbursement for reasonable
out-of-pocket expenses in attending meetings.

We have three formal committees; the Audit Committee, which consists of
David Abel, Irwin Selinger and, as special advisor, Mark J. McSweeney; the
Compensation Committee, which consists of Robert M. Rubin, Irwin Selinger and
David Abel; and the Corporate Governance Compliance Committee, which consists of
Warren H. Golden and Robert M. Rubin. We do not currently have a stock option
committee or a nominating committee.

The functions of the Audit Committee include: (i) recommending for approval
by the Board of Directors a firm of certified public accountants whose duty it
will be to audit our financial statements for the fiscal year in which they are
appointed, and (ii) to monitor the effectiveness of the audit effort, our
internal financial and accounting organization and controls and financial
reporting. The Audit Committee will also consider various capital and investment
matters.

The Compensation Committee is responsible for establishing compensation
arrangements for officers and directors, reviewing benefit plans and
administering each of our stock option plans.

The Corporate Governance Compliance Committee is responsible for reviewing
us on an ongoing basis regarding compliance with the corporate governance
standards, including Nasdaq rules and standards.

The Board of Directors does not have a standing nominating committee.
Nominations for election to the Board of Directors may be made by the Board of
Directors, or by any shareholder entitled to vote for the election of directors.

Special meetings may be held from time to time to consider matters for
which approval of the Board of Directors is desirable or is required by law. The
Board of Directors met once during fiscal 1998 and acted on numerous matters by
written consent. The Audit, Compensation and Corporate Governance Compliance
Committees did not meet during fiscal 1998.

43
<PAGE>
EXECUTIVES' COMPENSATION POLICIES

Compensation of our executives is intended to attract, retain and award
persons who are essential to the corporate enterprise. The fundamental policy of
our executive compensation program is to offer competitive compensation to
executives that appropriately rewards the individual executive's contribution to
corporate performance. The Board of Directors utilizes subjective criteria for
evaluation of individual performance and relies substantially on the executives
in doing so. The Board focuses on two primary components of our executives
compensation program, each of which is intended to reflect individual and
corporate performance: base salary compensation and long-term incentive
compensation.

Executives' base salaries are determined primarily by reference to
compensation packages for similarly situated executives of companies of similar
size or in comparable lines of business with whom we expect to compete for
executive talent and with reference to revenues, gross profits and other
financial criteria. The Board also assesses subjective qualitative factors to
discern a particular executive's relative value to the corporate enterprise in
establishing base salaries.

It is the Board's philosophy that significant stock ownership by management
creates a powerful incentive for executives to build long-term shareholder
value. Accordingly, the Board believes that an integral component of executive
compensation is the award of equity-based compensation, which is intended to
align executives' long-term interests with those of our shareholders. Awards of
stock options to executives have historically been at then-current market
prices. The Board believes that option grants should be considered on an annual
basis.

PERFORMANCE GRAPH

Below is the line graph comparing the yearly percentage change in our
common stockholders' return with the Nasdaq Stock Market (U.S.) Index and the
Nasdaq Non-Financial Index from our initial public offering in November 1993
through September 1998.

[LINE CHART APPEARS HERE]

CUMULATIVE TOTAL RETURN
----------------------------------------
11/4/93 9/94 9/95 9/96 9/97 9/98
------- ---- ---- ---- ---- ----
StyleSite Market, Inc. ............ 100 162 64 27 62 23
NASDAQ Stock Market (U.S.) ........ 100 99 136 162 222 227
NASDAQ Non-Financial............... 100 96 134 157 211 213

<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth, as of September 27, 1999, except as
otherwise provided, information with respect to beneficial ownership of the
common stock by (i) each director, (ii) each current executive officer named in
the Summary Compensation Table under "Management", (iii) the executive officers
and directors as a group and (iv) each person known to us who beneficially owns
5% or more of the outstanding shares of our common stock. Beneficial ownership
is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to
securities and includes shares of common stock issuable upon conversion or
exchange of outstanding preferred stock, or subject to options, or warrants
exercisable or convertible within 60 days and after giving effect to the
proposed 1-for-13 reverse stock split. The percentage of stock outstanding for
each stockholder is calculated by dividing (i) the number of shares of common
stock deemed to be beneficially held by such stockholder as of
September 27, 1999 by (ii) the sum of (A) the number of shares of common stock
outstanding as of September 27, 1999 plus (B) the number of shares issuable upon
exercise of options or warrants held by such stockholder which were exercisable
as of September 27, 1999 or which will become exercisable within 60 days after
September 27, 1999. Unless otherwise indicated, each of the stockholders has
sole voting and investment power with respect to the shares beneficially owned.
Unless otherwise indicated, the address of each person listed below is c/o
StyleSite Marketing, Inc., 414 Alfred Avenue, Teaneck, New Jersey 07666.

<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF SHARES BEFORE AFTER
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
- ---------------------------------------------------------------------- ------------------ ---------- ----------
<S> <C> <C> <C>
The Rubin Family Irrevocable
Stock Trust U/A dated April 30, 1997(1) ............................ 4,149,480 82% 59%
18 Pinetree Drive
Great Neck, New York 11024
Tadeo Holdings, Inc.(2)............................................... 389,700 7% 5%
5 Hanover Square
New York, New York 10004
Irving Magram......................................................... 71,792 1% 1%
Warren H. Golden(3)................................................... 36,041 * *
Stuart Leiderman(4)................................................... 25,231 * *
Kenneth Grossman(5)................................................... 15,384 * *
Julia Aryeh(6)........................................................ 9,615 * *
David Abel(7)......................................................... 7,692 * *
Irwin Selinger........................................................ 0 0 0
Robert M. Rubin(1).................................................... 0 0 0
All officers and directors as a group (8 persons)..................... 165,755 3% 2%
</TABLE>

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

<TABLE>
<CAPTION>
* less than one percent

<S> <C>
(1) Robert M. Rubin, the Chairman of the Board, is the spouse of the Trust's co-trustee and parent of the Trust's
beneficiaries and may be deemed to be a beneficial owner of these shares. Mr. Rubin disclaims beneficial
ownership of these shares.

(2) Represents 82,008 shares of common stock currently owned and 307,692 shares of common stock issuable upon
conversion of outstanding Series G Preferred Stock assuming a conversion price of $3.25 per share, the closing
bid price on September 27, 1999, after giving effect to the proposed 1-for-13 reverse split. The Series G
Preferred Stock held by Tadeo Holdings is convertible into the number of shares equal to $1,000,000 divided by
the average of the closing bid prices for the lowest five of the twenty trading days immediately preceding the
date of conversion. We intend to redeem this Series G Preferred Stock out of the proceeds of this offering.
</TABLE>

(Footnotes continued on next page)

45
<PAGE>
(Footnotes continued from previous page)

<TABLE>
<S> <C>
(3) Represents 32,195 shares of common stock currently owned and 3,846 shares of common stock issuable upon
exercise of currently exercisable options granted under the November 1996 stock option plan. Mr. Golden also
has additional options to purchase 11,538 shares of common stock which are not currently exercisable and not
exercisable in the next 60 days.

(4) Represents 20,616 shares of common stock currently owned, and 4,615 shares of common stock issuable upon
exercise of currently exercisable options granted under the November 1996 stock option plan. Mr. Leiderman
also has additional options to purchase 3,077 shares of common stock which are not currently exercisable and
will not become exercisable in the next 60 days.

(5) Represents 7,692 shares of common stock issuable upon exercise of currently exercisable options granted under
the 1998 stock option plan, and 7,692 shares of common stock issuable upon exercise of currently exercisable
options granted under the 1998 stock option plan to Joan Grossman, Kenneth Grossman's wife and an employee of
Brownstone. Each of Kenneth Grossman and Joan Grossman has an additional 11,538 options under the 1998 stock
option plan which are not currently exercisable and will not become exercisable in the next 60 days, and an
additional 7,692 options under the 1998 stock option plan which are not currently exercisable and will become
exercisable only upon Brownstone meeting certain minimum earnings criteria which, at the present, have not
been achieved.

(6) Represents 9,615 shares of common stock issuable upon exercise of currently exercisable options granted
pursuant to the 1998 stock option plan. Ms. Aryeh also has an additional 28,846 options which are not
currently exercisable and will not become exercisable within the next 60 days.

(7) Represents 7,692 shares of common stock issuable upon exercise of currently exercisable options granted
pursuant to the November 1996 stock option plan.
</TABLE>

PROPOSAL OF CHANGE OF CONTROL

The Rubin Family Irrevocable Stock Trust, at the request of the
underwriter, Donald & Co., has granted, simultaneous with the closing of this
offering, a two-year irrevocable proxy to our independent director, Anthony
Towell, to vote, with some exceptions, the number of our shares of common stock
the Trust owns so that the Trust will only have voting power up to a maximum of
25% of our outstanding common stock. For example, after this offering we will
have outstanding approximately 7.1 million shares. The Trust will be able to
vote approximately 1.77 million shares and Mr. Towell will have the power to
vote the Trust's remaining 2.38 million shares. This irrevocable proxy gives
Mr. Towell voting power over approximately 34% of our voting shares which would
give him significant influence over the outcome of matters submitted to the
stockholders for approval, including the election of our directors, and, as a
result, have significant influence over our affairs and management.

The irrevocable proxy does not apply to:

o a vote to merge our company with another company or sell all or
substantially all of our assets to another company not affiliated with
the Trust or Robert Rubin;

o a vote to dissolve our company;

o a vote to cause the company to file for bankruptcy; and

o a vote to contest an involuntary bankruptcy.

The irrevocable proxy terminates two years from the closing of this
offering or at such time that the Trust's beneficial ownership in our common
stock is less than 40% of the outstanding common stock, at which time, the Trust
will have the right to vote all of the stock it owns.

<PAGE>
CERTAIN TRANSACTIONS

From time to time, we have engaged in various transactions with our
directors, executive officers and other affiliated parties. The following
paragraphs summarize certain information concerning these transactions to the
extent that they occurred during the past three fiscal years. For the
transactions occurring prior to July 1997, we had only one independent board
member, who approved these transactions. The transactions occurring from March
1999 to July 1999 were approved by one independent board member with our other
independent board member absent from those meetings. All other transactions were
approved by both of our independent board members. Unless otherwise stated, the
following information is adjusted to show common stock issuances as if the
proposed 1-for-13 reverse split of our common stock had occurred prior to the
transaction.

We have a financial consulting agreement with Robert M. Rubin, Chairman of
the Board, providing for the payment to him of $200,000 per annum. Mr. Rubin
consults with us on financial management and long term planning matters,
including consideration of acquisitions. The agreement terminates in
December 2000.

In February 1996, Mr. Rubin loaned us $2,353,500 to be used as part of the
acquisition price of Biobottoms, Inc. which we sold in April 1998. In connection
with such loan, we issued Mr. Rubin 100,000 shares of our Series A Preferred
Stock, convertible into 76,923 shares of common stock at the option of
Mr. Rubin. Mr. Rubin transferred the shares to the Rubin Family Irrevocable
Stock Trust which converted the Series A Preferred Stock in November 1998.

On September 9, 1996, we entered into an arrangement with Gersten, Savage &
Kaplowitz, LLP which provided that Gersten Savage will provide certain legal and
consulting services to us over an extended period of time. As compensation for
its services, certain individual members of Gersten Savage received an aggregate
of 26,923 shares of common stock and options to purchase an aggregate of 11,538
shares of common stock at $32.50 per share. Of such securities, 12,115 shares of
common stock and 5,192 options were issued to Wesley C. Fredericks, who was a
Director and resigned on December 31, 1998.

We issued to Mr. Rubin an aggregate of 42,308 shares of common stock in
consideration of Mr. Rubin's waiver of certain compensation owed to him and for
restructuring certain debt owed to him, waiving certain defaults and providing
an additional loan to us in the aggregate amount of $600,000.

As of September 30, 1996, the $600,000 loan was converted into 60,000
shares of Series C Preferred Stock. The Series C Preferred Stock, which has a
liquidation value of $10.00 per share, is convertible into common stock at 75%
of the current market price based on the average closing price for the common
stock for the 10 days preceding the conversion. Each share of Series C Preferred
Stock entitles the holder to 10 votes per share. The Series C Preferred Stock
pays an annual dividend of 9%, based on the per share liquidation value. In the
event that the dividend, which is payable monthly, is not paid for three
consecutive months, the holder is entitled to an additional 7,692 shares of
common stock for each month that the dividend is not paid. Mr. Rubin transferred
the shares to the Trust.

As of September 30, 1996, Mr. Rubin converted an aggregate of approximately
$2,900,000 in outstanding debt into an aggregate of 290,000 shares of Series B
Preferred Stock. The Series B Preferred Stock, which has a liquidation value of
$10 per share, is convertible into common stock at 75% of the current market
price based on the average closing price for the common stock for the 10 days
preceding the conversion. In addition, each share of Series B Preferred Stock
entitles the holder thereof to 10 votes per share. The Series B Preferred Stock
pays an annual dividend of 9%, based on the per share liquidation value. In the
event that the dividend, which is payable monthly, is not paid for three
consecutive months, the holder is entitled to an additional 7,692 shares of
common stock for each month that the dividend is not paid. Mr. Rubin transferred
the shares to the Trust.

In November 1996, we issued an aggregate of 81,538 options to 35 employees,
including two executive officers and one outside director, pursuant to the
November 1996 stock option plan. The options are exercisable at $13.00 per
share, vest over a period of five years, and expire ten years from the date of
grant, if not sooner due to termination or death of the employee. Options to
acquire 47,692 shares were granted to certain employees of Biobottoms Inc.,
which we subsequently sold, and expired in July, 1998.

47
<PAGE>

In March 1997, we issued 4,017 shares of common stock to Mr. Rubin in lieu
of the dividend payments due under the Series B and Series C Preferred Stock, as
well as for an adjustment in consulting fees, for the period from January 1,
1997 through March 31, 1997. In May 1999, we issued 11,538 shares of common
stock in lieu of the dividend payments due under the Series B and Series C
Preferred Stock.

In May 1997, we issued 15,384 shares of common stock to Mr. Rubin in
consideration of Mr. Rubin extending loans to us as well as extending a personal
guarantee to Congress in connection with our loan facilities.

In May 1997, Robert Rubin and Jay Kaplowitz acquired all of the outstanding
senior convertible preferred stock of Lew Magram Ltd. for $2 million, which was
convertible into one-half of the outstanding common stock of Lew Magram Ltd.
after giving effect to the conversion. The purpose for the investment was to
provide Lew Magram Ltd. with sufficient working capital to maintain operations
until StyleSite and Lew Magram Ltd. could reach an agreement for the acquisition
by StyleSite of Lew Magram. In December 1997, StyleSite entered into an
Agreement and Plan of Merger with Lew Magram Ltd., Robert Rubin, Jay Kaplowitz,
Irving Magram, Warren Golden and Stephanie Sobel, all of the shareholders of Lew
Magram Ltd. Simultaneous with the closing of the merger on February 19, 1998,
Lew Magram Ltd. merged with Magram Acquisition Corp. resulting in Lew Magram
becoming a wholly owned subsidiary of StyleSite. Prior to the closing Messrs.
Magram and Golden and Ms. Sobel owned all of the outstanding common stock of Lew
Magram Ltd. and Messrs. Rubin and Kaplowitz owned all of the outstanding senior
convertible preferred stock of Lew Magram Ltd. At the closing of the Merger,
StyleSite issued 95,000 shares of the Series D Preferred Stock to each of the
Lew Magram Ltd. shareholders of which Mr. Rubin received 46,253 shares,
Mr. Magram received 24,999 shares (excluding 2,497 shares sold to third parties
who converted the shares to common stock), Mr. Kaplowitz received 5,417 shares,
Mr. Golden received 10,556 shares, and Ms. Sobel received 5,278 shares. In
addition, Mr. Magram, Mr. Golden and Ms. Sobel received 7,692, 5,128 and 2,564
shares of StyleSite's common stock, respectively, excluding 3,846 shares of
StyleSite's common stock issued to their counsel at the closing. Each share of
StyleSite's Series D Preferred Stock is convertible into 2,564 shares of
StyleSite's common stock. Each of the Lew Magram Ltd. shareholders have agreed
to indemnify StyleSite for any material breach of the representations made by
Lew Magram Ltd. in the Merger Agreement limited to $9,500,000 and which claims
for indemnification must be brought within one year of the closing date of the
Merger. Messrs. Rubin and Kaplowitz assigned to StyleSite their rights to any
claim either of them may have for breach of any warranty made by Lew Magram Ltd.
in the May 1997 Senior Convertible Preferred Stock Purchase Agreement in return
for a release of their indemnification obligations under the Merger Agreement.
Mr. Rubin transferred his shares to the Trust. All of the Series D Preferred
Stock was converted in May 1999.

In September 1997, Robert Rubin and Jay Kaplowitz advanced an aggregate of
$2,205,000 for the financing of Jean Grayson's Brownstone Studio, Inc. prior to
the purchase by StyleSite, as well as for working capital.

In October 1997, in part to raise capital for our acquisition of
substantially all of the assets of Brownstone out of bankruptcy, we completed a
private offering of our securities which raised $3,630,000 from accredited
investors. The private placement consisted of units, each unit consisting of ten
shares of Series E Preferred Stock and 7,500 shares of common stock at a
purchase price of $10,000 per unit. As a result, we issued an aggregate of 3,630
shares of Series E Preferred Stock and 200,673 shares of common stock. Robert
Rubin and Jay Kaplowitz purchased an aggregate of 220.5 of the units for
$2,205,000, the proceeds of which repaid the $2,205,000 advance by Messrs. Rubin
and Kaplowitz made in September 1997. Mr. Rubin transferred his shares to the
Trust. In April 1999, an additional 75 shares of Series E Preferred Stock and
2,959 shares of common stock were issued to a shareholder.

In March, 1999, StyleSite issued 32,440 Series F Preferred Stock plus
26,617 shares of common stock for an aggregate amount of $3,244,000. Of this
amount, 5,000 shares of Series F Preferred Stock and 4,103 shares of common
stock were issued to an investor for a cash contribution of $500,000, which the
Series F Preferred Stock shall be redeemed out of the proceeds of this offering.
17,200 shares of Series F Preferred Stock and 14,112 shares of common stock were
issued to the Trust for a cash contribution of $1.72 million. Mr. Rubin received
10,240 shares of Series F Preferred Stock and 8,402 shares of common stock for

48
<PAGE>

(i) converting his $200,000 principle amount loan, (ii) converting his $500,000
loan in connection with the Fashionmall.com advance, and (iii) advancing
$324,000 directly to StyleSite's catalog printer. Mr. Rubin transferred his
shares to the Trust.

Our principal working capital credit facility was provided by Congress
Financial Corporation. The lines of credit between Congress and us were
personally guaranteed by Mr. Rubin up to an aggregate amount of approximately
$1,000,000. In addition, Mr. Rubin provided cash collateral in the amount of $1
million and Jay Kaplowitz provided cash collateral in the amount of $100,000 to
increase availability under the Congress credit facility.

We refinanced our asset based loan facility in May, 1999. We obtained a
$17 million loan facility from First Source Financial LLP and terminated the
Congress credit facilities. Mr. Rubin provided a guaranty to First Source of
$2 million which includes a $1 million cash collateral. Mr. Rubin received
19,231 shares of common stock for the First Source guaranty. Mr. Rubin
transferred these shares to the Trust.

Effective June 1999, we entered into a strategic alliance with Tadeo
Holdings, Inc. The Trust owns approximately 9% of Tadeo's outstanding common
stock. As part of the strategic alliance, we agreed to provide consulting
services to Tadeo on direct marketing for $500,000. Tadeo will develop, design
and maintain our web sites for our Lew Magram and Brownstone catalogs for a
royalty of 5% of net revenues derived from our e-commerce business up to
$500,000 and 20% of net profits thereafter. Tadeo will also host our internet
servers for the first year for an additional fee. In addition, Tadeo made a
$1,000,000 cash investment in our Series G Preferred Stock. The Series G
Preferred Stock is convertible into our common stock based on the average of the
closing bid prices for the lowest five of the twenty trading days immediately
preceding the date of conversion. Assuming a conversion price of $3.25, the
closing bid price of our common stock on September 27, 1999, after giving effect
to the reverse split, Tadeo would receive on conversion 307,692 shares of common
stock. The Series G Preferred Stock is redeemable at our option, but must be
redeemed out of the proceeds of any public offering in excess of $9 million. We
also granted Tadeo a right of first refusal on any future securities offerings
while the Series G Preferred Stock is outstanding. Finally, we also exchanged
$1,000,000 worth of our common stock (82,008 shares) for $1,000,000 worth of
Tadeo's common stock (285,715 shares), based on the companies' stock prices as
of June 7, 1999.

In September 1999, to provide us with necessary availability under our
credit facility with First Source, Mr. Rubin and the Trust transferred to First
Source certain pledged assets to pay down approximately $5 million of our asset
based loan facility. Mr. Rubin transferred to First Source a $1 million
certificate of deposit and marketable securities worth approximately $825,000.
The certificate of deposit and securities were pledged to First Source in May
1999. The Trust transferred to First Source 900,000 shares of Tadeo common stock
worth approximately $2.925 million. The Tadeo common stock was pledged by the
Trust in July and August 1999 so that we could obtain an additional $2 million
of availability under the revolving loan. For transferring these assets to First
Source on our account, we issued to Mr. Rubin 842,308 shares of common stock and
the Trust 1,350,000 shares of common stock. Mr. Rubin transferred these shares
to the Trust. In addition, in September 1999, as a condition to achieving
compliance under certain covenants in the First Source loan facility, including
repayment of advances by First Source in excess of the availability under the
revolving loan, Mr. Rubin purchased 461,538 shares of our common stock for $1
million. Mr. Rubin transferred these shares to the Trust. The per share price
paid for the stock was $2.17 compared to the market price of our stock at the
time of $4.06, after giving effect to the proposed 1-for-13 reverse split.

In September 1999, simultaneously with the transfer of the pledged assets
to First Source described above, the Trust converted or exchanged all of the
preferred shares owned by the Trust into our common stock other than the
Series D Preferred Stock which was already converted as described above. The
Trust exchanged all of the Series B Preferred Stock and Series C Preferred Stock
at a formula derived by dividing the total liquidation value of such preferred
shares ($3,500,000) by $8.45 per share for a total of 414,201 shares of common
stock. The terms of the Series B Preferred Stock and Series C Preferred Stock
provided that such preferred shares were to convert at 75% of the current market
price based on the average closing price of the common stock for the 10 days
preceding the conversion (which would have been $8.4825 on that date, resulting
in an issuance of 412,614 shares of common stock, a difference of 1,587 shares
of common stock). The additional shares of common stock issued upon conversion
of such preferred shares were

49
<PAGE>

consideration for the early conversion of such preferred shares by the Trust and
for surrendering certain rights and privileges of owning the preferred shares.
The holders of the Series E Preferred Stock have been granted a limited
opportunity to convert their shares into common stock at a formula derived by
dividing the total liquidation value of such preferred shares ($3,705,000) by
$11.70 per share. The terms of the Series E Preferred Stock provided that such
preferred shares were not convertible. The exchange offer of shares of common
stock for the Series E Preferred Stock was consideration for the holders to
surrender certain rights and privileges of owning the preferred shares. Holders
of $2,305,000 of the Series E Preferred Stock accepted the offer. Of the total
shares to be issued upon conversion of all of the Series E Preferred Stock,
which is 197,009, the Trust will receive 154,274 shares. The Trust exchanged for
422,154 shares of common stock all of the shares of the Series F Preferred Stock
at a formula derived by dividing the total liquidation value of such preferred
shares ($2,744,000) by $6.50 per share. The terms of the Series F Preferred
Stock provided that such preferred shares were not convertible. The agreement to
the exchange of common stock for the Series F Preferred Stock was consideration
for the Trust giving up certain rights and privileges of owning the preferred
shares. We intend to redeem for cash the remaining $500,000 of Series F
Preferred Stock. We are paying in common stock accrued and unpaid dividends on
the Series E Preferred Stock and Series F Preferred Stock. Of the total 30,745
shares of common stock being issued n lieu of cash dividends, the Trust will
receive 17,246 shares.

All future transactions we enter into with our directors, executive
officers and other affiliated persons will be on terms no less favorable to us
than can be obtained from an unaffiliated party and will be approved by a
majority of independent, disinterested members of our board of directors, and
who had access, at our expense, to our or independent legal counsel.

<PAGE>
DESCRIPTION OF SECURITIES

The following description of certain matters relating to our securities
does not purport to be complete and is subject in all respects to applicable
Delaware law and to the provisions of our certificate of incorporation, as
amended, and bylaws, and the underwriting agreement between us and Donald,
copies of all which have been filed with the SEC as exhibits to the registration
statement of with this prospectus is a part.

GENERAL

We are authorized by the certificate of incorporation to issue an aggregate
of 80,000,000 shares of common stock, $.0013 par value per share, and up to
1,000,000 shares of preferred stock, $.01 par value per share. Immediately prior
to this offering, an aggregate of 5,061,034 shares of common stock, 1,400 shares
of Series E Preferred Stock, 5,000 shares of Series F Preferred Stock and 10,500
shares of Series G Preferred Stock were issued and outstanding. All outstanding
shares of common stock are of the same class and have equal rights and
attributes.

COMMON STOCK

We are authorized to issue 80,000,000 shares of common stock, $.0013 par
value per share. As of the date of this prospectus, there are 7,061,034 shares
of common stock outstanding. Each share of common stock entitles the holder
thereof to one vote on all matters submitted to a vote of the shareholders.
Since the holders of common stock do not have cumulative voting rights, holders
of more than 50% of the outstanding shares can elect all of the directors and
holders of the remaining shares by themselves cannot elect any directors. The
holders of common stock do not have preemptive rights or rights to convert their
common stock into other securities. Holders of common stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. In the event of our liquidation,
dissolution or winding up, holders of the common stock outstanding and to be
outstanding upon completion of this offering are and will be fully paid and
nonassessable.

PREFERRED STOCK

Our certificate of incorporation authorizes the issuance of up to 1,000,000
shares of preferred stock the rights, privileges and preferences of which may be
designated by the Board of Directors from time to time. We currently have
outstanding 1,400 shares of Series E Preferred Stock, 5,000 shares of Series F
Preferred Stock and 10,500 shares of Series G Preferred Stock. Our Series E
Preferred Stock is redeemable at our option at $1,000 per share and provides for
cumulative dividends at 6% per year increasing to 12% in October 2000. Our
Series F Preferred Stock is redeemable at our option at $100 per share and
provides for cumulative dividends at 10% per year. Our Series G Preferred Stock
is redeemable at our option at $100 per share, but must be redeemed if we
complete a public offering of at least $9 million, and provides for cumulative
dividends at 10% per year. Holders may convert each share of Series G Preferred
Stock into shares of common stock equal to $100 divided by the average closing
prices for the lowest five of the twenty trading days immediately preceding the
date of conversion. Our outstanding preferred stock has no voting rights except
as required by Delaware law. We intend to redeem, from the proceeds of this
offering, the outstanding Series F Preferred Stock for $500,000 and the
outstanding Series G Preferred Stock for $1,050,000. Preferred stock may be
issued in the future in connection with acquisitions, financings or such other
matters as the Board of Directors deems to be appropriate. In the event that any
such shares of preferred stock shall be issued, a certificate of designation,
setting forth the series of such preferred stock and the relative rights,
privileges and designations with respect thereto, shall be filed with the
Secretary of State of the State of Delaware. The effect of such preferred stock
is that our Board of Directors alone may authorize the issuance of preferred
stock which could have dividend and liquidation preferences senior to common
stockholders, voting rights with common stockholders or as a separate class of
stockholders, and the effect of making more difficult or discouraging an attempt
to obtain control of us by means of a merger, tender offer, proxy contest or
other means.

51
<PAGE>
WARRANTS

We have outstanding warrants and other non-plan options to purchase up to
127,300 shares of our common stock. The exercise prices of these warrants are
$13.00 to $18.19 to purchase 17,308 shares of common stock, $18.20 to $23.39 to
purchase 42,046 shares of common stock, $23.40 to $31.19 to purchase 17,308
shares of common stock, $31.20 to $38.99 to purchase 19,869 shares of common
stock, and $39.00 or more to purchase 30,769 shares of common stock.

DELAWARE ANTI-TAKEOVER LAW

Section 203 of the Delaware General Corporation Law generally prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an interested stockholder for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless
(i) the corporation has elected in its original certificate of incorporation not
to be governed by the Delaware anti-takeover law (we have not made such an
election), (ii) prior to such date the Board of Directors of the corporation
approved either the business combination or the transaction in which the person
became an interested stockholder, (iii) upon consummation of the transaction
that resulted in the stockholder becoming an interested stockholder, the
interested stockholder owned at least 85% of the outstanding voting stock of the
corporation excluding shares owned by directors who are also officers of the
corporation and by certain employee stock plans, (iv) on or after such date the
business combination is approved by the Board of Directors of the corporation
and by the affirmative vote of at least 66 3/4% of the outstanding voting stock
of the corporation that is not owned by the interested stockholder, or (v) the
majority of the corporation's stockholders adopt an amendment to the
corporation's certificate of incorporation electing not to be governed by the
Delaware anti-takeover law, such amendment not being effective for 12 months
following its adoption and not applicable to any business combination between
the corporation and a stockholder who became an interested stockholder after its
adoption. A "business combination" generally includes mergers, asset sales and
similar transactions between the corporation and the interested stockholder, and
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's voting stock or who is an
affiliate or associate of the corporation and, together with his affiliates and
associates, has owned 15% or more of the corporation's voting stock within three
years.

PERSONAL LIABILITY OF DIRECTORS

The Delaware General Corporation Law permits Delaware corporations to
eliminate or limit the personal liability of a director to the corporation for
monetary damages arising from certain breaches of fiduciary duties as a
director. Our certificate of incorporation includes such a provision eliminating
the personal liability of directors to us and our shareholders for monetary
damages for any breach of fiduciary duty as a director, except (i) any breach of
a director's duty of loyalty to us or our stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) for any transaction from which the director derived an
improper personal benefit; or (iv) for unlawful payments of dividends or
unlawful stock repurchases or redemptions as provided in Section 174 of the
Delaware General Corporation Law. Directors are also not insulated from
liability for claims arising under the federal securities laws. The foregoing
provisions of our certificate of incorporation may reduce the likelihood of
derivative litigation against directors for breaches of their fiduciary duties,
even though such an action, if successful, might otherwise have benefitted us
and our shareholders.

Our certificate of incorporation also provides that we shall indemnify its
directors, officers and agents to the fullest extent permitted by the Delaware
General Corporation Law. We have directors' and officers' liability insurance in
the aggregate amount of $5 million. Furthermore, we may enter into indemnity
agreements with its directors and officers for the indemnification of and
advancing of expenses to such persons to the fullest extent permitted by law.

TRANSFER AGENT

The transfer agent for our common stock is North American Transfer Company.

52
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

Upon the consummation of this offering, we will have 7,061,034 shares of
common stock outstanding. In addition, we have reserved for issuance
approximately 1.5 million shares upon the exercise of options eligible for grant
under our stock option plans, approximately 240,000 of which have been granted
and are currently outstanding. We anticipate granting options to purchase one
million shares to directors, officers and key employees at 110% of the offering
price, but the allocation has not yet been determined. The 2,000,000 shares of
common stock registered hereby will be freely tradeable without restriction or
further registration under the Act, except for any shares purchased or held by
our affiliates (in general, a person who has a control relationship with us),
which will be subject to the limitations of Rule 144 adopted under the Act. Of
the shares of common stock to be issued and outstanding after this offering,
approximately 4.5 million shares of common stock are "restricted securities" as
that term is defined under Rule 144, and may not be sold unless registered under
the Act or exempted therefrom. Of these 4.5 million shares, 167,636 are being
registered along with the shares in this offering. These 167,636 shares, and the
additional 98,429 shares of common stock issuable upon exercise of warrants also
being registered along with the shares in this offering, are subject to a lock
up as described below. Certain of the foregoing "restricted securities" are now
eligible to be sold in accordance with the exemptive provisions and the volume
limitations of Rule 144.

In general, under Rule 144, as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an "affiliate" of
us, who for at least one year has beneficially owned restricted securities
acquired directly or indirectly from us or an affiliate of us in a private
transaction is entitled to sell in brokerage transactions within any three-month
period, a number of shares that does not exceed the greater of (i) 1% of the
total number of outstanding shares of the same class, or (ii) if the stock is
quoted on a national securities exchange, the average weekly trading volume in
the stock during the four calendar weeks preceding the day notice is given to
the SEC with respect to such sale. A person who is not an affiliate and has not
been an affiliate of us for at least three months immediately preceding the sale
and who has beneficially owned restricted securities for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to any of
the limitations described above.

Our officers, directors, controlling stockholder and stockholders whose
shares are being registered along with the shares in this offering have agreed
that, subject to certain exceptions, that they will not, without the prior
written consent of Donald, directly or indirectly, sell or otherwise dispose of
any shares of common stock or securities convertible into or exercisable for
common stock for one year from the date of this prospectus. Upon expiration of
the lock-up period all of the shares of common stock subject to such lock-up
agreements will be eligible for sale under Rule 144 subject to volume and other
restrictions of Rule 144. These persons, however, have agreed not to sell more
than 25% of their Diplomat shares in any three month period without Donald's
consent after the one year lock-up period.

Future sales of common stock by certain of the present stockholders, under
Rule 144, may have a depressive effect on the price of our common stock.

53
<PAGE>
UNDERWRITING

We have entered into an underwriting agreement with the underwriters named
below. Donald & Co. Securities Inc. is acting as representative of the
underwriters.

The underwriting agreement provides for the purchase of a specific number
of shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- -------------------------------------------------------------------------------------- ----------------
<S> <C>
Donald & Co. Securities Inc...........................................................
----------
Total....................................................................... 2,000,000
----------
----------
</TABLE>

This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus (other than
those covered by the over-allotment option described below) if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances.

The representative has advised us that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a concession
of $ per share. The underwriters may also allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.

We have granted the representative an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the representative to purchase a maximum of 300,000 additional shares
from us to cover over allotments. If the underwriters exercise all or part of
this option, they will purchase shares covered by the option at the public
offering price that appears on the cover page of this prospectus, less the
underwriting discount. If this option is exercised in full, the total price to
public will be $ , the total proceeds to us will be $ .

The following table provides information regarding the amount of the
discount to be received by the underwriters.

<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE TOTAL WITH FULL EXERCISE
OF OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
------------------------ ------------------------ ------------------------
<S> <C> <C> <C>
$ $ $
</TABLE>

We will pay all of the total expenses of the offering, which we estimate
will be approximately $ . In addition we will pay to Donald $ for
its expenses of which we have paid $15,000.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.

Our officers, directors and controlling stockholder have agreed that,
subject to certain exceptions, that they will not, without the prior written
consent of Donald, directly or indirectly, sell or otherwise dispose of any
shares of common stock or securities convertible into or exercisable for common
stock for one year from the date of this prospectus. Upon expiration of the
lock-up period all of the shares of common stock subject to such lock-up
agreements will be eligible for sale under Rule 144 subject to volume and other
restrictions of Rule 144. These persons, however, have agreed not to sell more
than 25% of their StyleSite shares in any three month period without Donald's
consent after the one year lock-up period.

We and our principal stockholders, officers and directors will grant to
Donald a one (1) year right of first refusal to have Donald sell securities
under future public and private offerings of any non bank debt or equity
securities of our or our subsidiaries, by us, our subsidiaries, our affiliates,
and/or principal stockholders, officers and directors, except for issuances or
sales to employees pursuant to our stock option plan.

54
<PAGE>
In addition for a two year period we will not sell securities to raise
money or issue any options or warrants below the then current market price
without Donald's consent.

We and Donald will enter into a financial consulting agreement providing
for Donald or its designee to act as financial consultant to us for a twelve
month period for a fee of $24,000 payable at a rate of $2,000 per month.

We have granted Donald for a period ending on , the right to
have Donald's designee present at meetings of the Board and each of its
committees subject to our right to exclude such designee under certain
circumstances. The designee will be entitled to the same notices and
communications sent by us as we gave to our directors and will attend directors'
and committees' meetings, but will not be entitled to vote thereat. Such
designee will also be entitled to receive the same compensation payable to
directors as members of the Board and its committees and all reasonable expenses
in attending such meetings. As of the date of this Prospectus no designee has
been selected.

In connection with this offering, we have agreed to sell to Donald, for
nominal consideration, warrants to purchase up to an aggregate of 200,000 shares
of common stock exercisable initially at $ per share of common stock for a
period of four years beginning one year from the date hereof. These warrants
contain antidilution provisions providing for adjustment of the exercise price
upon the occurrence of certain events, including (i) the issuance of common
stock, or securities exercisable or convertible into common stock, at a price
less than the exercise price and (ii) any recapitalization, reclassification,
stock dividend, stock split, stock combination or similar transaction. In
addition, the warrants grant to the holders rights commencing one year from the
date of this prospectus to have common stock to be issued upon exercise of the
warrants registered under the Securities Act. These rights include the right to
require us to register these shares for a four year period and the right to
include these shares for a six year period in a registration statement filed by
us.

Rules of the Securities and Exchange Commission may limit the ability of
the underwriters to bid for or purchase shares before the distribution of the
shares is completed. However, the underwriters may engage in the following
activities in accordance with the following rules:

o Stabilizing transactions--The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of shares, so
long as stabilizing bids do not exceed a specified maximum.

o Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is
created in connection with the offering, the representatives may engage
in syndicate covering transactions by purchasing shares in the open
market. The representatives may also elect to reduce any short position
by exercising all or part of the over-allotment option.

Stabilization and syndicate covering transactions may cause the price of
the shares to be higher than it would be in the absence of such transactions.
The imposition of a penalty bid might also have an effect on the price of the
shares if it discourages resales of the shares.

Neither we nor the underwriters make any representation or prediction as to
the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq SmallCap Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.

o Penalty bids--If the representative purchases shares in the open market
in a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group
members who sold those shares as part of this offering.

In June 1998 Donald received a fee for introducing us to Tandem Capital
which purchased $5,000,000 of our subordinated debentures. For the introduction
Donald was paid a fee of $50,000 paid in installments and received warrants to
purchase 3,846 shares of our common stock exercisable at $31.525 per share.
Donald will also receive fees of $40,000 in connection with our new debt
financing with First Source.

55
<PAGE>
LEGAL MATTERS

The validity of the shares offered will be passed upon for StyleSite by
Gersten, Savage & Kaplowitz, LLP, 101 East 52nd Street, New York, New York
10022. Certain members of Gersten, Savage own approximately 160,000 shares of
common stock and options to purchase approximately 28,000 shares of common
stock. Certain legal matters in connection with the offering will be passed upon
for the underwriters by Parker Duryee Rosoff & Haft, 529 Fifth Avenue, New York,
New York 10022.

EXPERTS

The financial statements of StyleSite Marketing, Inc. as of and for the
year ended September 30, 1998 included in this prospectus and in the
registration statement have been audited by BDO Seidman, LLP, independent
certified public accountants, as set forth in their report appearing elsewhere
herein and in the registration statement, and is included in reliance upon such
report given upon the authority of said firm as experts in auditing and
accounting.

The financial statements of StyleSite Marketing, Inc. as of September 30,
1997 and 1996 and for the year ended September 30, 1997 and the nine months
ended September 30, 1996 included in this prospectus and in the registration
statement have been audited by Feldman Sherb Horowitz & Co., P.C. (formerly
Feldman Sherb Ehrlich & Co., P.C.), independent certified public accountants as
set forth in their report appearing elsewhere herein and in the registration
statement, and is included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.

The financial statements of Lew Magram Ltd. for the year ended January 4,
1997 included in this prospectus and in the registration statement have been
audited by BDO Seidman, LLP, independent certified public accountants, as set
forth in their report appearing elsewhere herein and in the registration
statement, and is included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.

The financial statements of Lew Magram Ltd. as of and for the six months
ended June 30, 1997 included in this prospectus and in the registration
statement have been audited by Feldman Sherb Horowitz & Co., P.C. (formerly
Feldman Sherb Ehrlich & Co., P.C.), independent certified public accountants, as
set forth in their report appearing elsewhere herein and in the registration
statement, and is included in reliance upon such report given upon the authority
of said firm as experts in auditing and accounting.

The financial statements of Jean Grayson's Brownstone Studio, Inc. as of
December 31, 1996 and December 31, 1995 and for the years then ended included in
this prospectus and in the registration statement have been audited by Feldman
Sherb Horowitz & Co., P.C. (formerly Feldman Sherb Ehrlich & Co., P.C.),
independent certified public accountants as set forth in their report appearing
elsewhere herein and in the registration statement, and is included in reliance
upon such report given upon the authority of said firm as experts in auditing
and accounting.

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our amended and restated certificate of incorporation and by-laws provide
that we shall indemnify to the fullest extent permitted by Delaware law any
person whom we may indemnify thereunder, including our directors, officers,
employees and agents. Such indemnification (other than as ordered by a court)
shall be made by us only upon a determination that indemnification is proper in
the circumstances because the individual met the applicable standard of conduct.
Advances for such indemnification may be made pending such determination. Such
determination shall be made by a majority vote of a quorum consisting of
disinterested directors, or by independent legal counsel or by the stockholders.
In addition, the certificate of incorporation provides for the elimination, to
the extent permitted by Delaware law, of personal liability of directors to us
and our shareholders for monetary damages for breach of fiduciary duty as
directors.

We have obtained directors and officers insurance with $5 million coverage.
The policy insures directors and officers against unindemnified losses arising
from certain wrongful acts in their capacities and would reimburse us for such
loss for which we have lawfully indemnified the directors and officers.

Insofar as indemnification for liabilities arising under the Act may be
provided to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the Act
and is therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we will,
unless, in the opinion of our counsel, the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by us is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.

<PAGE>
FINANCIAL STATEMENTS

<TABLE>
<S> <C>
STYLESITE MARKETING, INC. (FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
Reports of Independent Certified Public Accountants................................................ F-2 - F-3
Consolidated Balance Sheets as of June 30, 1999 (unaudited), September 30, 1998 and 1997........... F-4
Consolidated Statements of Operations for the nine months ended June 30, 1999 and 1998 (unaudited)
and the fiscal years ended September 30, 1998, 1997 and 1996..................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the nine months ended
June 30, 1999 (unaudited) and the fiscal years ended September 30, 1998, 1997 and 1996........... F-6
Consolidated Statements of Cash Flows for the nine months ended June 30, 1999 and 1998 (unaudited)
and the fiscal years ended September 30, 1998, 1997 and 1996..................................... F-7
Notes to Consolidated Financial Statements......................................................... F-8 - F-29

LEW MAGRAM LTD.
Reports of Independent Certified Public Accountants................................................ F-30 - F-31
Statements of Operations for the six months ended June 30, 1997 and for the fiscal year ended
January 4, 1997.................................................................................. F-32
Statements of Cash Flows for the six months ended June 30, 1997 and for the fiscal year ended
January 4, 1997.................................................................................. F-33
Notes to Financial Statements...................................................................... F-34 - F-35

JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
Report of Independent Certified Public Accountants................................................. F-37
Balance Sheets as of December 31, 1996 and 1995.................................................... F-38
Statement of Operations for the years ended December 31, 1996 and 1995............................. F-39
Statement of Cash Flows for the years ended December 31, 1996 and 1995............................. F-40
Notes to Financial Statements...................................................................... F-41 - F-44
</TABLE>

F-1

<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
StyleSite Marketing, Inc.
(formerly Diplomat Direct Marketing Corporation)

We have audited the accompanying consolidated balance sheet of StyleSite
Marketing, Inc. (formerly Diplomat Direct Marketing Corporation) and
Subsidiaries as of September 30, 1998, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the year then
ended. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of StyleSite Marketing,
Inc. (formerly Diplomat Direct Marketing Corporation) and Subsidiaries as of
September 30, 1998, and the results of their operaitons and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.

/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP

New York, New York
January 30, 1999

F-2

<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
StyleSite Marketing, Inc.
(formerly Diplomat Direct Marketing Corporation)
Stony Point, New York

We have audited the accompanying consolidated balance sheet of StyleSite
Marketing, Inc. (formerly Diplomat Direct Marketing Corporation) and
Subsidiaries as of September 30, 1997, and the related consolidated statements
of operations, changes in stockholders' equity and cash flows for the year ended
September 30, 1997 and the nine months ended September 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above, as
restated for the adjustments disclosed in Note 3(b), present fairly, in all
material respects, the financial position of StyleSite Marketing, Inc. (formerly
Diplomat Direct Marketing Corporation) and Subsidiaries as of September 30,
1997, and the results of their operations and their cash flows for the year
ended September 30, 1997 and the nine months ended September 30, 1996, in
conformity with generally accepted accounting principles.

/s/ FELDMAN SHERB EHRLICH & CO., P.C.
FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants

New York, New York
January 13, 1998,
except for Note 3(a),
which is as of February 19, 1998,
and Note 3(b),
which is as of January 30, 1999

F-3

<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------- --------------------------
1999 1998 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current:
Cash and cash equivalents......................................... $ 815,081 $ 322,778 $ 59,750
Accounts receivable, net of allowance of $104,094, $204,196, and
$147,001....................................................... 1,745,555 1,921,209 1,585,840
Inventories....................................................... 11,658,574 11,066,380 6,354,619
Net assets held for sale.......................................... -- -- 3,254,010
Prepaid catalogs.................................................. 3,111,176 8,051,651 1,534,830
Prepaid expenses.................................................. 1,866,007 1,379,567 1,143,848
Other current assets.............................................. 336,646 837,946 482,738
----------- ----------- -----------
Total current assets.............................................. 19,533,039 23,579,531 14,415,635
----------- ----------- -----------
Property and equipment, net....................................... 3,740,505 4,176,903 3,092,736
----------- ----------- -----------

Other assets:
Goodwill, net of amortization of $716,450, $345,435 and
$199,000..................................................... 4,500,000 14,587,358 9,945,930
Customer list, net of amortization of $1,500,000,
$900,000 and $125,000........................................ 6,500,000 7,100,000 4,875,000
Note receivable................................................ -- 870,000 --
Other.......................................................... 1,044,090 645,091 683,586
----------- ----------- -----------
Total other assets................................................ 12,044,090 23,202,449 15,504,516
----------- ----------- -----------
$35,317,634 $50,958,883 $33,012,887
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses............................. $14,011,570 $18,469,136 $12,366,083
Loans payable--officers........................................... 15,000 225,000 235,000
Loans payable--bank............................................... 8,139,625 5,504,371 3,083,896
Open prepaid orders............................................... 709,588 1,211,165 335,948
Outstanding merchandise credit.................................... 2,048,516 1,892,148 945,313
Current maturities of long-term debt.............................. 1,811,758 939,816 823,918
----------- ----------- -----------
Total current liabilities........................................... 26,736,057 28,241,636 17,790,158
----------- ----------- -----------
Long-term debt, less current maturities............................. 9,127,847 6,383,585 1,154,645
----------- ----------- -----------
Commitments and contingencies
Stockholders' equity:(deficit)
Preferred stock, $.01 par value--shares authorized 1,000,000;
issued and outstanding 396,645, 546,133 and 545,000
(Liquidation value of $16,380,000)............................. 3,966 5,461 5,450
Common stock, $.0001 par value--shares authorized 50,000,000;
issued and outstanding 17,046,414, 11,162,372 and 8,304,150.... 1,700 1,112 829
Additional paid-in capital........................................ 31,838,557 25,835,445 22,144,478
Accumulated deficit............................................... (32,390,493) (9,508,356) (8,082,673)
----------- ----------- -----------
Total stockholders' equity (deficit)................................ (546,270) 16,333,662 14,068,084
----------- ----------- -----------
$35,317,634 $50,958,883 $33,012,887
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-4

<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED NINE MONTHS ENDED
JUNE 30, SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- ------------------------- -----------------
1999 1998 1998 1997 1996
----------------- ----------------- ----------- ----------- -----------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales......................... $ 56,442,962 $57,118,755 $74,585,592 $17,468,066 $ 7,448,778
Cost of goods sold................ 29,613,001 26,029,624 34,433,297 8,724,030 7,392,265
------------- ----------- ----------- ----------- -----------
Gross profit.................... 26,829,961 31,089,131 40,152,295 8,744,036 56,513
Selling, general and
administrative expenses......... 35,369,557 28,018,329 37,537,372 7,060,658 3,672,133
Restructuring and reorganization
costs........................... -- -- -- -- 1,738,975
Write off of goodwill............. 9,716,343 -- -- -- --
------------- ----------- ----------- ----------- -----------
Operating income (loss)......... (18,255,939) 3,070,805 2,614,923 1,683,378 (5,354,595)
Interest expense.................. (1,701,432) (958,501) (1,355,324) (421,233) (702,474)
------------- ----------- ----------- ----------- -----------
Income (loss) before income tax
(expense) benefit............ (19,957,371) 2,112,304 1,259,599 1,262,145 (6,057,069)
Income tax (expense) benefit...... (1,496,386) -- -- 140,000 (17,353)
------------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations................... (21,453,757) 2,112,304 1,259,599 1,402,145 (6,074,422)
Loss on discontinued operations
(net of $453,000 gain on sale of
assets in 1998)................. (870,000) (2,311,691) (2,322,392) (295,633) (1,150,478)
------------- ----------- ----------- ----------- -----------
Net income (loss)................. (22,323,757) (199,387) (1,062,793) 1,106,512 (7,224,900)
Preferred stock dividends......... (558,380) (236,250) (362,890) (288,892) --
------------- ----------- ----------- ----------- -----------
Net income (loss) to common
stockholders.................... $ (22,882,137) $ (435,637) $(1,425,683) $ 817,620 $(7,224,900)
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
Per common share--basic and
diluted
Net income (loss) from
continuing operations........ $ (1.60) $ 0.18 $ 0.08 $ 0.19 $ (1.34)
Net income (loss) from
discontinued operations...... $ (0.16) $ (0.22) $ (0.21) $ (0.05) $ (0.25)
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
Net income (loss)--basic and
diluted per common share........ $ (1.76) $ (0.01) $ (0.13) $ 0.14 $ (1.59)
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
Average number of shares used in
computation (basic and
diluted)........................ 13,021,731 10,596,513 10,717,628 5,892,454 4,549,525
------------- ----------- ----------- ----------- -----------
------------- ----------- ----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-5

<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED JUNE 30, 1999 (UNAUDITED),
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
AND NINE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------- ------------------ PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ -------- ------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1995............ 4,493,525 $ 458 -- $ -- $ 5,201,441 $ (1,675,393) $ 3,526,506
Exercise of options, issuance of
500,000 shares of common stock
par .0001........................ 500,000 50 -- -- 474,950 -- 475,000
Issuance of common stock............ 550,000 55 -- -- 399,945 -- 400,000
Issuance of preferred stock......... -- -- 450,000 4,500 4,095,500 -- 4,100,000
Net loss............................ -- -- -- -- -- (7,224,900) (7,224,900)
---------- ------ -------- ------- ----------- ------------ -----------
Balance, September 30, 1996........... 5,543,525 563 450,000 4,500 10,171,836 (8,900,293) 1,276,606
Private placements.................. 1,250,000 125 -- -- 2,174,875 -- 2,175,000
Exercise of warrants................ 500,000 50 -- -- 499,950 -- 500,000
Issuance of shares.................. 708,408 63 -- -- 515,747 -- 515,810
Preferred and common stock issued
for Magram acquisition........... 250,000 24 95,000 950 8,690,694 -- 8,691,668
Common stock issued for Preferred
stock dividend................... 52,217 4 -- -- 91,376 -- 91,380
Net income.......................... -- -- -- -- -- 1,106,512 1,106,512
Preferred stock dividends........... -- -- -- -- -- (288,892) (288,892)
---------- ------ -------- ------- ----------- ------------ -----------
Balance, September 30, 1997........... 8,304,150 829 545,000 5,450 22,144,478 (8,082,673) 14,068,084
Private placements.................. 2,722,500 272 3,630 36 3,619,711 -- 3,620,019
Exercise of options................. 35,000 2 -- -- 64,341 -- 64,343
Common stock issued for Brownstone
acquisition...................... 17,500 1 -- -- 6,898 -- 6,899
Net loss............................ -- -- -- -- -- (1,062,793) (1,062,793)
Conversion of Series D preferred.... 83,222 8 (2,497) (25) 17 -- --
Preferred stock dividends........... -- -- -- -- -- (362,890) (362,890)
---------- ------ -------- ------- ----------- ------------ -----------
Balance, September 30, 1998........... 11,162,372 1,112 546,133 5,461 25,835,445 (9,508,356) 16,333,662
Private placement................... 734,497 73 43,015 430 5,001,702 -- 5,002,205
Net loss............................ -- -- -- -- -- (22,323,757) (22,323,757)
Conversion of Series A preferred.... 1,000,000 100 (100,000) (1,000) 900
Conversion of Series D preferred.... 3,083,447 308 (92,503) (925) 617 -- --
Common stock issued for Tadeo
Holdings' stock.................. 1,066,098 107 -- -- 999,893 -- 1,000,000
Preferred stock dividends........... -- -- -- -- -- (558,380) (558,380)
---------- ------ -------- ------- ----------- ------------ -----------
Balance June 30, 1999 (Unaudited)..... 17,046,414 $1,700 396,645 $ 3,966 $31,838,557 $(32,390,493) $ (546,270)
---------- ------ -------- ------- ----------- ------------ -----------
---------- ------ -------- ------- ----------- ------------ -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-6

<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30,
JUNE 30, SEPTEMBER 30,
--------------------------- ----------------------------- -------------
1999 1998 1998 1997 1996
------------ ------------ ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................. $(22,323,757) $ (199,385) $(1,062,793) $ 1,106,512 $(7,224,900)
Adjustments to reconcile net income (loss) to
net cash used in operating activities.......
Amortization................................ 971,015 841,569 1,245,435 375,333 --
Depreciation................................ 583,019 566,495 765,107 384,857 211,237
Write-off of note receivable................ 870,000 -- -- -- --
Issuance of stock for expenses.............. -- -- -- 91,380 400,000
Gain on sale of Biobottoms.................. -- -- (453,000) -- --
Write off of goodwill....................... 9,716,343 3,659,245 -- -- --
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................. 175,654 (532,484) 264,631 297,154 (282,507)
(Increase) decrease in inventories........ (592,194) (4,202,862) (1,897,761) (3,076,019) 2,551,187
(Increase) decrease in prepaid expenses... (486,440) (3,001,261) (235,719) 512,723 1,041,372
(Increase) decrease in prepaid catalogs... 4,940,475 (3,217,538) (6,516,821) (1,982,124) (641,132)
(Increase) decrease in other current
assets................................. 501,300 478,311 (355,208) (205,824) 702,866
(Increase) decrease in other assets....... (601,001) (6,076,819) (38,495) (92,373) 500,202
(Increase) decrease in assets held for
sale................................... -- (3,143,235) -- -- --
Increase (decrease) in accounts payable
and accrued expenses................... (4,457,565) 7,481,115 (5,057,623) (1,998,570) 2,054,897
Increase (decrease) in outstanding
merchandise credits.................... 156,368 1,118,170 946,835 748,083 --
Increase (decrease) in prepaid orders..... (501,577) 1,131,351 575,217 22,130 --
------------ ---------- ----------- ----------- -----------
Net cash used in operating activities........... (9,846,358) (5,097,328) (11,820,195) (3,816,738) (686,778)
------------ ---------- ----------- ----------- -----------
Cash flows from investing activities:
Proceeds from sale of Biobottoms.............. -- -- 3,707,010 -- --
Cash paid for Biobottoms, Inc. (net of cash
acquired)................................... -- 1,000,000 -- -- (2,899,211)
Acquisition of subsidiary assets.............. -- (5,181,596) -- -- --
Cash acquired in Magram acquisition........... -- -- -- 2,051,007 --
Purchase of trademark......................... -- (741,853) -- (75,000) --
Purchase of property and equipment............ (146,622) -- (2,049,274) (189,780) (211,096)
Note Receivable............................... -- -- (870,000) -- --
------------ ---------- ----------- ----------- -----------
Net cash provided by (used in) investing
activities.................................... (146,622) (4,923,449) 787,736 1,786,227 (3,110,307)
------------ ---------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds of loans............................. -- 5,000,000 5,000,000 -- 450,000
Increase (decrease) in long term debt and
loans payable............................... 4,000,000 -- 228,940 -- --
Revolving credit loans........................ 2,635,254 (233,173) 2,745,075 (735,145) 583,650
Preferred stock dividends paid................ (558,380) (284,140) (362,890) (288,892) --
Issuance of preferred and common stock........ 5,002,206 5,893,794 3,684,362 3,190,809 475,000
Borrowings from stockholder................... -- -- -- 1,435,000 2,620,000
Repayment of long-term debt and loan
payables.................................... (593,796) (236,197) -- (1,580,769) (393,678)
------------ ---------- ----------- ----------- -----------
Net cash provided by financing activities....... 10,485,284 10,140,284 11,295,487 2,021,003 3,734,972
------------ ---------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents................................... 492,304 119,507 263,028 (9,508) (62,113)
Cash and cash equivalents, beginning of period.. 322,778 51,877 59,750 69,258 131,371
------------ ---------- ----------- ----------- -----------
Cash and cash equivalents, end of period........ $ 815,081 $ 171,384 $ 322,778 $ 59,750 $ 69,258
------------ ---------- ----------- ----------- -----------
------------ ---------- ----------- ----------- -----------
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest...................................... $ 1,587,448 $ 958,501 $ 1,500,676 $ 764,000 $ 706,000
------------ ---------- ----------- ----------- -----------
------------ ---------- ----------- ----------- -----------
Income taxes.................................. -- -- -- -- --
------------ ---------- ----------- ----------- -----------
------------ ---------- ----------- ----------- -----------
</TABLE>

See accompanying notes to consolidated financial statements.

F-7

<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

1. ORGANIZATION, LIQUIDITY CONSIDERATIONS AND MANAGEMENT'S PLANNED ACTIONS

The Company is engaged in two continuing lines of business and,
accordingly, its operations are classified into two business segments: mail
order catalog retail operations, and the manufacturing, marketing and
distribution of infants' accessories principally to mass merchants. In 1998, the
Company sold its Biobottoms subsidiary. The operations of that company have been
accounted for as discontinued operations, see note 5.

On November 12, 1996, the Company changed its reporting period to September
30. Effective October 1, 1996, the Company's subsidiaries report their results
of operations on a fifty-two/fifty-three week ending on the Saturday closest to
September 30.

Certain conditions and events have occurred that, when considered in the
aggregate, have caused significant operational and liquidity problems at the
company. The conditions and events include the following:

o The Company has experienced operating losses in the past and may not be
able to operate profitably in the future.

o The Company's inadequate working capital has caused, and may continue to
cause, inadequate availability of credit from vendors, cash reserves to
be held by their credit card processors for merchandise refunds, and
delays in printing and delivering catalogs.

o The Company may continue to be affected by its substantial debt and
restrictions under loan covenants.

Management has formulated certain planned actions and taken various steps
toward mitigating the effect of the consolidated working capital and
stockholders' deficit at June 30, 1999 as well as attaining profitable
operations and improving the cash flows of the consolidated group. The plans and
steps taken include, among other things, the following:

o The Company anticipates improving its credit availability from its
vendors with the proceeds of its proposed public offering (see Note 20),
thereby timely delivering merchandise and reducing order cancellations.

o Management implemented a cost containment program in 1998. Management
anticipates approximately $2.65 million in annual savings by reducing
selling, general and administrative expenses.

o In September 1999, a major shareholder transferred to First Source
certain pledged assets to pay down approximately $5 million of the loan
facility. In addition, the shareholder purchased 461,538 shares of the
Company's common stock for $1 million.

o The Company is in the process of building and testing branded e-commerce
sites for each of Lew Magram and Brownstone Studio with their strategic
partner, Tadeo Holdings, Inc. The Company believes that Internet commerce
will ultimately allow it to significantly reduce the largest
non-merchandise expenses such as catalog printing costs, postage and
customer communications.

o In addition, if the Company does not complete a public offering, the
Company's chairman of the board intends to provide the Company limited
financial support for a period of one year from the date hereof to the
extent cash generated internally and cash available under the First
Source loan facility are not sufficient to provide the capital required
for such purposes and to fund future operations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) The consolidated financial statements include the accounts of StyleSite
Marketing, Inc. (formerly Diplomat Direct Marketing Corporation) (the "Company")
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.

(b) Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out (FIFO) method.

F-8
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

(c) Property and equipment are stated at cost. Depreciation is provided
using primarily the straight-line method and accelerated methods (for machinery
and equipment) over the expected useful lives of the assets, which range from
31.5 years for the building and real property to between five and ten years for
machinery, furniture and equipment.

(d) The Company follows Statement of Financial Accounting Standards
("SFAS") No. 109 for income taxes. Pursuant to SFAS No. 109, deferred tax assets
and liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are measured by applying
enacted tax rates and laws to taxable years in which such differences are
expected to reverse.

(e) For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.

(f) 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

(g) Computation of Earnings Per Common Share.

Basic earnings per share has been computed using the weighted average
number of shares of common stock outstanding. Diluted earnings per share
includes the assumed excercise of stock options using the treasury stock method
that could potentially dilute earnings per share. In all periods presented,
there were no differences between basic and diluted income (loss) per common
share because the assumed exercise of stock options was anti-dilutive. The
assumed exercise of stock options could potentially dilute basic earnings per
share amounts in the future.

(h) Long-lived assets, primarily property and equipment, goodwill and
customer lists are periodically reviewed by management to determine if there has
been a permanent impairment in their value by evaluating various factors,
including current and projected operating results. Based on this assessment,
management concluded that at June 30, 1999 goodwill required a write down of
approximately $9.7 million as a result of the recurring operating losses
incurred by Brownstone and Lew Magram and forecasted future losses.

(i) The carrying amounts reported in the balance sheet for cash, trade
receivables, accounts payable and accrued expenses approximate fair value based
on the short-term maturity of these instruments. Long-term debt has been
recorded at its face value which approximates its fair value based on its term
and interest rate.

(j) The Company accounts for stock transactions with employees in
accordance with APB No. 25, "Accounting for Stock Issued to Employees". In
accordance with SFAS No. 123, "Accounting for Stock Based Compensation", the
Company has adopted the pro forma disclosure requirements contained therein.

(k) Direct response advertising costs, consisting primarily of catalog
preparation, printing and postage expenditures, are amortized over the period in
which related revenues are expected to be realized, generally three to six
months. Advertising costs, principally the amortization of such prepaid catalog
costs attributable to continuing operations, included in the accompanying
statement of operations were $21,184,000 for the nine months ended June 30,
1999, $20,974,673 for the year ended September 30, 1998, $3,102,588 for the year
ended September 30, 1997 and none for the nine months ended September 30, 1996.

(l) Interim Financial Statements. The consolidated financial statements as
of June 30, 1999 and for the nine months ended June 30, 1999 and 1998 are
presented as unaudited. In the opinion of management, these financial statements
include all adjustments necessary to present fairly the information set forth
therein. These adjustments consist solely of normal recurring accruals. The
interim results of operations for the nine months ended June 30,

F-9
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

1999 and 1998 are not necessarily indicative of the results to be expected for
the full year or for any other interim period.

(m) Revenue is recognized at the time merchandise is shipped to customers.
Proceeds received for merchandise not yet shipped are reflected as "prepaid
orders", a current liability.

(n) The Company issues merchandise credits for certain returns of
merchandise sold with substantial discounts. Unused credits are periodically
written off into income.

(o) New Accounting Standards

The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income," which established standards for reporting and
display of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. The adoption of SFAS 130 did not have
any effect on the Company's financial statements.

The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," which establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of enterprises
about which separate financial information is available that is evaluated
regularly by Management in deciding how to allocate resources and in assessing
performance. The adoption of SFAS 131 did not have any effect on the Company's
financial statements.

Statement of Financial Accounting Standards No. 133 "Accounting for
Derivative Instruments and Hedging Activities" establishes accounting and
reporting standards for Derivative Instruments. The Company has not in the past
nor does it anticipate that it will engage in transactions involving Derivative
Instruments which will impact the Financial Statements.

3. ACQUISITION OF MAGRAM

(a) On February 19, 1998, the Company (through its wholly-owned subsidiary,
Magram Acquisition Corp.) closed on the acquisition of Lew Magram, Ltd.
("Magram"), a New York corporation with a place of business in Teaneck, New
Jersey, which is in the business of mail order catalogue sales of women's
clothing. For accounting purposes, the acquisition was effected as of July 1,
1997, the date that the Company assumed effective control of Magram. The
acquisition was accounted for as a purchase and the consideration consisted of
the issuance of 95,000 shares of the Company's $.01 par value, Series D,
convertible preferred stock. The Series D preferred stock is convertible into
3,166,667 shares of the Company's common stock (which assumes a market value of
$4.00 per share). The preferred stock does not pay any dividends, but
participates with common in any Company distributions. The preferred stock has a
liquidation preference of $100 per share. An additional 250,000 shares of common
stock were also given as consideration to the sellers. The fair market value of
the consideration was approximately $8.7 million and acquisition costs were
approximately $646,000. The Company recorded the carryover basis for certain
selling stockholders of Magram who are also principal stockholders of the
Company. All of the Series D Preferred Stock was converted in May 1999.

F-10
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

3. ACQUISITION OF MAGRAM--(CONTINUED)
The net fair market value of identifiable assets acquired was approximately
$6.9 million, and included customer lists valued at $5 million. The customer
lists are being amortized over a period of 10 years. Cost in excess of net
assets acquired amounted to approximately $10 million and is being amortized
over 25 years.

(b) In January 1999, the Company, based upon historical information
developed in conjunction with the preparation of its September 30, 1998
financial statements, determined that certain liabilities of Magram were
understated as of July 1, 1997, and also at September 30, 1997. Such liabilities
included reserves for customer merchandise returns and credits and unrecorded
liabilities for purchased merchandise. Consequently, the accompanying
consolidated financial statements have been restated to reflect the above
adjustments. The effect of such restatement on the Company's consolidated
balance sheet and statement of operations as at and for the year ended
September 30, 1997 is as follows:

<TABLE>
<CAPTION>
AS REPORTED ADJUSTMENTS RECLASSIFICATIONS(A) AS RESTATED
----------- ----------- -------------------- -----------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Current assets.............................. $17,066 $ -- $ (2,651) $14,415
Property and equipment...................... 3,465 -- (372) 3,093
Goodwill.................................... 10,879 2,515 (3,448) 9,946
Other assets................................ 5,604 -- (45) 5,559
------- ------- -------- -------
Total....................................... $37,014 $ 2,515 $ (6,516) $33,013
------- ------- -------- -------
------- ------- -------- -------
Current liabilities......................... $21,490 $ 2,736 $ (6,436) $17,790
Long-term debt.............................. 1,235 -- (80) 1,155
Stockholders' equity........................ 14,289 (221) -- 14,068
------- ------- -------- -------
Total....................................... $37,014 $ 2,515 $ (6,516) $33,013
------- ------- -------- -------
------- ------- -------- -------
Net sales................................... $35,147 $ (297) $(17,382) $17,468
Cost of goods sold.......................... 16,665 (76) (7,865) 8,724
------- ------- -------- -------
Gross profit................................ $18,482 $ (221) $ (9,517) $ 8,744
------- ------- -------- -------
Operating income............................ $ 1,761 $ (221) $ 143 $ 1,683
------- ------- -------- -------
Net income.................................. $ 1,328 $ (221) $ -- $ 1,107
------- ------- -------- -------
------- ------- -------- -------
Net income to common shareholders........... $ 964 $ (221) $ 74 $ 817
------- ------- -------- -------
Net income per share........................ $ .16 .14
------- ------- -------- -------
------- ------- -------- -------
</TABLE>

- ------------------
(a) Reflects the discontinued Biobottoms assets and liabilities.

The following unaudited pro forma summary combines the consolidated results
of operations of the Company and Magram as if the acquisition had occurred at
the beginning of 1996, after giving effect to certain adjustments, including
amortization:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
SEPTEMBER 30, 1997 1996
------------------ -----------------
<S> <C> <C>
Net sales....................................................... $ 55,382,211 $43,772,271
Net loss........................................................ (7,415,554) (8,397,091)
Net loss per common share....................................... (1.20) (1.74)
------------ -----------
------------ -----------
</TABLE>

The pro forma results do not necessarily represent results which would have
occurred if the acquisition had taken place on the basis assumed above, nor are
they indicative of the results of future combined operations.

4. ACQUISITION OF BROWNSTONE

On October 30, 1997, the Company acquired out of bankruptcy all the assets
of Jean Grayson's Brownstone Studios, Inc., a mail order catalog company for the
assumption of approximately $10,000,000 in liabilities and an

F-11
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

4. ACQUISITION OF BROWNSTONE--(CONTINUED)
option to the owners of Jean Grayson's Brownstone Studios, Inc. to purchase
200,000 shares of Diplomat common stock at $3.9375 (market value) for a period
of three years. The acquisition was accounted for as a purchase accordingly, the
operating results include the operations of Brownstone for the period
November 1, 1997 through October 3, 1998. The purchase price was allocated to
assets acquired based on their estimated fair value, including customer lists
valued at $3,000,000 which will be amortized on a straight line basis over ten
years. This treatment results in approximately $4,000,000 in cost in excess of
net assets acquired which will be amortized on a straight line basis over twenty
five years. As a result of this acquisition, the scope of the Company's business
has expanded into the mature women's apparel and accessories markets primarily
through direct mail catalog. Since Brownstone was in bankruptcy prior to its
acquisition in October 1997, presentation of pro forma financial information as
if it had been acquired October 1, 1996 would not be meaningful and, therefore,
has not been presented.

5. ACQUISITION AND SALE OF BIOBOTTOMS, INC. AND RELATED FINANCING

(a) Acquisition of Biobottoms, Inc.

On February 9, 1996, the Company completed the acquisition of Biobottoms,
Inc. ("Biobottoms"), a California-based mail-order catalog company, specializing
in apparel and accessories for newborn through preteen children, pursuant to an
Agreement and Plan of Merger made as of December 22, 1995.

The Company paid $2,500,000 for Biobottoms, $1,000,000 in cash and
$1,500,000 in the form of two promissory notes to Biobottoms' stockholders, each
in the amount of $750,000 ("Acquisition Notes"). The notes bore interest at 1%
over the prime rate as defined in the agreements. One such note was due six
months from the acquisition date and the second note was due in two equal
installments of $375,000, nine months and eighteen months after the date of
acquisition, respectively. The Company did not make the payments which were
required in August and November 1996. On December 9, 1996, the Company received
notification of the default from the former Biobottoms' stockholders, which
required that the Company cure the default on the notes within 270 days, or be
subject to enforcement action. On February 25, 1997, the former Biobottoms'
stockholders agreed not to initiate enforcement action under this or subsequent
defaults until not earlier than December 31, 1997. In connection with obtaining
this agreement, the Company agreed to pay the Biobottoms' stockholders ten
installments of $5,000 to be applied against the acquisition notes, commencing
on February 21, 1997 and to undertake to conduct a private placement of its
securities to raise funds for the remaining balance due on the acquisition
notes. In July 1997, the Company received proceeds from a private placement and
pursuant to an agreement with the Biobottoms' stockholders paid $1,500,000 in
full satisfaction of all amounts due under the acquisition notes, and also
amended its consulting agreement with the former stockholders to provide for
additional compensation of 29,204 shares each of the Company's common stock.
Additionally, the Company incurred costs related to the acquisition in the
amount of approximately $720,000. Of this amount, $600,000 represents the
estimated fair value of 100,000 shares of the Company's convertible Series A
preferred stock issued to a significant stockholder (who is also a member of the
Board of Directors), as a fee for his assistance in consummating the
acquisition. The Series A preferred shares were converted into 1,000,000 common
shares of the Company during November 1998.

The acquisition of Biobottoms had been accounted for as a purchase and,
accordingly, its results of operations are included with the Company's beginning
February 9, 1996.

(b) Financing

Simultaneously with the closing of the Biobottoms acquisition, the Company
and Biobottoms entered into a loan and subordinated security agreement with a
director and principal stockholder of the Company and an affiliate of such
individual pursuant to which the Company borrowed from such director and
principal stockholder and affiliate $2,353,100 and $450,000, respectively. The
loan from the director and principal stockholder was utilized to fund the
acquisition of Biobottoms in part. The loan from the affiliate has been

F-12
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

5. ACQUISITION AND SALE OF BIOBOTTOMS, INC. AND RELATED FINANCING--(CONTINUED)
utilized for working capital purposes. Subject to an intercreditor agreement
between the Company's asset-based lender and other lenders, the $450,000 loan
was paid in full on May 4, 1997.

In connection with such aforementioned loan by a director and principal
stockholder of the Company in the amount of $2,353,100, the Company issued
100,000 shares of its Series A preferred stock, which were convertible into
1,000,000 shares of common stock at the option of the director and principal
stockholder. The holder of such shares of preferred stock will have the right,
subject to a subordination and intercreditor agreement by and among Congress
Financial Corporation and others, during any period during which there shall be
an Event of Default under such loans, as such term is defined therein, to
designate a majority of the members of the Board of Directors of the Company.
Such right of designation will continue during the duration of any such Event of
Default.

On April 17, 1998, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Genesis Direct Thirty-Four, LLC ("Buyer") in which the
Buyer purchased substantially all of the assets and assumed certain of the
liabilities of Biobottoms. The Buyer paid $2,270,000 in cash and a note and
assumed $5,749,000 in liabilities. The note is subject to reduction depending on
the net assets acquired as determined in a closing date balance sheet. If the
amount of the net value of acquired assets is less than negative $778,000 or the
accrued expenses and customer liabilities included in the assumed liabilities
exceed $828,877, the greater of such deficiencies will reduce the amount of the
note. As of June 30, 1999, the Company wrote-off the balance of the note
receivable from the sale of Biobottoms in the amount of $870,000, which was
charged to discontinued operations.

The Company shall retain all claims for tax refunds, tax loss carryforwards
or carrybacks of tax credits of any kind applicable to the business of
Biobottoms prior to the closing of the asset sale. The Agreement further
specifies that certain intercompany and affiliated person liabilities will not
be assumed by the Buyer.

Following is a summary of net assets and the results of operations of
Biobottoms:

<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------
<S> <C>
Assets--current..................................................................... $ 5,904,579
Property and Equipment............................................................ 372,757
Other............................................................................. 3,493,295
Liabilities--current................................................................ (6,435,512)
Long-Term......................................................................... (81,109)
------------
Net assets to be disposed of........................................................ $ 3,254,010
------------
------------
</TABLE>

<TABLE>
<CAPTION>
PERIODS ENDED
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Sales..................................................... $ 7,539,651 $17,591,784 $11,774,023
----------- ----------- -----------
Cost of sales............................................. 5,105,464 8,074,679 5,942,323
Operating expenses........................................ 5,027,458 9,589,738 6,900,075
Interest.................................................. 182,121 223,000 82,103
----------- ----------- -----------
10,315,043 17,887,417 12,924,501
----------- ----------- -----------
Net Loss.................................................. $(2,775,392) $ (295,633) $(1,150,478)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

F-13

<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

6. RESTRUCTURING OF OPERATIONS

During the quarter ended September 30, 1996, management instituted various
actions designed to significantly cut costs in the Company's manufacturing
operation located in Stony Point, New York, and to refocus the operation on its
most profitable product lines and channels of distribution. Towards this end,
the following significant decisions were made: (i) the former Chief Executive
Officer's contract, which expired in October 1996, was not renewed, and all ties
with this officer were severed; (ii) certain royalty agreements, specifically
those related to products which the Company is discontinuing were not renewed by
the Company; (iii) a decision was made to target primarily mass merchant
customers; and (iv) significant permanent cutbacks in personnel and other
operating costs were made.

As a result of the actions taken, the Company incurred restructuring
charges of approximately $1,739,000. The restructuring charges include
approximately $568,000 primarily for write-offs and other costs associated with
the discontinuance of various products and $771,000 for severance pay and
professional and consulting fees payable in connection with the restructuring
plan.

7. CONVERSION OF STOCKHOLDER DEBT AND ISSUANCE OF SERIES B & C PREFERRED STOCK

Effective September 30, 1996, a significant stockholder and member of the
Company's Board of Directors converted $3,500,285 of indebtedness into 290,000
shares of Series B preferred stock of the Company and 60,000 shares of the
Company's Series C preferred stock. Both the Series B and C shares of preferred
stock have a liquidation preference of $10 per share ("Liquidation Value") and a
normal dividend of 9% of Liquidation Value payable monthly. Should the Company
not pay the dividends on either the Series B or C preferred stock for three
consecutive months, the holder will be entitled to receive 100,000 shares of the
Company's common stock for each month that the dividend has not been paid as a
penalty. The preferred stock, based on Liquidation Value, is convertible into
common stock of the Company at 75% of the average market value of the common
stock for the ten trading days immediately preceding the day of conversion. The
preferred stock also has voting rights equal to 3,500,000 shares of common stock
on all matters on which common stock votes, including election of directors. As
part of the consideration for the conversion, the holder was issued 500,000
shares of the Company's common stock. The issuance of the common stock was
valued at approximately $.80 per share, the estimated fair value of such shares
at the time of issuance.

In September 1997, this significant stockholder loaned the Company an
additional $1.2 million, with interest at 9%.

8. INVENTORIES

Inventories consist of the following:

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------- -------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Raw materials and packaging................................ $ 330,980 $ 371,573 $ 375,510
Work-in-process............................................ 15,978 54,892 365,333
Finished goods............................................. 11,311,638 10,639,915 5,613,776
----------- ----------- ----------
$11,658,574 $11,066,380 $6,354,619
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

F-14
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

9. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------- -------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Land....................................................... $ 420,000 $ 420,000 $ 420,000
Building................................................... 1,517,600 1,517,600 1,517,600
Equipment.................................................. 6,087,580 5,757,682 6,132,117
----------- ----------- ----------
8,025,180 7,695,282 8,069,717
Less: Accumulated depreciation............................. (4,284,675) (3,518,379) (4,976,981)
----------- ----------- ----------
$ 3,740,505 $ 4,176,903 $3,092,736
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

10. OTHER ASSETS

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
----------- -------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Noncurrent deferred tax asset.............................. $ -- $ 581,535 $ 581,535
Other...................................................... 44,090 63,556 102,051
Long-Term Investment (see Note 13w)........................ 1,000,000 -- --
----------- ----------- ----------
$ 1,044,090 $ 645,091 $ 683,586
----------- ----------- ----------
----------- ----------- ----------
</TABLE>

11. REVOLVING CREDIT AGREEMENTS

(a) In April 1994, the Company entered into an agreement with Congress
Financial Corporation which has been extended to July 2000, providing the
Company with a maximum $3,000,000 secured line of credit to be used for loans
and trade letters of credit. The loans are secured by substantially all of the
Company's personal property, including without limitation, accounts receivable,
inventory and trademarks. The interest rate on loans is two percent (2%) above
the prime rate announced by Core States Bank. The credit agreement contains
restrictions relating to the payment of dividends. Additionally, prior to
amendment, the Company was required to maintain a minimum of $3,500,000 in
stockholders' equity and a minimum of $4,500,000 of working capital (excluding
the Congress loan and certain subordinated debt). At September 30, 1996, the
Company was not in compliance with these financial covenants, however, Congress
continued to extend the Company credit under the terms of the original
agreement. On February 25, 1997, the violations were waived by Congress, and the
Company and Congress agreed on revised financial covenants. Under the revised
agreement, the stockholders' equity and working capital minimums (excluding the
Congress loan and certain subordinated debt) were reduced to $750,000 and
$500,000, respectively, and was increased during the fiscal year ending
September 30, 1997 to ($250,000) and $1,500,000, respectively. The Company has
received waivers for its failure to comply with the reporting and financial
requirements of the Agreement through September 30, 1998.

(b) Under the terms of the credit agreement, the Company could borrow up to
85% (reduced to 80% in the third quarter of 1997) of the amount of eligible
accounts receivable (as defined in the agreement), not to exceed the maximum
credit. In February 1995, the agreement was amended to adjust the formula used
to determine the amount available for revolving loans by including therein an
amount based upon eligible inventory not to exceed $750,000.

(c) As of October 30, 1997, Brownstone entered into a loan agreement which
expires in February 2000 with Congress providing Brownstone with a maximum
$5,500,000 secured line of credit to be used for loans and trade letters of
credit. The line of credit is secured by all of the assets of Brownstone and
guaranteed by the Company and Magram. The interest rate is two percent (2%)
above the prime rate announced by Core States Bank. The loan agreement provides
for certain restrictive covenants, including restrictions on Brownstone's debt
financing,

F-15
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

11. REVOLVING CREDIT AGREEMENTS--(CONTINUED)
dividends and distributions, and transactions with the Company and its
subsidiaries. The loan agreement also requires Brownstone maintain a net worth
(excluding debt subordinated to the Congress loan) of $300,000 until June 30,
1998, and $500,000 thereafter. The Company has received waivers for its failure
to comply with the reporting and financial requirements through September 30,
1998.

(d) Prior to the acquisition of Magram, Magram had entered into a loan
agreement, dated as of August 13, 1996, which expires in July 1999, with
Congress providing Magram with a maximum of $5,000,000 secured line of credit to
be used for loans and trade letters of credit. The line of credit is secured by
all of the assets of Magram and guaranteed by the Company and Brownstone. The
interest rate is one and one-half percent (1 1/2%) above the prime rate
announced by Core States Bank. The loan agreement provides for certain
restrictive covenants, including restrictions on Magram's debt financing,
dividends and distributions and transactions with the Company and its
subsidiaries. The loan agreement also requires Magram maintain working capital
of at least $1,500,000 and net worth (excluding debt subordinated to the
Congress loan) of $1,600,000. Upon the acquisition of Lew Magram, these
covenants were waived by Congress, and the Company and Congress are currently
negotiating revised contracts.

The lines of credit between Congress and each of the Company, Brownstone
and Magram are guaranteed by a principal shareholder and director up to an
aggregate maximum amount of $1,000,000.

On May 12, 1999, the Company entered into a Secured Credit Agreement with
First Source Financial LLP providing a $17 million asset based loan facility
replacing the existing asset based loan facilities provided by Congress.

The First Source loan facility provides a $13 million revolving loan with
an interest rate at prime plus 1 1/2%, a $3 million three year term loan with an
interest rate at prime plus 2% and a $1 million three year term loan with an
interest rate at prime plus 2% increasing to prime plus 3% on November 15, 1999.
The Company may convert any or all loans to a LIBOR (London Interbank Offer
Rate)-based rate. The revolving loan may be converted to LIBOR plus 3 1/4%, the
$3 million term loan may be converted to LIBOR plus 4% and the $1 million term
loan may be converted to LIBOR plus 4% increasing to LIBOR plus 5% on
November 15, 1999. The loan facility is secured by substantially all of the
Company's assets, a personal guarantee by Robert M. Rubin, the Company's
Chairman of the Board, up to $1 million and an additional $1 million cash
collateral deposit by Mr. Rubin.

The amount of funds available to the Company to borrow under the revolving
loan is based on a percentage of the Company's inventory and qualified
receivables plus 100% of Mr. Rubin's cash collateral. As of September 27, 1999,
the aggregate availability under the Revolving Loan was approximately
$9.2 million of which there was no unused availability.

In September 1999, to provide the Company with necessary availability under
its credit facility with First Source, Mr. Rubin and the Trust transferred to
First Source certain pledged assets to pay down approximately $5 million of the
Company's asset based loan facility. Mr Rubin transferred to First Source a
$1 million certificate of deposit and marketable securities worth approximately
$825,000. The certificate of deposit and securities were pledged to First Source
in May 1999. The Trust transferred to First Source 900,000 shares of Tadeo
common stock worth approximately $2.925 million. The Tadeo common stock was
pledged by the Trust in July and August 1999 so that the Company could obtain an
additional $2 million of availability under the revolving loan. For transferring
these assets to First Source on the Company's account, the Company issued to Mr.
Rubin 842,308 shares of common stock and the Trust 1,350,000 shares of common
stock. Mr. Rubin transferred these shares to the Trust. In addition, in
September 1999, as a condition to achieving compliance under certain covenants
in the First Source loan facility, including repayment of advances by First
Source in excess of the availability under the revolving loan, Mr. Rubin
purchased 461,538 shares of the Company's

F-16
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

11. REVOLVING CREDIT AGREEMENTS--(CONTINUED)

common stock for $1 million. Mr. Rubin transferred these shares to the Trust.
The per share price paid for the stock was $2.17 compared to the market price of
the Company's common stock at the time of $4.06, after giving effect to the
proposed 1-for-13 reverse split. See Note 20.

In September 1999 the Company amended the Secured Credit Agreement to allow
for an additional $2.0 million in funds available under the loan facility and to
waive certain financial and other covenant defaults. The additional availability
was secured by a pledge by the Rubin Family Irrevocable Stock Trust of 900,000
shares of Tadeo Holdings, Inc. common stock.

In September 1999 the Company's Chairman, Robert M. Rubin, and the Rubin
Family Irrevocable Stock Trust ("the Trust") the majority shareholder,
transferred to First Source $1,000,000 cash collateral, approximately $825,000
in marketable securities and 900,000 shares of Tadeo Holdings common stock
initially pledged to secure a portion of the First Source loan facility. These
assets, when liquidated by First Source, will pay down the First Source loan
facility. Because Tadeo Holdings common stock is thinly traded, the Tadeo
Holdings common stock may not be sold immediately and may not be completely
liquidated until November 1999. Any decline in Tadeo Holdings stock price would
reduce the amount that the First Source loan facility would be paid down.
Conversely, the Company would benefit from any price increase prior to the
liquidation of the Tadeo Holdings stock. In addition, the Company will only
obtain approximately $1.1 million in additional availability under the revolving
loan as a result of the pay down, assuming Tadeo Holding's stock price is $3.25
per share. The $1 million cash collateral will pay off a $1 million term loan
and the Company had received availability under the revolving loan of 100% of
the value of the pledged marketable securities. The Company had received
availability from First Source under the revolving loan of 60% of the value of
the Tadeo Holdings common stock.

12. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
---------- ------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
12% subordinated debenture due June 2003(a)................... $5,000,000 $5,000,000 $ --
Note payable--bank, payable in monthly installments of $10,018
which includes interest at 8.375% due August 2010. The note
is collateralized by land and building and is guaranteed by
a former stockholder........................................ 880,211 911,877 952,806
Note payable--bank, payable in monthly installments of $7,201
which includes interest at 12%. The note is collateralized
by land and buildings and is cosigned by a former
stockholder(b).............................................. 543,058 544,811 564,540
Term loan A(c)................................................ 3,000,000 -- --
Term loan B(c)................................................ 1,000,000 -- --
Equipment loans--payable in monthly installments.............. 516,336 775,983 450,851
Other......................................................... 0 90,730 10,366
---------- ---------- ----------
10,939,605 7,323,401 1,978,563
Less: Current maturities...................................... 1,811,758 939,816 823,918
---------- ---------- ----------
Long-term debt................................................ $9,127,847 $6,383,585 $1,154,645
---------- ---------- ----------
---------- ---------- ----------
</TABLE>

F-17
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

12. LONG-TERM DEBT--(CONTINUED)
- ------------------

(a) On June 29, 1998, the Company issued $5,000,000 principal amount of its 12%
subordinated secured debentures to Finova Mezzanine Capital, Inc. (formerly
known as Sirrom Capital Corporation, d/b/a Tandem Capital) ("Finova
Debentures"). The debentures are due June 29, 2003, and bear interest at
12%, payable quarterly. The Finova Debentures are secured by all of the
personal property of the Company and its subsidiaries and includes certain
restrictive covenants, including restrictions on dividends and
distributions, additional debt financing and transaction with the Company
and its subsidiaries. The Company also issued warrants in connection with
the issuance of the Finova Debentures. The Company issued warrants to
purchase up to 208,300 shares of its common stock exercisable at $2.35 for
five years. The value of the warrants is immaterial and no original issue
discount has been recorded. An additional 416,600 warrants will be issued on
February 28, 1999 if the debenture is still outstanding at an exercise price
equal to 80% of the average closing bid price for the twenty days prior to
their issuance. An additional 200,000 warrants will be issued on each
anniversary that the debenture is outstanding at an exercise price equal to
80% of the average closing bid price for the twenty days prior to their
issuance. The exercise price is to be adjusted downward if the Company's
common stock price is below this exercise price to an exercise price equal
to the greater of 80% of the market price or $2.00 per share. On June 29,
1999, the warrants were repriced to $2.00 per share. Because the debentures
were outstanding on February 28, 1999, the Company issued an additional
warrant to purchase 416,600 shares of common stock exercisable at $1.59 per
share for five years. Because the debentures were outstanding on June 29,
1999, the Company issued to Finova an additional warrant to purchase 200,000
shares of common stock exercisable at $2.00 per share.

(b) Full payment of this mortgage was due on January 26, 1997. The lender agreed
to extend the mortgage to July 1999. The Company is in the process of
refinancing the mortgage.

The maturities of long-term debt are as follows:

<TABLE>
<S> <C>
1999....................................................... $ 1,811,758
2000....................................................... 1,767,743
2001....................................................... 1,582,207
2002....................................................... 166,217
2003....................................................... 5,120,216
Thereafter................................................. 491,464
-----------
$10,939,605
-----------
-----------
</TABLE>

(c) On May 12, 1999, the Company received a $3,000,000 three year term loan
("Term Loan A") from First Source Financial LLP. The loan is payable in 12
quarterly installments of $250,000 beginning August 15, 1999 with interest
payable monthly at prime plus 2%. The Company also received a $1,000,000
three year term loan ("Term Loan B") which is payable in thirty monthly
installments of $33,333 beginning November 15, 1999 with interest payable
monthly at prime plus 2%.

13. STOCKHOLDERS' EQUITY

(a) On December 31, 1992, the Board of Directors adopted a stock option
plan which allows for the grant of options to employees and non-employees to
purchase up to 200,000 shares of the Company's common stock. The exercise price
per share cannot be less than the fair market value of the Company's common
stock on the date of grant. During each of 1996 and 1995, the Company issued
75,000 options exercisable at $1.50 per share. There were no options exercised
or cancelled during either of the years presented.

F-18
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

13. STOCKHOLDERS' EQUITY--(CONTINUED)
(b) On November 4, 1998, 581,175 warrants to purchase shares of the
Company's common stock at $3.50 per share issued in connection with the
Company's initial public offering of its common stock expired.

(c) During 1995, warrants to purchase 1,500,000 shares of common stock were
granted; 500,000 of these warrants, exercisable at $1.37 per share, were
exercised resulting in net proceeds to the Company of $628,000. The remaining
1,000,000 warrants were exercisable as follows: (i) 500,000 at $3.00 per share
expiring on July 18, 1996 and (ii) 500,000 at $1.00 per share expiring on
July 18, 1997, which were exercised during 1997. The warrants expiring July 18,
1996 were not exercised.

(d) In September 1996, the Company issued 500,000 common shares at $.95 per
share to previously unrelated investors from the exercise of warrants. Net
proceeds to the Company were $475,000.

(e) In May 1997, pursuant to an agreement in 1996, the Company issued to a
principal shareholder and officer an aggregate of 550,000 shares of common stock
valued at $400,000 ($.75 per share) in consideration of his waiver of certain
compensation owed to him and for restructuring certain debt owed to him, waiving
certain defaults and providing an additional loan to the Company in the
aggregate amount of $600,000 during 1996.

(f) In March 1997, the Company approved the issuance of 52,217 shares of
common stock to a principal shareholder and officer in lieu of the dividend
payments due under the Series B and Series C preferred stock.

(g) On September 9, 1996, the Company entered into an agreement with
Gersten, Savage, Kaplowitz & Fredericks, LLP ("GSK&F") which provided that GSK&F
will provide certain legal and consulting services to the Company over an
extended prior of time. In 1997 as compensation for its services, certain
individual members of GSK&F received an aggregate of 350,000 shares of common
stock and options to purchase an aggregate of 150,000 shares of common stock at
$2.50 per share.

(h) In November 1996, the Company issued an aggregate of 1,060,000 options
to 35 employees of the Company, including two executive officers and one outside
director, pursuant to the November 1996 Plan. The options are exercisable at
$1.00 per share, vest over a period of five years, and expire ten years from the
date of grant, if not sooner, due to termination or death of the employee.

(i) In May 1997, the Company issued an aggregate of 150,000 options
pursuant to the November 1996 Plan, 50,000 of which were issued to Howard Katz,
a director of the Company, and 100,000 of which were issued to Mr. Fredericks in
connection with his agreement to become a member of the Company's Board of
Directors. Such options are exercisable at $1.875 per share.

(j) In May 1997, the Company authorized the issuance of 200,000 shares of
common stock to a principal shareholder and officer in consideration of his
extending loans to the Company, as well as extending a personal guarantee to
Congress on behalf of the Company.

(k) Between May and July 1997, the Company issued an aggregate of 100,000
and 58,408 shares of common stock in connection with the acquisitions of Magram
and Biobottoms. The shares were recorded at fair market value with a
corresponding increase in goodwill. During the same period options to acquire
200,000 shares of common stock were issued to six consultants. Of the 200,000
options, 50,000 are exercisable at $1.75 per share and 150,000 are exercisable
at $1.875 per share.

(l) From May 1997 through September 1997, the Company sold 1,250,000 shares
of its common stock in a private placement of its securities in which it raised
$2,500,000. In addition to these shares, the Company issued to European
Community Capital a placement agent's warrant exercisable to purchase up to
200,000 shares of common stock at $3.3125 per share. The Company issued an
option to a principal of the common stock at $3.3125 per share. The Company
issued an option to a principal of the placement agent to purchase up to 100,000
shares of common stock at $2.00 per share.

F-19
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

13. STOCKHOLDERS' EQUITY--(CONTINUED)
(m) In September 1997, a principal shareholder and officer made an
additional loan to the Company in the amount of $1,200,000.

(n) In October 1997, in part to raise capital for the Company's acquisition
out of bankruptcy of the assets of Brownstone, the Company completed a private
offering of its securities which raised $3,620,000 from accredited investors.
The private placement consisted of units, each unit consisting of ten shares of
Series E preferred stock and 7,500 shares of common stock at a purchase price of
$10,000 per unit. As a result, the Company issued an aggregate of 3,630 shares
of Series E preferred stock and 2,722,500 shares of common stock.

(o) On June 29, 1998, the Company completed the sale of subordinated
debentures to Finova Capital in the amount of $5,000,000 to be used for working
capital. In connection with the transaction, the Company issued warrants to
purchase 208,300 shares of common stock.

(p) In March 1999, the Company issued 32,440 shares of Series F Preferred
Stock plus 346,027 shares of common stock for an aggregate amount of $3,244,000.
Of this amount, 5,000 shares of Series F Preferred Stock and 53,333 shares of
common stock were issued to an investor for a cash contribution of $500,000
which the Series F Preferred Stock will be redeemed out of the proceeds of the
Company's proposed public offering (see Note 20). 17,200 shares of Series F
Preferred Stock and 183,467 shares of common stock were issued to a principal
stockholder for a cash contribution of $1.72 million. A director of the Company
received 10,240 shares of Series F Preferred Stock and 109,227 shares of common
stock for converting loans and advances to the Company totaling $700,000 and
advancing $324,000 directly to a vendor of the Company.

(q) In March 1999, the Company granted a warrant which grants the holder
the right to purchase in the aggregate up to 80,000 shares of the Company's
common stock at an exercise price of $1.50 per share. The warrant expires on
March 18, 2002.

(r) In April 1999, the Company issued 75 shares of Series E Preferred Stock
and 38,470 shares of common stock were issued to a shareholder.

(s) In May 1999, the Company issued 100,000 shares of its common stock for
$100,000, and an option to purchase 100,000 shares of its common stock at an
exercise price of $1.00 per share.

(t) In May 1999, the Company granted to two consulting firms common stock
purchase warrants to purchase up to an aggregate of 125,000 shares of common
stock at $1.15625 per share for consulting services.

(u) In June 1999, the Company entered into agreements with two investors to
issue an aggregate of 500 shares of Series G Preferred Stock and common stock
purchase warrants to purchase up to 120,000 shares of common stock at $1.00 per
share for an aggregate cash investment of $50,000. The transaction closed in
July 1999.

(v) In September 1999, the Trust, converted or exchanged all of the
preferred shares owned by the Trust into common stock other than the Series D
Preferred Stock which was already converted. The Trust exchanged all of the
Series B Preferred Stock and Series C Preferred Stock at a formula derived by
dividing the total liquidation value of such preferred shares ($3,500,000) by
$0.65 per share for a total of 5,384,615 shares of common stock. The terms of
the Series B Preferred Stock and Series C Preferred Stock provided that such
preferred shares were to convert at 75% of the current market price based on the
average closing price of the common stock for the 10 days preceding the
conversion (which would have been $0.6525 on that date, resulting in an issuance
of 5,363,982 shares of common stock, a difference of 20,633 shares of common
stock). The additional shares of common stock issued upon conversion of such
preferred shares was consideration for the early conversion of such preferred
shares by the Trust and for surrendering certain rights and privileges of owning
the preferred shares. The holders of the Series E Preferred Stock have been
granted a limited opportunity to convert their shares into common stock at a
formula derived by dividing the total liquidation value of such preferred shares
($3,705,000) by $0.90 per share. The terms of the Series E Preferred Stock
provided that such preferred shares

F-20
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

13. STOCKHOLDERS' EQUITY--(CONTINUED)

were not convertible. The exchange offer of shares of common stock for the
Series E Preferred Stock was consideration for the holders to surrender certain
rights and privileges of owning the preferred shares. Holders of $2,305,000 of
the Series E Preferred Stock accepted the offer. Of the total shares to be
issued upon conversion of all of the Series E Preferred Stock, which is
2,561,117, the Trust will receive 2,005,562 shares. The Trust exchanged for
5,488,000 shares of common stock all of the shares of the Series F Preferred
Stock at a formula derived by dividing the total liquidation value of such
preferred shares ($2,744,000) by $0.50 per share. The terms of the Series F
Preferred Stock provided that such preferred shares were not convertible. The
agreement to the exchange of common stock for the Series F Preferred Stock was
consideration for the Trust giving up certain rights and privileges of owning
the preferred shares. The Company intends to redeem for cash the remaining
$500,000 of Series F Preferred Stock. The Company is paying in common stock
accrued and unpaid dividends on the Series E Preferred Stock and Series F
Preferred Stock. Of the total 399,690 shares of common stock being issued in
lieu of cash dividends, the Trust will receive 224,192 shares. See Note 20.

(w) Effective June 1999, the Company entered into a strategic alliance with
Tadeo Holdings, Inc. The Trust owns approximately 9% of Tadeo's outstanding
common stock. As part of the strategic alliance, the Company agreed to provide
consulting services to Tadeo on direct marketing for $500,000. Tadeo will
develop, design and maintain the Company's web sites for its Lew Magram and
Brownstone catalogs for a royalty of 5% of net revenues derived from the
Company's e-commerce business up to $500,000 and 20% of net profits thereafter.
Tadeo will also host the Company's internet servers for the first year for an
additional fee. In addition, Tadeo made a $1,000,000 cash investment in the
Company's Series G Preferred Stock. The Series G Preferred Stock is convertible
into common stock based on the average of the closing bid prices for the lowest
five of the twenty trading days immediately preceding the date of conversion.
The Series G Preferred Stock is redeemable at the Company's option, but must be
redeemed out of the proceeds of any public offering in excess of $9 million. The
Company also exchanged $1,000,000 worth of common stock (82,008 shares) for
$1,000,000 worth of Tadeo's common stock (285,715 shares), based on the
Company's stock price as of June 7, 1999.

(x) In July 1999, the Company granted to a director an option to purchase
50,000 shares of common stock at $1.00 per share for his continuing to serve as
a director.

(y) In September 1999, the Company issued a $400,000 short term
subordinated promissory note to an investor for a $400,000 cash investment. The
proceeds were used for working capital purposes.

At September 30, 1998 the components of the Preferred Stock were:

<TABLE>
<CAPTION>
SHARES PAR VALUE
---------------------- --------- LIQUIDATION
ISSUED OUTSTANDING PER SHARE TOTAL VALUE
------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
Series A(d)........................................ 100,000 100,000 $ .01 1,000 $ --
Series B(a)........................................ 290,000 290,000 .01 2,900 2,900,280
Series C(a)........................................ 60,000 60,000 .01 600 600,000
Series D(b)........................................ 95,000 92,503 .01 950 9,250,300
Series E(c)........................................ 3,630 3,630 .01 36 3,630,000
-----------
$16,380,580
-----------
-----------
</TABLE>

(Footnotes on next page)

F-21
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

13. STOCKHOLDERS' EQUITY--(CONTINUED)
- ------------------
(a) Convertible into common into common stock at 75% of "current market price"
with a dividend of 9% of liquidation value and 10 votes per share.

(b) Shares issued in connection with the Magram acquisition (see Note 3(a)).

(c) Redeemable at the option of the Company with a dividend based on liquidation
value of 6% increased to 12% if not redeemed by October 2000.
(d) Converted into 1,000,000 shares of common stock in November 1998.

14. CONCENTRATIONS OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
Concentrations of credit risk with respect to trade receivables include
concentrations of trade accounts in the juvenile products industry.

15. NET SALES

Two customers of Ecology Kids accounted for the following percentage of net
sales from continuing operations. No customer exceeded 10% of net sales in 1998
or the nine months ended June 30, 1999.

PERCENTAGE OF NET SALES

<TABLE>
<CAPTION>
Year ended September 30, 1997.................................. 12 8
<S> <C> <C>
-- --
-- --
Nine months ended September 30, 1996........................... 11 40
-- --
-- --
</TABLE>

16. COMMITMENTS AND CONTINGENCIES

(a) Sales Tax Audit

In November 1997, Magram was served with a proposed assessment related to a
sales tax audit aggregating approximately $2.4 million (including penalties and
interest). This matter was settled for $350,000 and has been accrued at
October 3, 1998. The liability was recorded as of the acquisition date of
Magram.

(b) Merchandise Credits

Because of Magram's policy of periodically writing off into income unused
merchandise credits issued with the return of sale merchandise, it may be liable
for future claims on such amounts previously written off. The amounts written
off into income for 1997, 1998 and the nine months ended June 30, 1999 were
$742,000, $3,398,000 and $2,600,000 respectively.

In connection with the Magram acquisition, the Company entered into
three-year employment agreements with three former principals of Magram to serve
in executive capacities with the acquired company. Aggregate minimum annual
compensation under these agreements is $657,000 for the first two years and
$692,000 for the third year.

In connection with the Brownstone acquisition in October 1997, the Company
entered into five-year employment agreements with two former principals of
Brownstone to serve in executive capacities with the Company. Aggregate minimum
annual compensation under these agreements is $372,500.

During 1999, the Company entered into a three-year employment agreement
with an officer of the Company for a minimum of $200,000 a year.

Robert M. Rubin, Chairman of the Board, has a financial consulting
agreement with the Company pursuant to which Mr. Rubin is paid $200,000 per
annum. The agreement terminates in December, 2002.

On May 21, 1999, the Company entered into a severance agreement with
Jonathan Rosenberg. The agreement provides that Mr. Rosenberg will be paid six
months severance equal to $112,500 plus twelve months

F-22
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

16. COMMITMENTS AND CONTINGENCIES--(CONTINUED)

of health and other benefits. The agreement terminated Mr. Rosenberg's
employment agreement which would have expired on February 15, 2002.
Mr. Rosenberg resigned as Chief Executive Officer, President and Director on
May 21, 1999.

(d) Leases

The Company rents real and personal property under long-term lease
agreements which expire at various dates through August 2002. Although the lease
on the facility used in the Magram and Brownston operations will expire in
August 1999, the Company intends to exercise its option to extend to 2001.
Future minimum rentals under noncancellable operating leases are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR ENDING AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
1999........................................................ $ 654,756
2000........................................................ 663,996
2001........................................................ 674,780
2002........................................................ 78,736
----------
$2,072,268
----------
----------
</TABLE>

Rent expense amounted to approximately $890,000, $823,277, $0, $731,160 and
$374,888 for the years ended September 30, 1998, 1997, the nine months ended
September 30, 1996, and the nine months ended June 30, 1999 and 1998,
respectively.

(e) Litigation

In March 1998, Paul Russo filed a complaint against the Company alleging
that he is entitled to the Unit Purchase Option granted by the Company as part
of the initial public offering in November 1993. The litigation was settled
resulting in the Company agreeing to pay Russo $600,000, which was expensed in
the June 30, 1999 period.

17. INCOME TAXES

The following analyzes the deferred tax assets at June 30, 1999,
September 30, 1998 and 1997:

<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforward.................. $ 4,378,000 $ 3,485,000 $ 2,915,000
Depreciation..................................... 100,000 100,000 102,000
Inventory........................................ 1,016,000 1,016,000 1,016,000
Other items...................................... 164,000 164,000 164,000
----------- ----------- -----------
5,858,000 4,765,000 4,197,000
Less: Valuation allowance........................ (5,858,000) (3,403,000) (2,835,000)
----------- ----------- -----------
Deferred tax asset............................... $ -0- $ 1,362,000 $ 1,362,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The net deferred tax asset
reflects management's estimates of the amount which will be realized from future
profitability which can be predicted with reasonable certainty. The valuation
allowance was $2,835,000 at September 30, 1997, which represents a decrease of
$212,000 over the amount reported at September 30, 1996. The current portion of
the deferred tax asset amounts to $780,464, and is included with other current
assets. The long-term portion amounts to $581,536 and is included with other
assets. The increase in the deferred tax assets in 1998 was fully reserved. The
asset was written off in the June 30, 1999 period.

As of September 30, 1998, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $7,300,000 which are available
to offset future Federal taxable income through 2009.

F-23
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

17. INCOME TAXES--(CONTINUED)

The provision for income taxes differs from the amount computed by applying
the 34% Federal statutory income tax rate to the net loss before provision for
income taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED
NINE MONTHS SEPTEMBER 30,
ENDED JUNE 30, ----------------------
1999 1998 1997
--------------- --------- ---------
<S> <C> <C> <C>
Income tax benefit computed at statutory rate.............. $ 2,320,000 $ 568,000 $ 376,000
Tax benefit of net operating loss carryforward............. -- -- (376,000)
State tax benefit (expense), net of Federal tax benefit.... (326,000) -- 1,567
Adjustment to valuation allowance.......................... (3,990,386) (568,000) (212,000)
--------------- --------- ---------
Income tax benefit (expense) as reported................... $ (1,496,386) $ -- $ 210,433 (1)
--------------- --------- ---------
--------------- --------- ---------
</TABLE>

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

(1) Includes amounts attributable to discontinued operations.

18. BUSINESS SEGMENT INFORMATION

The Company is engaged in two lines of business, specialty catalog retail
and mass merchant manufacturing and distribution. Operations are conducted in
North America. The following is a summary by business segment:

F-24
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

18. BUSINESS SEGMENT INFORMATION--(CONTINUED)

<TABLE>
<CAPTION>
MASS MERCHANT
SPECIALTY CATALOG MANUFACTURING &
INFORMATION BY BUSINESS SEGMENT RETAIL OPERATIONS DISTRIBUTION TOTAL
- ----------------------------------------------------------------- ------------- ------------- ------------
SEPTEMBER 30, 1998
<S> <C> <C> <C>
Net sales........................................................ $ 67,921,661 $ 6,663,931 $ 74,585,592
Cost of goods sold............................................... 30,248,309 4,184,988 34,433,297
------------- ------------- ------------
Gross profit..................................................... 37,673,352 2,478,943 40,152,295
------------- ------------- ------------
------------- ------------- ------------
Operating expenses............................................... 35,436,230 2,101,142 37,537,372
------------- ------------- ------------
Operating income (loss).......................................... $ 2,237,122 $ 377,801 $ 2,614,923
------------- ------------- ------------
------------- ------------- ------------
Interest expense................................................. $ (1,007,927) $ (347,397) $ (1,355,324)
------------- ------------- ------------
------------- ------------- ------------
Income before provision for income taxes......................... $ 1,229,195 $ 30,404 $ 1,259,599
------------- ------------- ------------
------------- ------------- ------------
Total assets..................................................... $ 46,024,819 $ 4,934,064 $ 50,958,883
------------- ------------- ------------
------------- ------------- ------------
SEPTEMBER 30, 1997
Net sales........................................................ $ 10,575,342 $ 6,892,724 $ 17,468,066
Cost of goods sold............................................... 5,005,817 3,718,213 8,724,030
------------- ------------- ------------
Gross profit..................................................... 5,569,525 3,174,511 8,744,036
------------- ------------- ------------
------------- ------------- ------------
Operating expenses............................................... 5,322,581 1,738,077 7,060,658
------------- ------------- ------------
Operating income (loss).......................................... $ 246,944 $ 1,436,434 $ 1,683,378
------------- ------------- ------------
------------- ------------- ------------
Interest expense................................................. $ -- $ (421,233) $ (421,233)
------------- ------------- ------------
------------- ------------- ------------
Income before provision for income taxes......................... $ 246,944 $ 1,015,201 $ 1,262,145
------------- ------------- ------------
------------- ------------- ------------
Total assets..................................................... $ 27,597,554 $ 5,415,333 $ 33,012,887
------------- ------------- ------------
------------- ------------- ------------
SEPTEMBER 30, 1996
Net sales........................................................ $ -- $ 7,448,778 $ 7,448,778
------------- ------------- ------------
Cost of goods sold............................................... $ -- $ 7,392,265 $ 7,392,265
------------- ------------- ------------
Gross profit..................................................... $ -- $ 56,513 $ 56,513
------------- ------------- ------------
------------- ------------- ------------
Operating expenses:
Selling, general & administrative expenses..................... -- 3,672,133 3,672,133
Restructuring & reorganization costs........................... -- 1,738,975 1,738,975
------------- ------------- ------------
Total expenses................................................... -- 5,411,108 5,411,108
------------- ------------- ------------
Operating income (loss).......................................... $ -- $ (5,354,595) $ (5,354,595)
------------- ------------- ------------
------------- ------------- ------------
Interest expense................................................. $ -- $ (702,474) $ (702,474)
------------- ------------- ------------
------------- ------------- ------------
Income (loss) before provision for income taxes.................. $ -- $ (6,057,069) $ (6,057,069)
------------- ------------- ------------
------------- ------------- ------------
Total assets..................................................... $ -- $ 7,762,190 $ 7,762,190
------------- ------------- ------------
------------- ------------- ------------
</TABLE>

F-25

<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

19. STOCK OPTION PLANS

The Company's 1992 Stock Option Plan ("1992 Stock Option Plan") provides
for the issuance of up to 200,000 shares of common stock upon exercise of
incentive stock options and is intended to qualify under Section 422 of the
Internal Revenue Code of 1986, as amended ("Code").

The 1992 Stock Option Plan may be administered by the Board of Directors or
by a stock option committee of the Board of Directors (the "Committee").
Incentive stock options are granted under the 1992 Stock Option Plan to
employees generally on the basis of the recipient's responsibilities and the
achievement of performance objectives. Subject to the limitations set forth in
the 1992 Stock Option Plan, the Board or the Committee has the authority to
determine when the options may be exercised and vest. Under the Plan, the per
share exercise price may not be less than the greater of 100% of the fair market
value of the shares on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting rights of the Company's
outstanding capital stock, the per share exercise price must be at least 110% of
the fair market value on the date of grant and the term may not be longer than
five years. As of this date, the Company has outstanding an aggregate of 130,000
stock options, exercisable at $1.50 per share, all of which are held by
affiliates or employees of the Company at the time of grant.

August 1996 Stock Option Plan

The Company also established a nonqualified stock option plan providing for
the issuance of up to 1,500,000 shares of common stock to its directors,
officers, key employees and consultants (the "August 1996 Plan"). To date, the
Company has granted directors, officers and key employees an aggregate of
150,000 incentive and nonqualified stock options, at an exercise price of $2.00
per share and 500,000 nonqualified stock options issued and exercised by a
consultant.

November 1996 Stock Option Plan

Under the Company's November 1996 Incentive Stock Option Plan (the
"November 1996 Plan"), options to purchase a maximum of 1,500,000 shares of
common stock of the Company (subject to adjustments in the event of stock
splits, stock dividends, recapitalizations and other capital adjustments) may be
granted to employees, officers and directors of the Company and other persons
who provide services to the Company. 1,060,000 of such options have been granted
at an exercise price of $1.00, of which 620,000 options expired on June 17,
1998, 150,000 are exercisable at $2.375 and 50,000 are exercisable at $1.00. The
options to be granted under the November 1996 Plan are designated as incentive
stock options or nonincentive stock options by the Board of Directors which also
have discretion as to the persons to be granted options, the number of shares
subject to the options and terms of the option agreements. Only employees,
including officers and part-time employees of the Company, and nonemployee
directors, consultants and advisors and other persons who perform significant
service for or on behalf of the Company, may be granted incentive stock options;
officers and directors who currently own more than 5% of the issued and
outstanding stock are not eligible to participate in the November 1996 Plan.

The November 1996 Plan provides that options granted thereunder shall be
exercisable during a period of no more than ten years from the date of grant,
depending upon the specific option agreement and that, with respect to incentive
stock options, the option exercise price shall be at least equal to 100% of the
fair market value of the common stock at the time of the grant.

In September 1999, the Board of Directors increased the number of shares
reserved under the Plan by one million after giving effect to any reverse split.
The Company anticipates granting options to purchase one million shares to
directors, officers and key employees at 110% of the offering price, but the
allocation has not yet been determined.

F-26
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

19. STOCK OPTION PLANS--(CONTINUED)
1998 Stock Option Plan

The Company's 1998 Stock Option Plan (the "1998 Plan") was adopted by the
Board of Directors in February, 1998 and approved by the stockholders in May,
1998. Under the 1998 Plan, the Company is authorized to issue options to
purchase up to 1,200,000 shares of common stock. All officers and other
employees of the Company and other persons who perform significant services for
or on behalf of the Company are eligible to participate in the 1998 Plan.

The Company may grant under the 1998 Plan both incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "code"), and stock options that do not
qualify for incentive treatment under the Code ("Nonstatutory Options").

The Plan shall be administered by the Board of Directors of the Company
(the "board"), if each member is a "disinterested" person within the meaning of
Rule 16b-3 under the Securities Exchange Act of 1934, as amended
("Rule 16b-3"), or a committee (the "Committee") of two or more directors, each
of whom is a disinterested person.

Subject to the provisions of the 1998 Plan, the Committee has the authority
to construe and interpret the 1998 Plan, to prescribe, adopt, amend and rescind
rules and regulations relating to the administrations of the 1998 Plan and to
make all other determinations necessary or advisable for its administration.
Subject to the limitations of the 1998 Plan, the Committee also selects from
among the eligible persons those individuals who will receive options, whether
an optionee will receive Incentive Stock Options or Nonstatutory Options, or
both, and the amount, price, restrictions and all other terms and provisions of
such options (which need not be identical).

The exercise price of each Incentive Stock Option under the Option Plan
will be determined by the Committee, but will not be less than 100% of the "Fair
Market Value" (as defined in the 1998 Plan) of common stock on the date of grant
(or 110% in the case of an employee who at the time owns more than 10% of the
total combined voting power of all classes of capital stock of the Company). The
Nonstatutory Option exercise price will be determined by the Committee, but will
not be less than 85% of the common stock on the date of grant.

Under the 1998 Plan, the Company has outstanding options to purchase an
aggregate of 700,000 shares of common stock exercisable at $2.75 per share and
500,000 shares of common stock are exercisable at $1.00 per share, all of which
are held by employees of the Company. Options to purchase 200,000 shares of
common stock become exercisable upon Brownstone meeting certain minimum net
income. These options will be recorded, when and if, the net income assessments
are met. The remaining outstanding options become exercisable over four years.

F-27
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

19. STOCK OPTION PLANS--(CONTINUED)
The following table is a summary of stock option information for 1996
through 1998:

<TABLE>
<CAPTION>
OPTION PRICE RANGE AVERAGE
SHARES PER SHARE PRICE
--------- ---------------- -------
<S> <C> <C> <C>
Outstanding 1/1/96............................................ 130,000 $1.50 $1.50
Granted..................................................... 650,000 $.95 to $2.50 $1.34
Exercised................................................... 500,000 $.95 $ .95
Forfeited................................................... 0 0 0
--------- ---------------- -----
Outstanding 10/1/96........................................... 280,000 $1.50 to $2.50 $2.04
Granted..................................................... 1,485,000 $1.00 to $3.125 $1.21
Exercised................................................... 0 0 0
Forfeited................................................... 0 0 0
--------- ---------------- -----
Outstanding 10/1/97........................................... 1,765,000 $1.00 to $3.125 $1.67
Granted..................................................... 750,000 $1.00 to $2.75 $2.63
Exercised................................................... 35,000 $1.75 to $1.85 $1.84
Forfeited................................................... 620,000 $1.00 $1.00
--------- ---------------- -----
Outstanding 9/30/98........................................... 1,860,000 $1.00 to $3.125 $2.05
--------- ---------------- -----
--------- ---------------- -----
Exercisable at year-end
9/30/96..................................................... 130,000 $1.50 $1.50
9/30/97..................................................... 527,000 $1.00 to $3.125 $1.61
9/30/98..................................................... 831,000 $1.00 to $3.125 $2.02
</TABLE>

Available for future grants

<TABLE>
<CAPTION>
1992 AUGUST 1996 NOVEMBER 1996 1998
PLAN PLAN PLAN PLAN
------ ----------- ------------- -------
<S> <C> <C> <C> <C>
9/30/98........................................................ 70,000 850,000 710,000 500,000
</TABLE>

The following table summarizes information about stock options outstanding
at September 30, 1998.

<TABLE>
<S> <C>
Range of Exercise prices:.................................................. $1.00 to $3.125
Outstanding options Number outstanding at September 30, 1998............... 1,860,000
Weighted average remaining contractual life (years)........................ 3.5
Weighted average exercise price............................................ $2.05
Exercisable options Number outstanding at September 30, 1998............... 831,000
Weighted average exercise price............................................ $2.02
</TABLE>

In fiscal 1997, the Company adopted the disclosure provisions of SFAS
No. 123, "Accounting for Stock-Based Compensation". For disclosure purposes, the
fair value of options is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted average assumptions used for
stock options granted during the years ended September 30, 1998 and 1997 and
nine months ended September 30, 1996: annual dividends of $-0-; expected
volatility of 46.10% in 1988 and 94.99% in 1997; risk-free interest rate of 7%
and expected life of five years. The weighted average fair value of stock
options granted during the years ended September 30, 1998 and 1997 and nine
months ended September 30, 1996 was $1.51, $1.17 and $1.48, respectively. If the
Company had recognized compensation cost for stock options in accordance with
SFAS No. 123, the Company's pro forma net loss and net loss per share would have
been $2,257,683 and $ .21 per share and $550,088 and $.09 per share for the
years ended September 30, 1998 and 1997 and $8,298,400 and $1.82 per share for
the nine months ended September 30, 1996.

F-28
<PAGE>

STYLESITE MARKETING, INC.
(FORMERLY DIPLOMAT DIRECT MARKETING CORPORATION) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(UNAUDITED WITH RESPECT TO THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999)

20. SUBSEQUENT EVENTS (UNAUDITED)

In September 1999, as part of its financing plans in a series of
transactions, the Company issued to the Trust and others 48,933,422 shares of
common stock. Of the shares issued 35,100,000 shares were issued in connection
with the satisfaction of a portion of the secured borrowing (see Note 11) and
13,833,422 shares were issued upon the conversion or exchange of 379,745 shares
of preferred stock (see Note 13). This will result in a financing expense of
approximately $2 million.

On June 11, 1999 the Company filed a Registration Statement to raise an
additional $10 million in equity capital upon the completion of an offering. The
proceeds from the sale of the shares are intended to be used as follows:

o $3,250,000 to repay a portion of the outstanding balances due under the
First Source loan facility ($1,000,000), to redeem a portion of the
Company's redeemable preferred stock ($1,550,000), to repay an advance by
an investor ($400,000) and to prepay a portion of the Russo litigation
settlement ($300,000);

o $3,650,000 to finance the purchase of inventory;

o $750,000 to be used for creating, designing, integrating into operations
and operating the Lew Magram and Brownstone Studio interactive websites;
and

o the balance, including any proceeds from the sale of over-allotment
shares, to fund general corporate purposes, including possible
acquisitions.

The Company is contemplating a reverse stock split of approximately 13 to
1, which has not been reflected in the financial statements.

F-29

<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Lew Magram Ltd.

We have audited the accompanying statements of operations and cash flows of Lew
Magram Ltd. for the year ended January 4, 1997. 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 audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Lew Magram
for the year ended January 4, 1997, in conformity with generally accepted
accounting principles.

/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP

New York, New York
May 16, 1997, except for Note 2
which is as of February 19, 1998

F-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders
Lew Magram Ltd.

We have audited the accompanying statements of operations and cash flows of Lew
Magram Ltd. for the six months ended June 30, 1997. 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 audit.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of Lew Magram
for the six months ended June 30, 1997, in conformity with generally accepted
accounting principles.

/s/ Feldman Sherb Ehrlich & Co., P.C.
FELDMAN SHERB EHRLICH & CO., P.C.
Certified Public Accountants

New York, New York
January 30, 1999

F-31

<PAGE>
LEW MAGRAM LTD.
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 JANUARY 4, 1997
---------------- ---------------
<S> <C> <C>
Net sales..................................................................... $ 19,642,703 $51,926,603
Cost of goods sold............................................................ 11,960,210 25,111,912
------------ -----------
Gross profit................................................................ 7,682,493 26,814,691
Selling, general and administrative expenses.................................. 14,670,290 28,296,249
------------ -----------
Operating loss.............................................................. (6,987,797) (1,481,558)
Other income (expense)........................................................ (218,636) 691,553
------------ -----------
Loss before income taxes.................................................... (7,206,433) (790,005)
Income taxes.................................................................. (70,000) --
------------ -----------
Net loss...................................................................... $ (7,276,433) $ (790,005)
------------ -----------
------------ -----------
</TABLE>

See accompanying notes to financial statements.

F-32

<PAGE>
LEW MAGRAM LTD.
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 JANUARY 4, 1997
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................................... $ (7,276,433) $ (790,005)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization............................................ 303,547 546,030
Unrealized gain in marketable securities................................. -- (12,000)
Decrease (increase) in:
Accounts receivable.................................................... (10,977) 83,216
Inventories............................................................ 938,598 (67,018)
Prepaid expenses and other current assets.............................. 6,363 (991,238)
Other assets........................................................... -- 34,937
Increase (decrease) in:
Accounts payable....................................................... (469,981) 804,867
Accrued expenses....................................................... 5,278,391 638,927
------------ -----------
Total adjustments............................................................. 6,045,941 1,037,721
------------ -----------
Net cash provided by (used in) operating activities........................... (1,230,492) 247,716
------------ -----------
Cash flows from investing activities:
Capital expenditures........................................................ (87,175) (543,950)
------------ -----------
Cash flows from financing activities:
Increase in long-term debt.................................................. 1,369,084 325,547
Issuance of preferred stock................................................. 2,000,000 --
Dividends on preferred stock................................................ (24,466) --
Payments under capital leases............................................... (199,121) 138,606
Redemption of stockholder................................................... (77,619) 46,774
------------ -----------
Net cash provided by financing activities..................................... 3,067,878 510,927
------------ -----------
Net increase in cash.......................................................... 1,750,211 214,693
Cash, beginning of period..................................................... 285,796 71,104
------------ -----------
Cash, end of period........................................................... $ 2,036,007 $ 285,797
------------ -----------
------------ -----------
</TABLE>

See accompanying notes to financial statements.

F-33

<PAGE>
LEW MAGRAM LTD.
NOTES TO FINANCIAL STATEMENTS

1. SUMMARY OF ACCOUNTING POLICIES

Description of Business

The Company is a mail order ladies apparel retailer.

Inventories

Inventories consisting of finished goods are valued at the lower of cost
(first-in, first-out) or market.

Catalogue and Advertising Expenses

The Company expenses the production costs of advertising the first time the
advertising takes place, except for direct-response advertising, which is
capitalized and amortized over its expected period of future benefits.

Direct-response advertising consists primarily of mail order catalogues
that include order forms for the Company's products. The capitalized costs of
the catalogue are amortized over the shipping season of the products appearing
in the catalogues, which does not exceed 6 months.

The Company began a production development program that extends the useful
lives of certain production costs over many catalogue seasons. These costs are
being amortized on a straight-line basis over 18 months, the estimated useful
life, and consist of photography, modeling and color separation costs.

Property, Equipment and Depreciation

Depreciation and amortization are computed by both accelerated and
straight-line methods based on the estimated useful lives of the assets.

Revenue Recognition

Revenue is recognized at the time merchandise is shipped to customers.
Proceeds received for merchandise not yet shipped are reflected as "open prepaid
orders," a current liability. In addition, the Company passes on the cost of
parcel shipments directly to the customer as part of the postal and handling
charge, which is customary in the direct mail industry. This is reflected as a
reduction of operating expenses.

The Company also derives revenue through the rental of their customer
mailing list, which is reflected in other income.

Merchandise Credits

The Company issues merchandise credits for certain returns of merchandise
sold with substantial discounts. Unused credits are periodically written off
into income.

Income Taxes

The Company elected, with the consent of its stockholders, to be taxed as
an S corporation under the provisions of the Internal Revenue Code and New York
State Franchise Tax Law. The stockholder is required to report the Company's
taxable income or loss in their personal income tax returns; accordingly, such
income taxes are not reflected in the financial statements. The financial
statements include a provision for New York City and New Jersey income taxes
since New York City and New Jersey do not recognize S corporation status. New
York State imposes a corporate level tax based upon the differential between
corporate and individual tax rates, which has been provided for.

F-34
<PAGE>
LEW MAGRAM LTD.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

1. SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
During the year ended July 1, 1995, the Company adopted SFAS No. 109,
"Accounting for Income Taxes". SFAS No. 109 is an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Deferred income taxes are
immaterial and not recorded by the Company.

In connection with the transactions discussed in Note 2, the Company's
corporation status was automatically terminated when the Company issued
preferred stock (see note 4(a)), and the Company will now be taxed as a C
corporation. The change in status will not materially affect the Company.

Fiscal Year

The Company's fiscal year is comprised of 52-53 weeks ending on the
Saturday closest to December 31.

2. ACQUISITION BY DIPLOMAT DIRECT MARKETING CORPORATION

On February 19, 1998, StyleSite Marketing, Inc. (formerly Diplomat Direct
Marketing Corporation) ("StyleSite") completed the acquisition of Lew Magram,
Ltd. The acquisition was effected as of July 1, 1997, the date that StyleSite
assumed effective control of Magram. The acquisition was accounted for as a
purchase and the consideration consisted of the issuance of 95,000 shares of
StyleSite's $.10 par value, Series D convertible preferred stock and 250,000
shares of StyleSite's common stock. The Series D preferred stock is convertible
into 3,166,667 shares of StyleSite's common stock. The fair market value of the
consideration was approximately $8.7 million and acquisition costs were
approximately $646,000. StyleSite recorded the carryover basis for a certain
selling stockholder of Magram who is also a principal stockholder of StyleSite.

3. RENT EXPENSE

Rent expense amounted to approximately $280,000 and $563,000 for the six
months ended June 30, 1997 and the year ended January 4, 1997, respectively.

4. CONTINGENCIES

Because of the Company's policy of periodically writing off into income
unused merchandise credits issued (approximately $264,110 and $796,000 for the
six months ended June 30, 1997 and the year ended January 4, 1997,
respectively), without expiration dates in connection with the return of sale
merchandise, it may be liable for future claims on such amounts previously
written off.

5. OTHER

(a) On May 16, 1997, the Company issued 2,000 shares of preferred stock to
two individuals for $2,000,000. The preferred stock has been designated as
senior convertible preferred stock with $.01 par value. The preferred stock has
a $1,000 per share liquidation value and a 9.5% cumulative dividend.

(b) In connection with the transaction discussed above, the Company amended
its certificate of incorporation whereby the Company is authorized to issue
2,000 shares of $.01 par value common stock and 2,000 shares of $.01 par value
preferred stock.

F-35

<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
FINANCIAL STATEMENTS
INDEX

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report............................................................................ F-37
Financial Statements:
Balance Sheets........................................................................................ F-38
Statement of Operations............................................................................... F-39
Statement of Cash Flows............................................................................... F-40
Notes to Financial Statements......................................................................... F-41
</TABLE>

F-36

<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors
Jean Grayson's Brownstone Studio, Inc.

We have audited the accompanying balance sheets of Jean Grayson's Brownstone
Studio, Inc. as of December 31, 1996 and 1995, and the related statements of
operations and retained earnings (deficit) and cash flows for the years then
ended. 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.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Jean Grayson's Brownstone Studio, Inc. at
December 31, 1996 and 1995, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared on a going concern
basis. The Company has sustained significant losses during the last two years
and has a working capital deficit of $3,464,094 as of December 31, 1996.
Furthermore, in February 1997 the Company filed for bankruptcy under Chapter 11
culminating in a court approved assumption of its remaining assets and certain
liabilities in October 1997. The accompanying financial statements do not
include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities.

/s/ FELDMAN SHERB EHRLICH & CO., P.C.
Feldman Sherb Ehrlich & Co., P.C.
Certified Public Accountants

New York, New York
August 24, 1998

F-37

<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
BALANCE SHEET

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ 124,554 $ 216,226
Receivable from credit card companies............................................ 104,537 129,011
Merchandise inventories.......................................................... 7,235,765 10,856,229
Prepaid expenses and other current assets........................................ 2,491,545 2,752,640
----------- -----------
Total current assets.......................................................... 9,956,401 13,954,106
Property and equipment--net........................................................ 1,423,873 1,881,868
Other assets....................................................................... 208,388 297,004
----------- -----------
$11,588,662 $16,132,978
----------- -----------
----------- -----------

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of capital leases and long-term debt.......................... $ 59,704 $ 84,699
Note payable..................................................................... 1,568,543 2,107,131
Accounts payable and accrued expenses............................................ 8,475,130 9,142,782
Customers' advances and returns.................................................. 3,317,118 1,992,709
----------- -----------
Total current liabilities..................................................... 13,420,495 13,327,321
----------- -----------
Obligations under capital leases and long-term debt................................ 51,897 109,670
----------- -----------
Deferred credits................................................................... 481,914 600,159
----------- -----------

Commitments and contingent liabilities
Stockholders' equity (deficit)
Common stock, no par value--authorized and outstanding, 200 shares............... 148,000 148,000
Retained earnings (deficit)...................................................... (2,513,644) 1,947,828
----------- -----------
Total stockholders' equity (deficit).......................................... (2,365,644) 2,095,828
----------- -----------
$11,588,662 $16,132,978
----------- -----------
----------- -----------
</TABLE>

See notes to financial statements

F-38

<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
STATEMENT OF OPERATIONS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Net sales.......................................................................... $50,171,947.. $53,031,632
Costs and expenses:
Cost of goods sold............................................................... 26,508,223 27,599,674
Operating, general and administrative expenses................................... 27,929,664 26,819,772
Interest expense--net............................................................ 195,534 125,787
----------- -----------
54,633,421 54,545,233
----------- -----------
Net loss........................................................................... (4,461,474) (1,513,601)
Retained earnings beginning of year................................................ 1,947,830 3,461,431
----------- -----------
Retained earnings (deficit) end of year............................................ $(2,513,644) $ 1,947,830
----------- -----------
----------- -----------
</TABLE>

See notes to financial statements.

F-39

<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss....................................................................... $(4,461,474) $(1,513,601)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................... 495,667 480,530
Increase in cash surrender value on officers' life insurance................ -- (60,545)
Amortization of deferred credits............................................ (118,245) (137,910)
Gain on trade-in of fixed assets............................................ -- (43,663)
Changes in operating assets and liabilities:
Receivable from credit card companies.......................................... 24,474 276,547
Merchandise inventories........................................................ 3,620,464 (1,916,305)
Prepaid expenses and other current assets...................................... 261,095 471,431
Other assets................................................................... 88,617 29,202
Accounts payable and accrued expenses.......................................... (667,650) 832,378
Customer mail order advances................................................... 1,324,409 677,209
----------- -----------
Net cash provided by (used in) operating activities............................ 567,357 (904,727)
----------- -----------
Cash flows from investing activities:
Capital expenditures........................................................... (37,673) (822,276)
----------- -----------
Net cash used in investing activities.......................................... (37,673) (822,276)
----------- -----------
Cash flows from financing activities:
Proceeds from short-term borrowings............................................ 1,568,543 2,107,131
Principal payments on short-term borrowings.................................... (2,107,131) (500,000)
Principal payments on long-term borrowings and capital lease obligations....... (82,768) (141,798)
----------- -----------
Net cash provided by (used in) financing activities............................ (621,356) 1,465,333
----------- -----------
Net decrease in cash and cash equivalents........................................ (91,672) (261,670)
Cash and cash equivalents, beginning of year..................................... 216,226 477,896
----------- -----------
Cash and cash equivalents, end of year........................................... $ 124,554 $ 216,226
----------- -----------
----------- -----------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest......................................... $ 195,534 $ 143,121
----------- -----------
----------- -----------
Cash paid during the year for income taxes..................................... $ -- $ 18,468
----------- -----------
----------- -----------
</TABLE>

See notes to financial statements
F-40

<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 1996 AND 1995

1. BUSINESS AND BASIS OF PRESENTATION

Jean Grayson's Brownstone Studio, Inc. is engaged in the sale of fine
women's apparel through catalogs and an outlet store. A portion of its
merchandise is purchased from Wilroy, Inc. (the "Affiliate"), a company related
through common ownership.

The accompanying financial statements have been prepared assuming the
Company to continue as a going concern. The Company has experienced significant
recent losses and a working capital deficit of approximately $3.5 million at
December 31, 1996. The Company filed for bankruptcy in February 1997 and
operated under Chapter 11 of the Bankruptcy Code until September 1997 at which
time its remaining assets and certain liabilities were assumed by StyleSite
Marketing, Inc. (formerly Diplomat Direct Marketing Corporation) under a court
approved plan of reorganization. These financial statements do not contain any
adjustments related to these subsequent events.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Inventory Valuation--Merchandise inventories, consisting of
finished goods only, are stated at the lower of cost (determined on
a first-in, first-out basis) or market.

B. Property and Equipment--Property and equipment are stated at cost.
Depreciation and amortization are computed by either the
accelerated or straight-line methods over the estimated useful
lives of the assets. Leasehold improvements and capital leased
assets are amortized over the lesser of the term of the lease or
the estimated useful life.

The Company received a construction allowance upon entering into
an office lease. This allowance is recorded as a deferred credit
and is amortized over the life of the lease.

C. Catalog Costs--In 1995, the Company adopted the method of
accounting for catalog costs pursuant to the AICPA Statement of
Position ("SOP") 93-7, "Reporting on Advertising Costs". SOP 93-7
requires that the amortization of capitalized advertising costs
should be the amount computed using the ratio that current period
revenues for the catalog cost pool bear to the total of current and
estimated future period revenues for that catalog cost pool. The
effect of this adoption was not material to the financial
statements.

D. Income Taxes--The Company, with the consent of its stockholders,
elected to be taxed as an S Corporation under the provisions of the
Internal Revenue Code and New York State Tax Law which provides
that, in lieu of corporation income taxes, the stockholders are
required to report their proportionate share of the Company's
taxable income or loss on their personal tax returns. Other state
and local taxes are included in operating, general and
administrative expenses.

The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes".

E. Fair Value of Financial Instruments--SFAS No. 107, "Disclosures
About Fair Value of Financial Instruments" requires disclosure
about the fair value of financial instruments. The carrying amounts
reported in the balance sheet for cash and cash equivalents,
accounts receivable, notes payable, and accounts payable
approximate fair value because of the short-term maturity of these
financial statements.

F. Use of Estimates in the Preparation of Financial Statements--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 disclosures of contingent assets and
liabilities at the date of the financial statements and the

F-41
<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996 AND 1995

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.

G. Recent Accounting Pronouncement--In March 1995, the Financial
Accounting Standards Board issued SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
disposed of". SFAS No. 121 requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable, and is effective for financial statements for
fiscal years beginning after December 15, 1995. The Company has
determined that the effect of adopting this new standard is not
material to the financial statements.

3. PREPAID EXPENSES AND OTHER CURRENT ASSETS

At December 31, 1996 and 1995, prepaid expenses and other current assets
included deferred catalog costs of approximately $1,726,000 and $2,325,000.

4. PROPERTY AND EQUIPMENT

Major classes of property and equipment are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED ------------------------
USEFUL LIVES 1996 1995
-------------- ---------- ----------
<S> <C> <C> <C>
Data processing equipment.................................. 5-7 years $1,225,898 $1,199,068
Machinery and equipment.................................... 5-10 years 710,276 679,644
Furniture and fixtures..................................... 5-10 years 593,503 593,292
Transportation equipment................................... 3 years 78,087 98,087
Leasehold improvements..................................... Term of lease 1,583,188 1,583,188
---------- ----------
4,190,952 4,153,279
Less accumulated depreciation and amortization............. 2,767,079 1,271,414
---------- ----------
$1,423,873 $1,881,865
---------- ----------
---------- ----------
</TABLE>

5. LINES OF CREDIT

In September 1995, the Company entered into a $4,000,000 revolving credit
agreement (the "Credit Agreement") with a bank. The Credit Agreement provides
for direct borrowings of up to $4,000,000 as calculated under the terms of the
Credit Agreement and letters of credit of up to $1,500,000 with an aggregate
limit of $4,000,000. Borrowings under the Credit Agreement are secured by the
Company's accounts receivable, inventory, property and equipment, and other
collateral, and are guaranteed by the Affiliate. Borrowings bear interest at the
Alternate Base Rate plus one and one-quarter percent. The Alternate Base Rate is
defined in the Credit Agreement as the higher of (I) the bank's base commercial
lending rate and (ii) the Federal Funds Rate plus 0.5 percent. The Credit
Agreement expires on September 11, 1997. Borrowings outstanding under the Credit
Agreement were $1,568,543 at December 31, 1996 and $2,107,131 at December 31,
1995.

The provisions of the Credit Agreement include (i) requirements that the
Company maintain minimum levels of net worth, current ratio, fixed charge
coverage, earnings before interest and taxes; and (ii) limitations on mergers,
consolidations, acquisitions, sales of assets liens, investments, loans, capital
expenditures, payment of dividends, indebtedness, leases, among others. At
December 31, 1996 and

F-42
<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996 AND 1995

5. LINES OF CREDIT--(CONTINUED)
December 31, 1995, the Company was not in compliance with certain covenants
primarily relating to net worth, current ratio, fixed charge coverage, earnings
before interest and taxes and report deadlines.

During 1996 and 1995, maximum borrowings under revolving credit agreements
were $2,736,673 and $2,477,339, respectively, and average borrowings were
$1,667,569 and $669,398, respectively.

In February 1997, the Company refinanced this debt with a new lender.

6. OBLIGATIONS UNDER CAPITAL LEASES AND LONG-TERM DEBT

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Obligations under capital leases (a).................................. $ 62,334 $128,902
Note payable to bank bearing interest at 9 percent; due in monthly
principal and interest payments of $1,788 from August 1995 through
July 1999........................................................... 49,267 65,487
-------- --------
111,601 194,389
Less current portion.................................................. 59,704 84,699
-------- --------
$ 51,897 $109,690
-------- --------
-------- --------
</TABLE>

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

(a) The Company has capital lease obligations in connection with lease
agreements to acquire computer equipment, furniture and fixtures. The leases
are payable in monthly installments through 1998, including interest at
approximately 11 to 12 percent per annum.

The maturities of long-term debt during the next five years are:

<TABLE>
<CAPTION>
YEAR AMOUNT
- ------------------------------------------------------------ ----------
<S> <C>
1998........................................................ $ 40,753
1999........................................................ 11,144
----------
$ 51,897
----------
----------
</TABLE>

7. COMMITMENTS

Leases--The Company has various operating leases for office and operating
facilities. One of the facilities is leased from the Affiliate. Future minimum
annual rental commitments under such noncancellable leases (including
obligations related to facilities leased from the Affiliate under informal
leasing arrangements) at December 31, 1996 are summarized as follows:

<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
- ------------------------------------------------------------ ----------
<S> <C>
1998........................................................ $1,381,000
1999........................................................ 1,254,000
2000........................................................ 875,000
2001........................................................ 547,000
----------
Total minimum lease payments................................ $4,057,000
----------
----------
</TABLE>

Total rent expense charged to operations in 1996 and 1995 were $1,291,781 and
$1,248,000, respectively, including approximately $391,000 in 1996 and $424,000
in 1995 representing net charges from the Affiliate.

F-43
<PAGE>
JEAN GRAYSON'S BROWNSTONE STUDIO, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

YEARS ENDED DECEMBER 31, 1996 AND 1995

8. STOCKHOLDERS' EQUITY

The Company has agreements with its shareholders to provide for the
continued ownership of shares of common stock of the Company by the shareholders
and to set forth terms and conditions under which shares of common stock may be
transferred among the shareholders and/or the Company or to third parties. The
agreements require the shareholders to offer common shares first to the Company
and next to other shareholders at prices computed in accordance with the
agreements before disposing of these shares to others.

9. RELATED PARTY TRANSACTIONS

During the years ended December 31, 1996 and 1995, the Company had
transactions with the Affiliate summarized as follows:

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Purchases from Affiliate--net.................................. $11,370,473 $16,259,000
Due to (from) Affiliate--net................................... $(1,436,000) $ 1,539,000
</TABLE>

The Company incurred charges from the Affiliate of $132,000 and $153,000 in 1996
and 1995, respectively for its share of common space and shared expenditures.

10. EMPLOYEE PROFIT-SHARING PLAN AND 401(K) PLAN

The Company has a voluntary noncontributory profit-sharing plan which
complies with the Employee Retirement Income Security Act of 1974. In general,
employees become participants after six months of continuous employment. There
were no contributions for the years ended December 31, 1996 and 1995.

The Company has a defined contribution employee savings 401(k) plan whereby
eligible participants (all nonunion employees who work 1,000 hours or more per
year) may contribute a percentage of compensation, but not in excess of the
maximum allowed. Employees are eligible after one year of service and attainment
of age 20 1/2. The Company's contributions were approximately $32,000 in 1996
and $24,000 in 1995.

F-44
<PAGE>
[This page intentionally left blank]

<PAGE>

[inside back cover]

The graphics appearing here are the StyleSite Marketing, Inc. logo at the top of
the page with four pictures in each corner and the Lew Magram (Trademark)
website in the middle. The top left picture is people looking at womens'
clothing with the caption "Design". The top right picture is the inside of the
call center with the caption "Call Center". The bottom left is the inside of the
distribution center with the caption "Distribution". The bottom right picture is
the inside of the retail store with the caption "Retail". The center picture is
the anticipated home page of the Lew Magram (Trademark) website.

<PAGE>

[Logo]

2,000,000 SHARES OF COMMON STOCK

------------------------
PROSPECTUS
------------------------

DONALD & CO. SECURITIES INC.

, 1999

YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH THE
OFFER OR SOLICITATION IS UNLAWFUL.

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

UNTIL (INSERT DATE), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR INVOLVED
ALLOTMENTS OR SUBSCRIPTIONS.

<PAGE>

[Logo]

266,065 SHARES

Shareholders of StyleSite Marketing, Inc. named under the caption "Selling
Security Holders", from time to time, may offer and sell up to 266,065 shares of
StyleSite common stock.

StyleSite's common stock is traded on the Nasdaq SmallCap Market under the
symbol "STLE". On September , 1999, the last reported sale price of
StyleSite's common stock on Nasdaq was .

INVESTING IN STYLESITE'S COMMON STOCK IS RISKY. SEE RISK FACTORS COMMENCING
ON PAGE 5.

THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1999

<PAGE>

[ALTERNATIVE PAGE FOR SELLING SECURITY HOLDER PROSPECTUS]

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 5
Forward Looking Information................................................................................ 11
Where You Can Find More Information........................................................................ 11
Use of Proceeds............................................................................................ 12
Price Range of Common Stock................................................................................ 13
Dividend Policy............................................................................................ 13
Capitalization............................................................................................. 14
Selected Financial Data.................................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 17
Business................................................................................................... 26
Management................................................................................................. 37
Selling Security Holders................................................................................... 45
Certain Transactions....................................................................................... 47
Description of Securities.................................................................................. 51
Shares Eligible for Future Sale............................................................................ 53
Plan of Distribution....................................................................................... 54
Legal Matters.............................................................................................. 56
Experts.................................................................................................... 56
Indemnification for Securities Act Liabilities............................................................. 56
Financial Statements....................................................................................... F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. To
understand this offering fully, you should read this entire prospectus
carefully, including the financial statements and notes. We have included a
brief overview of the most significant aspects of the offering itself in the
Prospectus Summary. However, individual sections of the prospectus are not
complete and do not contain all of the information that you should consider
before investing in our common stock. We have not authorized anyone to provide
you with information different from that contained in this prospectus. The
Selling Security Holders are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of the common stock.

Except for the financial statements commencing on Page F-1 and except where
stated otherwise in this prospectus, the information contained in this
prospectus assumes a 1-for-13 reverse split of our common stock to be completed
immediately before the date of this prospectus. The information contained in
this prospectus does not assume that the over-allotment option is exercised.

Unless otherwise indicated, all reference to "StyleSite", "us", "our" and
"we" refer to StyleSite Marketing, Inc. and its subsidiaries Lew Magram Ltd.,
Brownstone Holdings, Inc., Ecology Kids, Inc. and Diplomat Holdings, Inc. On
August 24, 1999, we changed our name from Diplomat Direct Marketing Corporation
to StyleSite Marketing, Inc.

<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered...................... 266,065 shares

Common Stock Outstanding.................. 7,392,943 shares

Common Stock Symbol....................... Nasdaq SmallCap Market--"STLE"

Use of Proceeds........................... The selling security holders will receive the net proceeds from the
sale of the shares. We will receive none of the proceeds from the
sale of the shares offered by this prospectus.

Risk Factors.............................. An investment in the shares involves a high degree of risk. See "Risk
Factors" commencing on page 5.
</TABLE>

<PAGE>

USE OF PROCEEDS

StyleSite will not receive any proceeds from the sale of the security
holders' shares offered by this prospectus. All proceeds from the sale of the
security holders' shares will be for the account of the selling security
holders. See "Selling Security Holders".

<PAGE>

SELLING SECURITY HOLDERS

All of the shares of StyleSite common stock offered under this prospectus
may be sold by the holders who either have previously acquired their shares or
who will acquire such shares from StyleSite upon the exercise of warrants.
StyleSite will not receive any of the proceeds from sales of shares offered
under this prospectus, but will receive the exercise price upon the exercise of
the warrants described above.

All costs, expenses and fees in connection with the registration of the
security holders' shares will be borne by StyleSite. All brokerage commissions,
if any, attributable to the sale of shares by selling security holders will be
borne by such holders.

The selling security holders are offering, subject to an underwriter's
lock-up as described in "Plan of Distribution", a total of 266,065 shares of
StyleSite's common stock. The following table sets forth:

o the name of each person who is a selling security holder;

o the number of securities owned by each such person at the time of this
offering; and

o the number of shares of common stock such person will own after the
completion of this offering.

The following table assumes the exercise of all warrants beneficially owned
by each such security holder. The footnotes describe the shares included in this
offering. If there is no footnote, the shares included in this offering for that
selling security holder are common stock owned prior to the date of this
prospectus.

The column "Beneficial Ownership After Offering" gives effect to the sale
of all the shares of common stock being offered hereby.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP SHARES OWNERSHIP
PRIOR TO INCLUDED IN AFTER
NAME OFFERING THIS OFFERING OFFERING
- --------------------------------------------------------------------------- --------- ------------- ---------
<S> <C> <C> <C>
Jay Kaplowitz(1)........................................................... 141,218 45,983 95,235
Irving Magram.............................................................. 71,792 71,792 0
Finova Mezzanine Capital, Inc.(2).......................................... 63,814 63,814 0
Warren H. Golden........................................................... 36,041 32,195 3,846
Stephanie Sobel............................................................ 19,947 16,099 3,846
Reedland Capital Partners(3)............................................... 7,692 7,692 0
Steven Wallitt(4).......................................................... 6,930 6,930 0
Michael Garnick(5)......................................................... 6,154 6,154 0
Matthew C. Flemming(6)..................................................... 4,808 4,808 0
Glen Cadrez(6)............................................................. 4,808 4,808 0
Norman Friedman(4)......................................................... 3,773 2,329 1,444
Stern & Co.(7)............................................................. 3,461 3,461 0
</TABLE>

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

(1) Includes 7,692 shares underlying a warrant with an exercise price of $13.00
and 38,291 shares of common stock issued upon exchange of the Series E
Preferred Stock plus accrued and unpaid dividends.

(2) Represents shares issuable upon exercise of currently exercisable warrants.
31,406 warrants are exercisable at $20.67 and 31,408 are exercisable at
$26.00.

(3) Represents shares issuable upon exercise of currently exercisable warrants
exercisable at $15.04 per share.

(4) Represents shares issued upon exchange of Series E Preferred Stock plus
accrued and unpaid dividends.

(5) Represents shares issuable upon exercise of currently exercisable warrants
exercisable at $19.50 per share.

(6) Represents shares issuable upon exercise of currently exercisable warrants
exercisable at $13.00 per share.

(7) Represents shares issuable upon exercise of 1,538 currently exercisable
warrants at $15.04 per share and 1,923 shares issuable upon exercise of
warrants to be issued upon certain events occurring.

45A

<PAGE>

PLAN OF DISTRIBUTION

Up to 266,065 of the selling security holders' shares may be sold by the
selling security holders who currently own or will have acquired such shares
from StyleSite upon the exercise of warrants. StyleSite will not receive any of
the proceeds from any sales by selling security holders of their shares, but
will receive the exercise price upon the exercise of warrants by the selling
security holders. See "Selling Security Holders."

The selling security holders have agreed that, subject to certain
exceptions, they will not, without the prior written consent of Donald & Co
Securities, directly or indirectly, sell or otherwise dispose of any shares of
common stock or securities convertible into or exercisable for common stock for
one year from the date of this prospectus. Upon expiration of the lock-up period
all of the shares of common stock subject to such lock-up agreements will be
eligible for sale under Rule 144 subject to volume and other restrictions of
Rule 144. These persons, however, have agreed not to sell more than 25% of their
StyleSite shares in any three month period without Donald's consent after the
one year lock-up period.

The selling security holders have advised us that the sale or distribution
of the common stock may be effected directly to purchasers by the selling
security holders as principals or through one or more underwriters, brokers,
dealers or agents from time to time in one or more transactions, including
crosses or block transactions, by any of the following methods:

o on the Nasdaq SmallCap Market;

o in the over-the-counter market;

o in transactions other than on any stock exchange or in the
over-the-counter market;

o through the writing of options on StyleSite common stock; or

o by settlement of short sales of StyleSite common stock.

The purchase price of the shares may be determined by the selling security
holder or by agreement between the selling security holder and underwriters,
brokers, dealers or agents or purchasers. The price may be at:

o market prices prevailing at the time of sale;

o prices related to such prevailing market prices;

o varying prices determined at the time of sale; or

o negotiated or fixed prices.

If the selling security holders effect such transactions by selling common
stock to or through underwriters, brokers, dealers or agents, such underwriters,
brokers, dealers or agents may receive compensation in the form of discounts,
concessions or commissions from the selling security holders or commissions from
purchasers of common stock for whom they may act as agent which may be in excess
of those customary in the types of transactions involved. The selling security
holders and any brokers, dealers or agents that participate in the distribution
of the common stock may be deemed to be underwriters, and any profit on the sale
of common stock by them and any discounts, concessions or commissions received
by any such underwriters, brokers, dealers or agents may be deemed to be
underwriting discounts and commissions under the Securities Act of 1933.

Because the selling security holders may each be deemed to be an
"underwriter" within the meaning of Section 2(11) of the Securities Act of 1933,
the selling security holders will be subject to prospectus delivery requirements
under the Securities Act of 1933. Furthermore, in the event of a "distribution"
of its shares, the selling security holder, any selling broker or dealer and any
"affiliated purchasers" may be subject to Regulation M under the Securities
Exchange Act of 1934 until its participation in that distribution is completed.

At the time a particular offer of security holders' shares is made by or on
behalf of any of the selling security holders, to the extent such offer
constitutes a distribution under the Securities Act of 1933, a

54
<PAGE>

supplement to this prospectus will be distributed, which will set forth the type
and number of securities being offered by such selling security holders and the
terms of such offering, including:

o the name or names and addresses of any underwriters, dealers or agents;

o the purchase price paid by any underwriter for securities purchased from
the selling security holder; and

o any discounts, commissions or concessions allowed or reallowed or paid to
dealers, and the proposed selling price to the public.

StyleSite will bear all costs and expenses of the registration under the
Securities Act of 1933 and certain state securities laws of the security
holders' shares. However, all brokerage commissions, if any, attributable to the
sale of such shares by holders thereof will be borne by such holders.

The shares that may be offered from time to time by selling security
holders may be sold through ordinary brokerage transactions in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices.

Under the Securities Exchange Act of 1934 and the regulations thereunder,
any person engaged in a distribution of the securities offered by this
prospectus may not simultaneously engage in market-making activities with
respect to shares of StyleSite common stock during the applicable two or nine
days "cooling off" period prior to the commencement of such distribution. In
addition, and without limiting the foregoing, the selling security holders will
be subject to applicable provisions of the Securities Exchange Act of 1934 and
the rules and regulations thereunder, including, without limitation, Regulation
M, in connection with transactions in the securities, which provisions may limit
the timing of purchases and sales of the securities by the selling security
holders.

<PAGE>

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

[Logo]

266,065 SHARES OF COMMON STOCK

------------------------
PROSPECTUS
------------------------

, 1999

YOU MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN
THIS PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON
STOCK MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE
DATE OF THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION
OF AN OFFER TO BUY THESE SHARES OF COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.

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

<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following is a statement of the estimated expenses to be paid by
StyleSite Marketing, Inc. (formerly Diplomat Direct Marketing Corporation) (the
"Company") in connection with the issuance and distribution of the securities
being registered:

<TABLE>
<S> <C>
SEC Registration Fee....................................... $ 4,368
NASD Filing Fee*........................................... 1,450
Nasdaq Listing Fees........................................ 7,500
Printing Engraving Expenses*............................... 125,000
Legal Fees and Expenses*................................... 125,000
Accounting Fees and Expenses*.............................. 75,000
Blue Sky Fees and Expenses*................................ 42,000
Nonaccountable expense allowance........................... 200,000
Miscellaneous*............................................. $ 2,182
-----------
Total................................................. $ 632,500
-----------
-----------
</TABLE>

- ------------------
* estimate

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the Delaware General Corporation Law, among other things,
and subject to certain conditions, authorizes the Company to indemnify its
officers and directors against certain liabilities and expenses incurred by such
persons in connection with claims made by reason of their being such an officer
or director. The Certificate of Incorporation, as amended, and By-laws of the
Company provide for indemnification of its officers and directors to the full
extent authorized by law.

Reference is made to the Underwriting Agreement, the proposed form of which
is filed as Exhibit 1.1, pursuant to which the Underwriter agrees to indemnify
the directors and certain officers of the Registrant and certain other persons
against certain civil liabilities.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the past three years, the Company has sold unregistered securities
as described below. Unless otherwise indicated, there were no underwriters
involved in the transactions or underwriting discounts or commissions paid in
connection therewith. Unless otherwise indicated, the issuances of these
securities were considered to be exempt from registration under
Section 4(2) of the Securities Act of 1933, as amended (the "Act"), and the
regulations promulgated thereunder. The purchasers of the securities in such
transaction represented their intention to acquire the securities for investment
only and not with a view to or for sale in connection with any distribution
thereof and appropriate legends were affixed to the certificates for the
securities issued in such transaction. The purchasers of the securities in the
transactions had adequate access to information about the Registrant. The share
numbers that follow are not adjusted to reflect the proposed 1-for-13 reverse
stock split.

In 1996, the Company granted Jonathan Rosenberg options to purchase 75,000
shares of common stock exercisable at $1.50 per share.

In February 1996, in consideration for making a loan to the Company in the
amount of $2,353,500, the Company issued Mr. Rubin 100,000 shares of its
Series A Convertible Preferred Stock which are convertible at Mr. Rubin's option
into 1,000,000 shares of the Company's common stock.

II-1
<PAGE>
In September 1996, the Company issued (i) 350,000 shares of common stock
and (ii) options to purchase 150,000 shares of common stock at an exercise price
of $2.50, to Gersten, Savage, Kaplowitz & Fredericks, LLP in consideration for
providing certain legal and consulting services to the Company.

In September 1996, Mr. Rubin converted an aggregate of approximately
$3,500,000 in debt into 290,000 shares of the Company's 9% Class B Convertible
Preferred Stock and 60,000 shares of the Company's 9% Class C Convertible
Preferred Stock. Each of the Series B and Series C shares is convertible at the
option of the holder into 10 shares of the Company's common stock.

In November 1996, the Company issued options to purchase an aggregate of
1,060,000 shares of its common stock at an exercise price of $1.00 per share to
35 employees of the Company, including two executive officers and one outside
director.

In May 1997, the Company issued options to purchase an aggregate of 150,000
shares of its common stock pursuant to the November 1996 Plan, 50,000 of which
were issued to Howard Katz, a director of the Company, and 100,000 of which were
issued to Mr. Fredericks in connection with his agreeing to become a member of
the Company's board of directors.

In May 1997, the Company issued to Mr. Rubin 550,000 shares of common stock
in connection with (i) Mr. Rubin's conversion of debt to equity, and (ii)
Mr. Rubin deferring his monthly consulting fee. The issuance of this stock was
approved in 1996.

In May 1997, the Company authorized the issuance of 200,000 shares of
common stock to Mr. Rubin in consideration of Mr. Rubin extending loans to the
Company as well as extending a personal guarantee to Congress on behalf of the
Company.

Between May and July 1997, the Company issued an aggregate of 158,408
shares of common stock and options to acquire 200,000 shares of common stock to
six consultants. Of the 200,000 options, 50,000 are exercisable at $1.75 per
share and 150,000 are exercisable at $1.875 per share.

From May 1997 through September 1997, the Company sold 1,250,000 shares of
its common stock in a private placement of its securities in which it raised
$2,500,000. In addition to these shares, the Company issued to European
Community Capital a placement agent's warrant exercisable to purchase up to
200,000 shares of common stock at $3.3125 per share. The Company issued an
option to a principle of the placement agent to purchase up to 100,000 shares of
common stock at $2.00 per share.

In October 1997, in part to raise capital for the Company's acquisition out
of bankruptcy of the assets of Brownstone, the Company completed a private
offering of its securities which raised $3,630,000 from accredited investors.
The private placement consisted of units, each unit consisting of ten shares of
Series E Preferred Stock and 7,500 shares of common stock at a purchase price of
$10,000 per unit. The Company issued an aggregate of 3,630 shares of Series E
Preferred Stock and 2,772,500 shares of common stock.

On October 30, 1997, the Company issued in connection with the acquisition
of assets of Jean Grayson's Brownstone Studio, Inc. and Wilroy, Inc. options to
purchase up to 200,000 shares of the Company's common stock.

On December 23, 1997, the Company entered into a definitive agreement for
the acquisition of Lew Magram, Ltd. In connection with the acquisition, 95,000
shares of Series D Preferred Stock, which are convertible into a total of
3,166,667 shares of common stock, and 250,000 shares of common stock were issued
simultaneous with the closing of the acquisition on February, 1998.

On June 29, 1998, the Company issued to Sirrom Capital Corporation, dba
Tandem Capital $5,000,000 principal amount 12% Subordinated Secured Notes and
warrants to purchase up to 208,300 shares of common stock. In February 1999 the
Company issued an additional warrant to purchase 416,600 shares. In connection
with the transaction, the Company issued to Donald & Co. Securities, Inc. a
$50,000 promissory note and a warrant to purchase up to 50,000 shares of common
stock.

On December 28, 1998, the Company granted to certain of its employees
options under its November 1996 stock option plan. The options permit the
holders the right to purchase in the aggregate up to 860,000 shares of common
stock at a exercise price of $1.00 per share. The options expire on December 28,
2003. One fourth of the

II-2
<PAGE>
options granted are immediately exercisable and the remaining options are
exercisable in an equal amount each year for next three years.

In March 1999, the Company granted a warrant which grants the holder the
right to purchase in the aggregate up to 80,000 shares of the Company's common
stock at an exercise price of $1.50 per share. The warrant expires on March 18,
2002.

In March 1999, the Company issued 32,440 shares of its Series F Preferred
Stock and 346,027 shares of its common stock for $3,244,000.

In April 1999, the Company issued 75 shares of its Series E Preferred Stock
and 38,470 shares of its common stock.

In May 1999, the Company issued 100,000 shares of its common stock for
$100,000, and an option to purchase 100,000 shares of its common stock at an
exercise price of $1.00 per share.

The holders of all of the outstanding Series D Preferred Stock converted
their shares. The Company issued 3,083,447 shares of common stock upon the
conversion of the Series D Preferred Stock.

In May 1999, the Company granted to two consulting firms common stock
purchase warrants to purchase up to an aggregate of 125,000 shares of common
stock at $1.15625 per share for consulting services.

In June 1999, the Company issued to Finova Mezzanine Capital a common stock
purchase warrant to purchase 200,000 shares of common stock at $2.00 per share
as required by the Debenture Purchase Agreement dated June 29, 1998.

In June 1999, the Company entered into agreements with two investors to
issue an aggregate of 500 shares of Series G Preferred Stock and common stock
purchase warrants to purchase up to 120,000 shares of common stock at $1.00 per
share for an aggregate cash investment of $50,000. The transaction closed in
July 1999.

In June 1999, the Company entered into an agreement with Tadeo E-Commerce,
Inc. to issue to it 10,000 shares of Series G Preferred Stock for a cash
investment of $1,000,000. In addition, the Company issued 1,066,098 shares of
common stock for 285,715 shares of Tadeo Holdings, Inc. common stock, the parent
of Tadeo E-Commerce, Inc.

In July 1999, the Company granted to a director an option to purchase
50,000 shares of common stock at $1.00 per share for his continuing to serve as
a director.

In August 1999, the Company entered into agreements with certain of its
Series E Preferred Stock holders to exchange their Series E Preferred Stock for
622,222 shares of the Company's common stock.

In September 1999, the Company issued to Robert M. Rubin 10,950,000 shares
of common stock for transferring to First Source Financial LLP a $1 million
certificate of deposit and marketable securities worth approximately $825,000.

In September 1999, the Company issued to the Rubin Family Irrevocable Stock
Trust 17,550,000 shares of common stock for transferring to First Source
Financial LLP 900,000 shares of Tadeo Holdings, Inc. common stock worth
approximately $2.925 million.

In September 1999, the Company issued to Mr. Rubin and Jay M. Kaplowitz an
aggregate of 6,600,000 shares of our common stock for cash investments
aggregating $1.1 million. The Company issued a $400,000 short term subordinated
promissory note to an investor for a $400,000 cash investment. The proceeds were
used for working capital purposes.

II-3
<PAGE>
ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement*
1.2 -- Form of Agreement Among Underwriters*
1.3 -- Form of Selected Dealers Agreement*
3.1 -- Amended and Restated Certificate of Incorporation(16)
3.2 -- By-laws, amended(1)
3.3 -- Amended Certificate of Designation of Series E Preferred Stock (14)
3.4 -- Certificate of Designation of Series F Preferred Stock(14)
3.5 -- Certificate of Designation of Series G Preferred Stock(15)
4.1 -- Form of Common Stock Certificate (1)
5.1 -- Legal Opinion of Gersten, Savage & Kaplowitz, LLP*
10.1 -- 1992 Stock Option Plan(1)
10.2 -- August 1996 Stock Option Plan(11)
10.3 -- November 1996 Stock Option Plan(5)
10.4 -- License Agreement by and between Diplomat Juvenile Corporation, Wesley Howell and Steve Pressed(1)
10.5 -- Loshell Realty mortgages with Union State Bank and Stony Point Technical Park, Inc. and related
Mortgage Notes, including Sheldon Rose guarantee of Union State Bank(1)
10.6 -- First Amendment to Exclusive Distributorship Agreement by and between Ambrose & Montgomery, Inc.
and Diplomat Corporation(2)
10.7 -- Second Amendment to Exclusive Distributorship Agreement between Ambrose Montgomery, Inc. and
Diplomat Corporation(3)
10.8 -- Asset Purchase Agreement dated as of September 24, 1997 by and among Diplomat Corporation and Jean
Grayson's Brownstone Studio, Inc. and Wilroy Inc.(7)
10.9 -- Bill of Sale provided by Jean Grayson's Brownstone Studio, Inc. and Wilroy, Inc.(7)
10.10 -- Assignment and Assumption Agreement dated October 30, 1997 between Brownstone Holdings, Inc., Jean
Grayson's Brownstone Studio, Inc. and Wilroy, Inc.(7)
10.11 -- Agreement and Plan of Merger dated December 23, 1997, by and between Diplomat Corporation, Lew
Magram, et al(6)
10.12 -- Employment Agreement between Warren H. Golden and Diplomat Corporation dated February 2, 1998(8)
10.13 -- Employment Agreement between Irving Magram and Lew Magram dated February 2, 1998(8)
10.14 -- Employment Agreement between Stephanie Sobel and Lew Magram dated February 2, 1998(8)
10.15 -- Lease Agreement between Franklin Associates and Lew Magram, Ltd dated May 15, 1992(8)
10.16 -- Employment Agreement between Kenneth Grossman and Brownstone Holdings, Inc. dated October 30,
1997(13)
10.17 -- Employment Agreement between Joan Grossman and Brownstone Holdings, Inc. dated October 30,
1997(13)
10.18 -- Debenture Purchase Agreement between Sirrom Capital Corporation, Diplomat Direct Marketing
Corporation, et al, and forms of exhibits(10)
10.19 -- 1998 Stock Option Plan(12)
10.20 -- Secured Credit Agreement dated May 12, 1999 among First Source Financial LLP, as Lender,
Brownstone Holding, Inc., Ecology Kids, Inc., Diplomat Holdings, Inc. and Lew Magram Ltd. as
Borrowers and Diplomat Direct Marketing Corporation, as Funds Administrator (exhibits and
schedules omitted)(14)
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.21 -- Security Agreement dated May 12, 1999 among First Source Financial LLP., Brownstone Holdings,
Inc., Ecology Kids, Inc. Diplomat Holding, Inc. and Lew Magram Ltd. (exhibits and schedules
omitted)(14)
10.22 -- Guaranty of Diplomat Direct Marketing Corporation (First Source Financial LLP) dated May 12,
1999(14)
10.23 -- First Amendment to Secured Credit Agreement and Related Documents, Waiver and Consent dated
July 13, 1999 (schedules omitted)(15)
10.24 -- Second Amendment to Secured Credit Agreement and Waiver dated July 26, 1999 (schedules
omitted)(15)
10.25 -- Third Amendment to Secured Credit Agreement and Waiver(16)
10.26 -- Securities Purchase Agreement between Diplomat Direct Marketing Corporation, Tadeo Holdings, Inc.
and Tadeo E-Commerce Corp. dated June 30, 1999 (schedules omitted)(15)
10.27 -- Registration Rights Agreement between Diplomat Direct Marketing Corporation and Tadeo E-Commerce
Corp. dated June 30, 1999(15)
10.28 -- Web Site Design and Consulting Agreement between Diplomat Direct Marketing Corporation and Tadeo
Holdings, Inc., dated June 1, 1999 (exhibits omitted)(15)
10.29 -- Online Hosting Agreement between Diplomat Direct Marketing Corporation and Tadeo E-Commerce Corp.
dated June 30, 1999 (exhibits omitted)(15)
10.30 -- Pledge Security Agreement between Diplomat Direct Marketing Corporation, the Rubin Family
Irrevocable Stock Trust, and Tadeo E-Commerce Corp. dated June 30, 1999(15)
10.31 -- Employment Agreement between Julia Aryeh and Diplomat Direct Marketing Corporation dated
February 15, 1999*
22 -- Subsidiaries of the Registrant(12)
23.1 -- Consent of BDO Seidman, LLP
23.2 -- Consent of Feldman Sherb Horowitz & Co., P.C. (formerly Feldman Sherb Ehrlich & Co., P.C.)
23.3 -- Consent of Gersten, Savage & Kaplowitz, LLP (included in Exhibit 5.1)*
27 -- Financial Data Schedule
</TABLE>

- ------------------
* To be filed by amendment

(1) Incorporated by reference to Diplomat Corporation Registration Statement
No. 33-66910 NY

(2) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended January 1, 1994

(3) Incorporated by reference to Diplomat Corporation Registration Statement
No. 33-95986

(4) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended December 31, 1995

(5) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended September 30, 1996

(6) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended September 30, 1997

(7) Incorporated by reference to Diplomat Corporation report on Form 8-K dated
November 14, 1997

(8) Incorporated by reference to Diplomat Corporation report on Form 8-K dated
March 6, 1998

(9) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB/A2 for the year ended September 30, 1997 and filed March 3, 1998

(10) Incorporated by reference to Diplomat Direct Marketing Corporation on
Form 10QSB for the quarter ended June 30, 1998

(11) Incorporated by reference to Diplomat Corporation Registration Statement on
Form S-8 filed August 30, 1996

(12) Incorporated by reference to Diplomat Corporation Proxy Statement on
Schedule 14A Filed April 29, 1998

II-5
<PAGE>
(13) Incorporated by reference to Diplomat Direct Marketing Corporation Annual
Report on Form 10-K for the year ended September 30, 1998

(14) Incorporated by reference to Diplomat Direct Marketing Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999

(15) Incorporated by reference to Diplomat Direct Marketing Corporation Current
Report on Form 8-K filed August 9, 1999

(16) Incorporated by reference to Diplomat Direct Marketing Corporation
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to any charter provision, by-law, contract, arrangement, statute, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

The Company hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Act;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in the volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the high or low end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" Table in
the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to suit information in the registration statement.

(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(4) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Company under Rule 424(b)(1), or (4) or 497(h), under the Act shall be deemed to
be part of this registration statement as of the time the Commission declared it
effective.

(5) For the purpose of determining any liability under the Act, treat each
post-effective amendment that contains a form of prospectus new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

II-6

<PAGE>
SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE ACT, THE REGISTRANT CERTIFIES THAT IT
HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENT FOR
FILING ON FORM S-1 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT, AMENDMENT
NO. 1, TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED,
IN THE CITY OF TEANECK, STATE OF NEW JERSEY ON SEPTEMBER 28, 1999

STYLESITE MARKETING, INC.
By: _______/S/ WARREN H. GOLDEN_______
Warren H. Golden
President and Chief Executive
Officer

KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and has appointed Warren H. Golden, President and
Chief Executive Officer, his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same and all exhibits thereto, and all documents in connection
therewith, with the Securities and Exchange Commission, granting said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, his or her substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.

PURSUANT TO THE REQUIREMENTS OF THE ACT, THIS REGISTRATION STATEMENT HAS
BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES
INDICATED.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------------------- -------------------
<C> <S> <C>
/s/ ROBERT M. RUBIN* Chairman of the Board September 28, 1999
- ------------------------------------------
Robert M. Rubin

/s/ WARREN H. GOLDEN Chief Executive Officer, President and September 28, 1999
- ------------------------------------------ Director
Warren H. Golden

/s/ JULIA ARYEH* Chief Strategic Officer, and Director September 28, 1999
- ------------------------------------------
Julia Aryeh

/s/ MARK J. MCSWEENEY* Chief Financial Officer September 28, 1999
- ------------------------------------------
Mark J. McSweeney

/s/ STUART A. LEIDERMAN* Divisional President of Ecology Kids and September 28, 1999
- ------------------------------------------ Director
Stuart A. Leiderman

Director
- ------------------------------------------
Irwin Selinger

/s/ DAVID ABEL* Director September 28, 1999
- ------------------------------------------
David Abel
- -------------------------------------------------------------------------------------------------------------
* Executed by Warren H. Golden
pursuant to power of attorney
filed June 11, 1999
</TABLE>

II-7

<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
1.1 -- Form of Underwriting Agreement*
1.2 -- Form of Agreement Among Underwriters*
1.3 -- Form of Selected Dealers Agreement*
3.1 -- Amended and Restated Certificate of Incorporation, as amended(16)
3.2 -- By-laws, amended(1)
3.3 -- Amended Certificate of Designation of Series E Preferred Stock(14)
3.4 -- Certificate of Designation of Series F Preferred Stock(14)
3.5 -- Certificate of Designation of Series G Preferred Stock(15)
4.1 -- Form of Common Stock Certificate(1)
5.1 -- Legal Opinion of Gersten, Savage & Kaplowitz, LLP*
10.1 -- 1992 Stock Option Plan(1)
10.2 -- August 1996 Stock Option Plan(11)
10.3 -- November 1996 Stock Option Plan(5)
10.4 -- License Agreement by and between Diplomat Juvenile Corporation, Wesley Howell and Steve
Pressed(1)
10.5 -- Loshell Realty mortgages with Union State Bank and Stony Point Technical Park, Inc. and
related Mortgage Notes, including Sheldon Rose guarantee of Union State Bank(1)
10.6 -- First Amendment to Exclusive Distributorship Agreement by and between Ambrose &
Montgomery, Inc. and Diplomat Corporation(2)
10.7 -- Second Amendment to Exclusive Distributorship Agreement between Ambrose Montgomery, Inc.
and Diplomat Corporation(3)
10.8 -- Asset Purchase Agreement dated as of September 24, 1997 by and among Diplomat Corporation
and Jean Grayson's Brownstone Studio, Inc. and Wilroy Inc.(7)
10.9 -- Bill of Sale provided by Jean Grayson's Brownstone Studio, Inc. and Wilroy, Inc.(7)
10.10 -- Assignment and Assumption Agreement dated October 30, 1997 between Brownstone Holdings,
Inc., Jean Grayson's Brownstone Studio, Inc. and Wilroy, Inc.(7)
10.11 -- Agreement and Plan of Merger dated December 23, 1997, by and between Diplomat
Corporation, Lew Magram, et al(6)
10.12 -- Employment Agreement between Warren H. Golden and Diplomat Corporation dated February 2,
1998(8)
10.13 -- Employment Agreement between Irving Magram and Lew Magram dated February 2, 1998(8)
10.14 -- Employment Agreement between Stephanie Sobel and Lew Magram dated February 2, 1998(8)
10.15 -- Lease Agreement between Franklin Associates and Lew Magram, Ltd dated May 15, 1992(8)
10.16 -- Employment Agreement between Kenneth Grossman and Brownstone Holdings, Inc. dated
October 30, 1997(13)
10.17 -- Employment Agreement between Joan Grossman and Brownstone Holdings, Inc. dated
October 30, 1997(13)
10.18 -- Debenture Purchase Agreement between Sirrom Capital Corporation, Diplomat Direct
Marketing Corporation, et al, and forms of exhibits(10)
10.19 -- 1998 Stock Option Plan(12)
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NO.
- ------ ----------------------------------------------------------------------------------------------- -----------
<S> <C> <C> <C>
10.20 -- Secured Credit Agreement dated May 12, 1999 among First Source Financial LLP, as Lender,
Brownstone Holding, Inc., Ecology Kids, Inc., Diplomat Holdings, Inc. and Lew Magram Ltd.
as Borrowers and Diplomat Direct Marketing Corporation, as Funds Administrator (exhibits
and schedules omitted)(14)
10.21 -- Security Agreement dated May 12, 1999 among First Source Financial LLP., Brownstone
Holdings, Inc., Ecology Kids, Inc. Diplomat Holding, Inc. and Lew Magram Ltd. (exhibits
and schedules omitted)(14)
10.22 -- Guaranty of Diplomat Direct Marketing Corporation (First Source Financial LLP) dated
May 12, 1999(14)
10.23 -- First Amendment to Secured Credit Agreement and Related Documents, Waiver and Consent
dated July 13, 1999 (schedules omitted)(15)
10.24 -- Second Amendment to Secured Credit Agreement and Waiver dated July 26, 1999 (schedules
omitted)(15)
10.25 -- Third Amendment to Secured Credit Agreement and Waiver(16)
10.26 -- Securities Purchase Agreement between Diplomat Direct Marketing Corporation, Tadeo
Holdings, Inc. and Tadeo E-Commerce Corp. dated June 30, 1999 (schedules omitted)(15)
10.27 -- Registration Rights Agreement between Diplomat Direct Marketing Corporation and Tadeo
E-Commerce Corp. dated June 30, 1999(15)
10.28 -- Web Site Design and Consulting Agreement between Diplomat Direct Marketing Corporation
and Tadeo Holdings, Inc., dated June 1, 1999 (exhibits omitted)(15)
10.29 -- Online Hosting Agreement between Diplomat Direct Marketing Corporation and Tadeo
E-Commerce Corp. dated June 30, 1999 (exhibits omitted)(15)
10.30 -- Pledge Security Agreement between Diplomat Direct Marketing Corporation, the Rubin Family
Irrevocable Stock Trust, and Tadeo E-Commerce Corp. dated June 30, 1999(15)
10.31 -- Employment Agreement between Julia Aryeh and Diplomat Direct Marketing Corporation dated
February 15, 1999*
22 -- Subsidiaries of the Registrant(12)
23.1 -- Consent of BDO Seidman, LLP
23.2 -- Consent of Feldman Sherb Horowitz & Co., P.C. (formerly Feldman Sherb Ehrlich & Co.,
P.C.)
23.3 -- Consent of Gersten, Savage & Kaplowitz, LLP (included in Exhibit 5.1)*
27 -- Financial Data Schedule
</TABLE>

- ------------------
* To be filed by amendment

(1) Incorporated by reference to Diplomat Corporation Registration Statement
No. 33-66910 NY

(2) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended January 1, 1994

(3) Incorporated by reference to Diplomat Corporation Registration Statement
No. 33-95986

(4) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended December 31, 1995

(5) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended September 30, 1996

(6) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB for the year ended September 30, 1997

(Footnotes continued on next page)
<PAGE>
(Footnotes continued from previous page)
(7) Incorporated by reference to Diplomat Corporation report on Form 8-K dated
November 14, 1997

(8) Incorporated by reference to Diplomat Corporation report on Form 8-K dated
March 6, 1998

(9) Incorporated by reference to Diplomat Corporation Annual Report on
Form 10KSB/A2 for the year ended September 30, 1997 and filed March 3, 1998

(10) Incorporated by reference to Diplomat Direct Marketing Corporation
Form 10QSB for the quarter ended June 30, 1998

(11) Incorporated by reference to Diplomat Corporation Registration Statement on
Form S-8 filed August 30, 1996

(12) Incorporated by reference to Diplomat Corporation Proxy Statement on
Schedule 14A Filed April 29, 1998

(13) Incorporated by reference to Diplomat Direct Marketing Corporation Annual
Report on Form 10-K for the year ended September 30, 1998

(14) Incorporated by reference to Diplomat Direct Marketing Corporation
Quarterly Report on Form 10-Q for the quarter ended March 31, 1999

(15) Incorporated by reference to Diplomat Direct Marketing Corporation Current
Report on Form 8-K filed August 9, 1999

(16) Incorporated by reference to Diplomat Direct Marketing Corporation
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999

<PAGE>

Exhibit 23.1

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

StyleSite Marketing, Inc.
(formerly Diplomat Direct Marketing Corporation)
Teaneck, New Jersey

We hereby consent to the reference to our firm under the caption "Experts"
and to the use in the Prospectus constituting a part of Amendment No. 1 to
this Registration Statement on Form S-1 of our report dated January 30, 1999
relating to the financial statements of StyleSite Marketing, Inc. (formerly
Diplomat Direct Marketing Corporation) and of our report dated May 16, 1997,
except for Note 2 which is as of February 19, 1998, relating to the financial
statements of Lew Magram Ltd.

/s/ BDO Seidman, LLP

BDO Seidman, LLP

New York, New York
September 29, 1999

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 13, 1998, except for Note 3(a), as to which
the date is February 19, 1998, and Note 3 (b) which is as of January 30, 1999
relating to the financial statements of StyleSite Marketing, Inc. (formerly
Diplomat Direct Marketing Corporation) and Subsidiaries as of September 30, 1997
and for the year then ended and for the nine months ended September 30, 1996 and
of our report dated January 30, 1999 relating to the statements of operations
and cash flows of Lew Magram Ltd. for the six months ended June 30, 1997 and of
our report dated August 24, 1998 relating to the financial statements of Jean
Grayson's Brownstone Studio, Inc. as of December 31, 1996 and 1995 and for each
of the years ended December 31, 1996 and 1995 in Amendment No. 1 to the
Registration Statement on Form S-1 and the related Prospectus of StyleSite
Marketing, Inc. (formerly Diplomat Direct Marketing Corporation).

/s/ FELDMAN SHERB HOROWITZ & CO., P.C.
-------------------------------------
Feldman Sherb Horowitz & Co., P.C.
(formerly Feldman Sherb Ehrlich & Co.,
P.C.)
Certified Public Accountants

New York, New York
September 29, 1999

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENTS OF OPERATIONS INCLUDED IN
AMENDMENT NO. 1 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM S-1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 815,081
<SECURITIES> 0
<RECEIVABLES> 1,849,649
<ALLOWANCES> 104,094
<INVENTORY> 11,658,574
<CURRENT-ASSETS> 19,533,039
<PP&E> 8,025,180
<DEPRECIATION> 4,284,675
<TOTAL-ASSETS> 35,317,634
<CURRENT-LIABILITIES> 26,736,057
<BONDS> 9,127,847
0
3,966
<COMMON> 1,700
<OTHER-SE> 31,838,557
<TOTAL-LIABILITY-AND-EQUITY> 35,317,634
<SALES> 56,442,962
<TOTAL-REVENUES> 56,442,962
<CGS> 29,613,001
<TOTAL-COSTS> 35,369,557
<OTHER-EXPENSES> 9,716,343
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,701,432
<INCOME-PRETAX> (19,957,371)
<INCOME-TAX> 0
<INCOME-CONTINUING> (21,453,757)
<DISCONTINUED> (2,040,386)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,323,757)
<EPS-BASIC> (1.76)
<EPS-DILUTED> (1.76)

</TABLE>