PLAYORENA INC, 10KSB, 1996-08-22

PLAYORENA INC
10KSB, 1996-08-22
MISCELLANEOUS AMUSEMENT & RECREATION

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

X Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the fiscal year ended NOVEMBER 30, 1995

Transition report under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the transition period from to
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Commission File number 0-18412

PLAYORENA INC.
(Name of small business issuer in its charter)

NEW YORK 11-2602120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

22 MANHASSET AVENUE, PORT WASHINGTON, NEW YORK 11050
(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (516) 883-7529

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

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

COMMON STOCK. $.001 PAR VALUE
(Title of class)
COMMON STOCK PURCHASE WARRANTS (EXPIRED JANUARY 16, 1996)
(Title of class)

Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes _X_
No ___

Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $453,458

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The aggregate market value of the voting stock held by non-affiliates
of the issuer as of July 30, 1996 was approximately $98,782. (Based on the
average high and low bid and asked prices ($0.03) of the Company's Common Stock
on July 30, 1996.)

The number of shares outstanding of the registrant's Common Stock, as
of July 30, 1996 was 8,262,910 shares of Common Stock. (But see Item 1 - "Recent
Events - Termination of Plan of Reorganization, Issuance of Shares and Line of
Credit" for a discussion of the Company's commitment to issue an additional
4,500,000 shares of Common Stock)

DOCUMENTS INCORPORATED BY REFERENCE: None.

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TABLE OF CONTENTS
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PAGE
PART I ----
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Item 1 - Description of Business . . . . . . . . . . . . . . . . . . . . . 1
Item 2 - Description of Property . . . . . . . . . . . . . . . . . . . . .11
Item 3 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . .11
Item 4 - Submission of Matters to a Vote of Security Holders . . . . . . .11

PART II
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Item 5 - Market for Common Equity and Related Stockholder Matters. . . . .12
Item 6 - Management's Discussion and Analysis or Plan of Operation . . . .14
Item 7 - Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-1
Item 8 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . .15

PART III
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Item 9 - Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act . . . . . . . .16
Item 10 - Executive Compensation. . . . . . . . . . . . . . . . . . . . . .19
Item 11 - Security Ownership of Certain Beneficial Owners and Management. .22
Item 12 - Certain Relationships and Related Transactions. . . . . . . . . .25

PART IV
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Item 13 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . .28

Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30

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PART I
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ITEM 1. DESCRIPTION OF BUSINESS.

Playorena Inc. (the "Company") was incorporated in the State of New
York in 1981 and owns and operates centers that offer recreational play and
exercise programs for children between three months and four years of age. The
Company was founded by Susan Astor based upon a similar program developed, in
substantial part, by Ms. Astor at a community center in Marin County, California
in 1974. The programs bring together children and their parents in recreational
activities organized according to developmental stages providing children an
opportunity to practice age-appropriate skills through play and providing an
opportunity for a positive social experience for parents.

RECENT EVENTS

ASSET PURCHASE AGREEMENT WITH MICHAEL ASTOR

Despite the best efforts of management to reduce costs by
significantly decreasing the number of locations in operation, during the fiscal
year ended November 30, 1995, the Company sustained losses from operations of
$477,693. As the Company has been unable to raise the required capital, the
Company's ability to continue its business in its present form has been
increasingly called into question. Accordingly, the Company has decided to
divest all of its operations.

Beginning in April, 1995, the Company began negotiating with Michael
Astor with respect to the possible acquisition by Mr. Astor of all of the assets
of the Company. On April 14, 1995, the Company entered into an Asset Purchase
Agreement (the "Agreement") with Michael Astor (who, along with his wife, Susan
Astor, comprise all of the current officers and members of the Board of
Directors of the Company), pursuant to which an entity to be formed by Mr. Astor
(the "Purchaser") will acquire all of the assets and properties of the Company,
including, without limitation, all copyrights, trademarks, trade names
(including the name "Playorena"), accounts receivable, equipment, inventory,
cash and cash equivalents, in exchange for the Purchaser's assumption of certain
liabilities of the Company and the transfer to the Company by Mr. and Mrs. Astor
of 1,041,800 shares of common stock of the Company, $.001 par value per share
(the "Common Stock"), representing all of the Common Stock of the Company owned
by Mr. and Mrs. Astor. The assets to be transferred and the liabilities to be
assumed have an approximate value of $276,000 and $478,000, respectively, at
November 30, 1995, and $270,000 and $471,000, respectively, at February 29,
1996.

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the Company. As the Company does not presently have the resources to repay the
$200,000 principal amount of the secured loan to Mr. Rubin, since September 30,
1995, Mr. Rubin has had the right to foreclose on his security interest in all
of the assets of the Company. (See "Description of Business - Recent Events -
Loan to the Company"). Pursuant to the terms of the Agreement, Mr. Rubin will
be required to release his security interests so that the Purchaser will obtain
title to the Company's assets free and clear of any liens or encumbrances.

The Agreement specifically provides that the Company shall retain "all
claims for tax refunds, tax loss carry forwards or carry backs or tax credits of
any kind" applicable to the Company's business prior to the closing of the Asset
Sale. As of November 30, 1995, the Company has net operating loss carry
forwards of approximately $4,900,000 that expire between 1998 and 2009, and
investment tax credit carry forwards of approximately $16,000, which expire in
1998. Without future profits by the Company, such tax losses are of limited or
no value. The Agreement further specifies that the following liabilities will
NOT be assumed by the acquiring entity:

(i) liabilities owed to certain affiliates of the Company, including
Mr. Rubin, estimated to be $878,333 in the aggregate (including $143,333 loaned
to the Company since January 1995);

(ii) liabilities owed to Solomon & Moskowitz, P.C. and certain other
professionals who have provided services to the Company, estimated to be $40,000
aggregate;

(iii) amounts owed to the Company's transfer agent and to Standard and
Poors, estimated to be $6,600 in the aggregate;

(iv) claims made against the Company by shareholders of the Company;

(v) certain fees incurred in connection with compliance with applicable
securities laws; and

(vi) all liabilities and obligations of the Company arising after the
closing of the Asset Sale.

The financial statements included in this Annual Report for the year
ended as of November 30, 1995, indicate that the Company had negative working
capital of $1,284,299 and negative cash flows from operating activities of
$214,724 for the year then ended. Based upon the proposed structure of the
transaction set forth in the Agreement, immediately following the closing of the
Asset Sale the Company will have no assets or business but will retain estimated
liabilities of $878,333, plus certain obligations incurred between August 31,
1995 and the date of the closing, plus possible liabilities with respect to
certain heretofore unasserted claims against the Company. In light of the fact
that subsequent to the closing the Company will not have any business or assets
with which to generate revenue, the Company will not have any means to satisfy
such liabilities or obligations unless and until the Company is able to raise
additional

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capital or acquire a profitable business. The Company does not presently have
any such plans and there can be no assurance that raising such capital or
acquiring a new business will be possible. If such capital should become
available or such a business should be offered to the Company, the acquisition
is likely to result in immediate and substantial dilution to the shareholders of
the Company.

Although the Agreement provides for the assumption by the Purchaser
and, indirectly, by Mr. Astor personally, of significant liabilities of the
Company, there can be no assurance that such liabilities will be satisfied. The
Purchaser will be formed by Mr. Astor for the purpose of acquiring the Playorena
assets and continuing the business on a significantly smaller scale. Neither
the Purchaser nor Mr. Astor presently have sufficient resources to satisfy all
of the liabilities to be assumed.

In order to afford the Company the flexibility to attempt to raise
additional capital and/or acquire another business subsequent to the Asset Sale,
management believes that it would be in the Company's best interest to reverse
split the shares of Common Stock outstanding immediately subsequent to the Asset
Sale on a 20 shares for one share basis so that the number of shares of Common
Stock outstanding immediately subsequent to the reverse stock split will be
750,000 (including 3,278,890 pre-split shares to be issued prior to the closing
to Messrs. Rubin, Lawrence Kaplan, Stanley Kaplan and Jaroslow in consideration
for their lending the Company an aggregate of $143,333, see "Additional Loans
From Affiliates of the Company"). Increasing the number of authorized but
unissued shares of Common Stock will insure that authorized but unissued shares
will be available for stock dividends or stock splits, possible acquisitions,
financings, stock option or purchase plans and other corporate purposes in the
future, without the necessity of further shareholder action. Such flexibility
will enable the Company's Board of Directors to issue additional shares of
Common Stock without further approval by the shareholders upon such terms and at
such times as the Board may determine. Holders of the Common Stock have no
preemptive rights to subscribe to such shares. The Company currently has no
understandings, agreements, plans or commitments that would involve the issuance
of additional shares of Common Stock.

The Board of Directors of the Company is presently comprised of Mr.
Michael Astor and Mrs. Susan Astor, husband and wife. As the Agreement
contemplates the resignation of Mr. and Mrs. Astor as officers and directors
of the Company effective upon the closing of the Asset Sale, the Board of
Directors, in consultation with Mr. Rubin, has nominated Messrs. Rubin,
Lawrence E. Kaplan and Alfred Romano as directors of the Company to serve
from the date of the closing of the Asset Sale until their successors shall
be duly elected and qualified. Messrs. Kaplan and Rubin were originally
elected to the Board of Directors on October 26, 1994 pursuant to terms of a
letter agreement concerning a proposed merger of the Company. (See
"Description of Business - Recent Events - Termination of Plan of
Reorganization, Issuance of Shares and Line of Credit.") When the
contemplated merger was subsequently abandoned, Messrs. Kaplan and Rubin
resigned as directors on March 27, 1995. Additional information about the
persons nominated to serve as directors of the Company is set forth under
"Management."

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In light of its decision to divest all of its operations, the Company
is accounting for the historical results of the business as discontinued
operations. In this regard, in accordance with generally accepted accounting
principals, the Company has an unrecorded gain on disposal at November 30, 1995
of approximately $95,000, representing the amount by which estimated liabilities
to be assumed exceed the aggregate of the estimated value at closing of assets
to be divested and the estimated losses through disposal date. At the time that
the Asset Sale is consummated, the Company will recognize the actual dollar
amount of this unrecorded gain.

In light of the fact that the Agreement concerns the sale of assets to
an entity controlled by the current directors of the Company, the Board of
Directors had originally relied upon Mr. Rubin, a controlling shareholder of the
Company, to negotiate the transaction on behalf of the Company and the
shareholders. The Board of Directors subsequently adopted a resolution
ratifying the actions of Mr. Rubin, and authorizing the execution of the
Agreement by Mr. Astor, as Vice President, and the recommendation of the sale to
the shareholders. The Board of Directors has not retained an independent
financial advisor to pass upon the fairness of the Agreement.

Obtaining the approval of the holders of not less than 66 2/3% of the
issued and outstanding shares of capital stock of the Company at the Company's
upcoming Special Meeting of Shareholders is a condition precedent to the closing
of the Asset Sale contemplated by the Agreement. The Company is currently
preparing the requisite solicitation/disclosure documentation and will call a
special meeting of the shareholders as soon as possible to obtain such approval.
In addition, as the Agreement requires Mr. and Mrs. Astor to resign as officers
and directors of the Company, in the event that the transaction is approved by
the shareholders, the Company will also request that the shareholders elect
Messrs. Rubin, Romano and Lawrence Kaplan as directors of the Company.

Consummation of the Asset Sale does not require the Company to satisfy
any Federal or state regulatory requirements or to obtain any government
approvals.

LOAN TO THE COMPANY

On January 19, 1994, the Company executed and delivered to Robert M.
Rubin a Revolving 10% Promissory Note in the principal amount of $200,000 (the
"Note") pursuant to which the Company had borrowed as of February 18, 1994 the
maximum aggregate principal amount of $200,000. The loan is secured by a
continuing security interest in all of the assets of Playorena.

Advances made pursuant to the Note were due on September 30, 1995 and
were not paid. The Company does not at the present time have the resources to
repay the Note and Mr. Rubin has the right to foreclose on his security interest
in all of the assets of the Company. In consideration of the loan and credit
facility provided by Mr. Rubin, the Company issued 200,000 shares of the
Company's Common Stock to Mr. Rubin.

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PRIVATE PLACEMENT OF EQUITY AND DEBT

In May 1994, the Company commenced and completed a private placement
of five units, each unit consisting of 22,222 shares of the Company's common
stock and a promissory note in the principal amount of $50,000, bearing interest
at the rate of ten percent per annum, with principal and interest due at the
earlier of the closing of any debt or equity offering of the Company's
securities yielding gross proceeds in excess of $1,500,000 or September 30,
1995. As each of the units was sold by the Company for $50,000, the Company
derived an aggregate of $250,000 from the private placement. With the exception
of one-half of one unit acquired by Lawrence E. Kaplan, a nominee to be elected
as a director of the Company, all of the units were acquired by unaffiliated
persons. The promissory notes were not repaid and the Company does not at the
present time have the resources to repay the promissory notes.

TERMINATION OF PLAN OF REORGANIZATION, ISSUANCE OF SHARES AND LINE OF
CREDIT

As a condition to Mr. Rubin's agreement to make the above described
loan to the Company, on April 13, 1994 the Company entered into an Agreement and
Plan of Reorganization (the "Reorganization Agreement") with Kids `N Things,
Inc., a newly formed Delaware corporation wholly-owned by Messrs. Rubin, Bernard
Tessler and Jerome Feldman and formed for the sole purpose of facilitating the
merger ("Kids `N Things"). In accordance with the terms of the Reorganization
Agreement, Alan Goldberg, Kent Q. Kreh, Mark Levine and Richard A. Samber
resigned as directors of the Company and Bernard Tessler, Philip Baird and Louis
Horvitz were appointed to the Board as designees of Kids `N Things.

Pursuant to the terms of a letter agreement dated November 18, 1994
(the "Letter Agreement") among the Company and each of Michael Astor, Susan
Astor and Fred Jaroslow (then current directors of the Company), in their
individual capacities, and Lawrence E. Kaplan, Stanley Kaplan and Mr. Rubin (the
"Investors"), the Company agreed to: (i) cause the Board of Directors of each of
the Company and Kid `N Things to terminate the Reorganization Agreement; (ii)
issue 1,500,000 shares of Common Stock to Bernard Tessler in consideration of
the payment of $2,000 and past services rendered to the Company; (iii) elect
each of Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan (the son of Stanley
Kaplan) to fill three vacancies on the Board of Directors caused by the
resignations of Messrs. Tessler, Baird and Horvitz; (iv) issue an aggregate of
100,000 shares of Common Stock to Jerry Feldman in consideration of the payment
of $100 and past services rendered to the Company, (v) issue an aggregate of
3,250,000 shares of Common Stock to Messrs. Andrew Kaplan (as Stanley Kaplan's
designee), Lawrence E. Kaplan and Rubin in consideration of the payment of an
aggregate of $4,200, past financial consulting services rendered and the joint
and several agreement among the Investors to make available to the Company a
$275,000 line of credit (the "Line of Credit"); and (vi) issue 400,000 shares of
Common Stock to Mr. Rubin in consideration of the payment of $400 and his
agreement to waive any and all defaults by Playorena to make current interest
payments through the maturity date arising under the Note. The 5,250,000 shares
of Common Stock to be issued to Mr. Tessler pursuant to the Letter Agreement
were reduced by 750,000 shares pursuant to a subsequent letter agreement between

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the Company and Mr. Tessler dated April 10, 1995 (the "Second Letter
Agreement"), wherein Mr. Tessler agreed, among other things, to reduce the total
number of shares of Common Stock to be issued to him from 1,500,000 to 750,000.
The total number of shares now required to be issued pursuant to the Letter
Agreement is 4,500,000. Issuance of the 4,500,000 shares required to be issued
pursuant to the Letter Agreement will result in immediate and substantial
dilution of the interests of the current shareholders of the Company.

On October 26, 1994, Messrs. Lawrence E. Kaplan, Rubin and Andrew
Kaplan were elected to the Board of Directors. Each of Mr. and Mrs. Astor, the
current directors of the Company, agreed to vote to elect three designees of the
Investors to the Board of Directors of the Company until such time as the Line
of Credit is repaid or the Investors default on their obligations arising under
the Line of Credit. Each of the Investor's designees to serve on the Board of
Directors have agreed to resign upon the earlier of repayment of all outstanding
amounts of principal and accrued interest under the Line of Credit or a material
breach of the Line of Credit by any of the Investors, unless such designees have
previously been elected to the Board of Directors by vote of the Company's
shareholders. Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan subsequently
resigned as directors and no replacements have as yet been designated by the
Investors.

The Letter Agreement establishing the Line of Credit provides that the
outstanding principal amount drawn down shall bear interest at the rate of 10%
per annum, with principal and interest due on September 30, 1995. To date, the
Company has borrowed the full amount available under the Line of Credit
($275,000). No portion of the Line of Credit has been repaid and the Company
does not at the present time have the resources to repay the Line of Credit.

MANAGEMENT AGREEMENT WITH BERNARD TESSLER .

On November 9, 1993, the Company entered into a Management Agreement
with Bernard Tessler, as amended by a letter agreement dated January 20, 1994
(collectively, the "Management Agreement"), whereby the Company agreed to engage
Mr. Tessler to manage its business for a period of one year. In addition to the
fee payable to Mr. Tessler pursuant to the Management Agreement, the Company
agreed that in the event that the merger with Kids `N Things was not completed
before February 28, 1995, the Company would issue an aggregate of 2,600,000
shares of common stock to Messrs. Tessler, Rubin and Feldman in recognition and
consideration of Mr. Tessler entering into and the services to be rendered
pursuant to the Management Agreement, the credit to be extended by Mr. Rubin
pursuant to the Note and the services to be rendered and costs to be incurred by
Messrs. Tessler, Rubin and Feldman in connection with the merger. Pursuant to
the terms of the Letter Agreement, the Company and Mr. Tessler agreed to
terminate the Management Agreement, thereby relieving the Company of any future
obligation to issue any shares thereunder. Mr. Tessler and the Company further
agreed to enter into a Consulting Agreement effective January 1, 1995, pursuant
to which Mr. Tessler agreed to provide consulting services during 75% of his
full working time for a fee of $75,000 per annum through February 28, 1995 and
to provide consulting services during 20% of his full working time for a fee of
$25,000 per annum from March 1, 1995 through December

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31, 1997. Pursuant to the terms of the Second Letter Agreement, Mr. Tessler
agreed, among other things, to release the Company from all payment obligations
arising under the Consulting Agreement in consideration for a payment of $6,200.

ADDITIONAL LOANS FROM AFFILIATES OF THE COMPANY

In February and March 1995, the Company received loans in the
aggregate amount of $143,333 from three directors of the Company and the father
of a principal shareholder of the Company: (i) Lawrence E. Kaplan - $ 24,416;
(ii) Stanley Kaplan (the father of Andrew Kaplan) - $20,417; (iii) Fred
Jaroslow - $40,500; and (iv) Robert Rubin - $62,000. The lenders have verbally
agreed to accept an aggregate of 3,278,890 (163,945 shares subsequent to the
reverse stock split) shares of Common Stock as payment in full for such loans.
Such shares will be issued simultaneously upon receipt of the shares to be
delivered to the Company by Mr. and Mrs. Astor.

OPERATIONS TO BE DISCONTINUED

THE PLAYORENA CENTERS

The Company opened its first two centers in 1982 and, as of
November 30, 1995, operated 9 centers in New York, a decrease of 42 centers from
November 30, 1994. The Company did not add any centers in fiscal 1995.
Revenues from classroom fees generated by Company-owned centers were $410,743 in
fiscal 1995, representing a decrease of $508,427 from classroom fees generated
in fiscal 1994.

In addition to the 9 Company-operated centers, the Company began a
franchise sales program in December 1984 and has sold franchises for the
operation of 28 centers, 16 of which are now being operated by 7 franchisees --
6 in New York, 5 in New Jersey, 4 in Japan, and 1 in Korea. Although such
franchisees have been granted licenses to operate 28 centers, there is no
assurance that they will operate that number. The initial franchise fee charged
by the Company ranged from $7,000 to $14,000 per center. Thereafter each
franchisee pays the Company a royalty fee equal to 6% of gross sales. In
addition, each franchisee may be required to pay additional amounts to the
Company for advertising. In light of the Company's belief that it was more
economically advantageous to expand through Company-owned centers, in 1989 the
Company elected not to renew its franchise registrations with the proper
government authorities and is therefore unable to offer additional franchises at
this time.

During the past several months certain of the Company's current franchisees
have withheld required royalty payments asserting the Company has failed to
provide certain services. The Company estimates that the amounts being withheld
are between $10,000 and $15,000. Although management is discussing the
accusations with such franchisees in an attempt to resolve the dispute, the
Company does not believe that a significant amount of the royalty payments will
be collected. Upon the closing of the Asset Sale, the Company's rights under
agreements with the franchisees will be transferred to the acquiring entity,
including the amounts

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owed to the Company by the franchisees.

THE PLAYORENA PROGRAM

The Playorena program is specifically designed to provide a positive
age-appropriate play and exercise environment for children from three months to
four years of age who are accompanied by a parent or guardian. Through a
combination of structured activities and play, each child's natural tendency to
explore and to develop physical and mental skills is encouraged. By providing
opportunities for successful experiences and adult approval, the Playorena
program is designed to foster self-esteem and a sense of accomplishment, and the
relaxed non-competitive atmosphere of the Playorena class can often serve as a
child's first socialization experience.

Each Playorena center appears as a brightly colored indoor playground
and is equipped with a variety of pieces of special, age-appropriate equipment
such as small slides, foam steps, barrels, tunnels, mini-climbers, bouncers,
rocking boats, mats, balls and foam inclines, all arranged in a pre-set format.
Centers are typically located in large rooms of at least 1,200 square feet
rented from religious organizations, community centers and other similar
entities. The room is typically rented on a per-diem basis and the equipment is
stored on the premises when not in use. As the Playorena program does not
require any renovations or improvements to be made to the room housing the
center, and as the rooms are typically rented on a per-diem basis, the Company
has the ability to relocate any center at a minimal cost. Historically, the
Company has not encountered any difficulties in locating suitable locations for
its centers.

Each Playorena class is led and supervised by a "facilitator".
Facilitators are fully trained by the Company and are provided with a detailed
manual which describes each class for each developmental stage, includes a tape
of songs used in the program and sets forth other essential background material
written and reviewed specifically for the Playorena program. In addition, each
child is accompanied by a parent or guardian. As such, the centers also serve
as a social activity for parents who are sharing similar experiences. In
addition to affording parents the opportunity to provide their children with
positive attention, the centers provide parents, especially mothers with their
first child who have changed their life styles after having a baby, with contact
with peers who have similar interests and concerns.

The Playorena program is sold by the Company as a series of 8 to 13
weekly sessions which primarily operate in the Spring, Fall and Winter. All
sessions are paid for in advance upon enrollment and the Company accepts Visa
and MasterCard to facilitate payments. Classes are 45 minutes in length and each
center operates from one to three days per week, conducting between three and
eight classes per day. Class sizes are limited to a maximum of 20 children,
depending upon the size of the center, and are offered to four different
developmental stages at different class times. Each age group is offered
activities specifically designed to be appropriate for that stage of
development.

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Since its inception, the Company and its franchisees have registered
more than 190,000 enrollments in its programs and during the fiscal year ended
November 30, 1995, the Company and its franchisees registered approximately
3,500 enrollments in its programs. During its last three sessions (Spring 1995,
Fall 1995 and Winter 1995/96) the Company's 9 centers averaged an enrollment of
approximately 43 children per session. An "enrollment" is one child's
participation in one 8 to 13 week session. Children who participate in more than
one session per year are counted as more than one "enrollment" during such year.

Since September 1991, the Company has experienced a decline in the
average number of enrollments per center and believes that such a decline is
attributable to the continuing economic downturn in the New York metropolitan
area and increased competition. The Company cannot predict how long this
decline will continue.

MARKETING

In fiscal 1994, the Company spent 32.4% of participant registration
fees, respectively, on marketing expenses. The majority of the amounts spent
was for direct mail. Other media efforts in the past have included local
newspaper advertisements.

With respect to fiscal 1995, in light of the discontinued operations
accounting treatment as presented in the Company's recast financial statements,
only certain expenses, consisting of minimal general and administrative expenses
and debt service costs have been evaluated. Such expenses have been evaluated
as expenses attributable to the continuing entity after consideration of the
divestiture of operations.

OPERATING CONTROLS AND PROCEDURES

For purposes of management and marketing, the Company had previously
implemented a system whereby the centers outside of the New York metropolitan
area were grouped in clusters of up to 8 centers, each of which was supervised
by a local manager. Franchisee-operated centers were not included in the
clusters. Local managers typically operated out of their homes using a
telephone installed at the Company's expense. Their primary responsibilities
included locating potential centers, hiring and training facilitators and
processing registrations which were forwarded to the main office. This program
was terminated in Spring 1995.

COMPETITION

The Company's major competitor in the exercise/play program market is
Gymboree Corp. ("Gymboree"), a publicly traded company. Although Playorena and
Gymboree evolved directly from the prototype developed, in substantial part, by
Ms. Astor, Gymboree has been operating for approximately five years longer than
the Company and is substantially larger with greater resources. Both Gymboree
and Playorena are similar in concept, purpose and pricing. Playorena's programs
are currently operating in several of the same markets in which

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Gymboree operates. In addition, new indoor exercise/play centers have recently
been established by various operators which provide classes for a wider age
range than that for which the Company provides and allows participants to "drop
in" for individual programs without making a commitment for a full session. Such
centers have begun to create some competition for the Company. Other small
companies and local organizations such as YMCA programs, church-affiliated or
non-profit groups also compete with the Company as part of their overall
programs. Management believes that the Company competes by offering a trained
facilitator and a professionally-planned and specialized program in
well-equipped facilities.

TRADEMARKS

The Company registered the trademarks "Playorena" in 1984 and
"Playercise" in 1986, in the principal register of the United States Patent and
Trademark Office. A federally registered trademark is effective for 20 years
and may be renewed for additional terms of 20 years subject only to continued
use by the registrant. A federally-registered trademark provides presumption of
ownership of the mark by the registrant in connection with its goods and
services and is constructive notice throughout the United States of such
ownership. The Company has also received, or applied for, registrations of such
trademarks for various categories of uses in Japan.

INSURANCE

The Company's insurance coverage currently includes the following
types of policies: property; general liability and medical payments; excess
umbrella liability; workers compensation; New York disability benefits and group
life and medical. The liability policy includes a medical payment provision for
accidents which applies to each child enrolled in a program and is subject to
various limits. There can be no assurance that claims in excess of or not
included within the Company's coverage will not be asserted.

EMPLOYEES

In addition to the Company's two executive officers, the Company
currently employs a registrar and 14 part-time facilitators working at the
Company's 9 centers.

Each class is conducted by a trained facilitator. Facilitators are
recruited through newspaper advertisements and are typically former teachers who
desire a part-time position. None of the Company's employees is represented by
a union or collective bargaining unit and the Company believes that its
relations with its employees are good.

GOVERNMENT REGULATION

Although the Company's current exercise/play programs are not
currently subject to government regulations, it is possible that government
regulations will be enacted in the future that will subject the Company's
present operations to regulations or standards.

-10-

<PAGE>

INITIAL PUBLIC OFFERING

On March 30, 1990, the Company completed an initial public offering
(the "Initial Public Offering") of 2,500,000 units, each unit consisting of one
share of Common Stock and one Common Stock purchase warrant. (The Common Stock
purchase warrants of the Company are referred to herein as the "Warrants"). The
Warrants were immediately separable and transferrable and originally entitled
the registered holder thereof to purchase one share of Common Stock at a price
of $1.25 per share from such date until January 16, 1993. The Company extended
the expiration date of the Warrants to January 16, 1996, at which time the
Warrants expired.

The Company received approximately $2,085,305 of net proceeds resulting
from the Initial Public Offering. Such proceeds were used to open additional
centers in 1990 and 1991 and were also applied to repayment of indebtedness,
marketing, merchandise inventory and expenses incurred in connection with the
Initial Public Offering.

ITEM 2. DESCRIPTION OF PROPERTY.

In August 1993, the Company relocated its executive offices from
Roslyn Heights, New York to a 5,000 square foot space in Port Washington, New
York that is leased from an unaffiliated landlord. The leased premises are used
by the Company for its executive offices, storage and a training facility. The
Company's annual rent for such leased premises was $41,000 in fiscal 1994,
$43,600 in fiscal 1995 and will be $38,000 from December 1995 through
September 30, 1996, when the lease expires.

The Company's centers are typically rented on a per-diem basis
pursuant to letter agreements. The centers are located in large rooms rented
from religious institutions, community centers and other public organizations.
Each center has a full complement of equipment which is stored on the premises
when not in use.

ITEM 3. LEGAL PROCEEDINGS.

The Company is not currently involved in any material pending legal
proceedings.

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

No matters were submitted to a vote of security holders during the
fourth quarter of 1995.

-11-

<PAGE>
PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded in the over-the-counter market.
Price quotations are available through the OTC Bulletin Board, an electronic
screen-based service of the National Association of Securities Dealers, Inc.
("NASD"). The quotation of the Common Stock on the OTC Bulletin Board does not
assure that a meaningful, consistent and liquid trading market for such
securities currently exists and, in fact, management believes that at the
present time such a market does not exist. The Asset Sale will not affect the
inclusion of the Company's Common Stock on the OTC Bulletin Board.

The Company's Common Stock and Warrants were originally quoted on the
Nasdaq SmallCap system (known as the "Nasdaq SmallCap Market") upon the closing
of the Initial Public Offering on March 30, 1990. However, beginning in
December, 1992, such securities were no longer eligible for quotation on the
Nasdaq SmallCap Market due to the Company's inability to meet certain then newly
established criteria imposed by the NASD for continued inclusion in Nasdaq.
Specifically, the Company did not meet the requirement of shareholders' equity
of $1,000,000.

Upon the NASD's determination of the ineligibility of the Company's
securities for listing on the Nasdaq SmallCap Market, the Company's Common Stock
and Warrants began quotation on the OTC Bulletin Board. Quotation on the OTC
Bulletin Board has had a substantial negative effect on the liquidity of the
market for the Company's securities and, consequently, the price at which such
securities are quoted. The Company's Warrants expired on January 16, 1996 and,
consequently, were delisted from the OTC Bulletin Board on February 20, 1996.

On July 30, 1996, the high and low bid price for the Company's Common
Stock was $0.01, and the high and low ask price was $0.05.

The following table sets forth the high and low closing bid and ask
quotations for each fiscal quarter of 1995 and 1994, with respect to the Common
Stock as reported by NASD and quoted on the NASDAQ Stock Market. The prices
shown in the table reflect interdealer prices, and do not include retail
mark-up, mark-down or commissions, and may not represent actual transactions.
The Company has not paid cash dividends on its Common Stock.

As of November 30, 1995, there were approximately 56 holders of record
and the Company believes that there are in excess of 700 beneficial holders of
the Common Stock.

-12-

<PAGE>
Common Stock,
.001 par value
Bid Ask
------- -------
Period
- ------
1996 High Low High Low
- ---- ---- --- ---- ---
First Quarter $.001 $.001 $.05 $.05
(December 1, 1995
through February 29, 1996)

1995
- ----
First Quarter .125 .01 .50 .06
(December 1, 1994
through February 28, 1995)

Second Quarter .02 .01 .10 .06
(March 1, 1995
through May 31, 1995)

Third Quarter .02 .01 .10 .05
(June 1, 1995
through August 31, 1995)

Fourth Quarter .02 .001 .05 .04
(September 1, 1995
through November 30, 1995)

1994
- ----

First Quarter* .25 .01 .625 .25
(December 1, 1993
through February 28, 1994)

Second Quarter .31 .06 .63 .38
(March 1, 1994
through May 31, 1994)

Third Quarter .125 .06 .63 .31
(June 1, 1994
through August 31, 1994)

Fourth Quarter .125 .06 .50 .25
(September 1, 1994
through November 30, 1994)

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

* Reflects quotations on the Nasdaq Stock Market, for which the
Company's securities are no longer eligible for quotation. The Company's Common
Stock is currently quoted on the OTC Bulletin Board, resulting in a substantial
negative effect on the price at which such securities are quoted.

-13-

<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

In light of the fact that the Company has decided to divest all of its
operations and has agreed to sell all of its assets pursuant to the Agreement,
the Company is accounting for the historical results of the business as
discontinued operations. In this regard, the following discussion and analysis
presents a general, overall financial summary of the discontinued operations,
rather than a detailed discussion of the results of operations to be disposed in
the near future. As presented in the Company's recast financial statements,
certain expenses, consisting of minimal general and administrative expenses and
debt service costs have been evaluated to be expenses attributable to the
continuing entity after consideration of the divestiture of operations.

The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
report.

RESULTS OF OPERATIONS -
COMPARISON OF FISCAL 1995 AND FISCAL 1994

During the fiscal year ended November 30, 1995, revenues of the
discontinued business decreased to $453,458 from $1,006,060 in fiscal 1994.
This represents a 55% decrease in revenues, and reflects the Company's closing
of 42 centers between November 30, 1994 to November 30, 1995. Loss from
discontinued operations decreased from $728,000 to $368,000, reflecting the
reduced cost demands of the decreased level of the Company's activity.

The Company significantly decreased the number of locations for the
Spring, Summer and Fall 1995 sessions while actively seeking alternative outlets
for its programs. The Company operated only six locations in the Spring 1995
session and nine locations in the Fall 1995 session and as a result,
registration fee income decreased to $36,792 for the Spring 1995 session as
compared to $237,990 for Spring 1994.

LIQUIDITY AND CAPITAL RESOURCES

At November 30, 1995, the Company had a working capital deficit of
$1,284,299 compared to $1,177,911 at November 30, 1994. In its operation of the
discontinued operations, management has been attempting to reverse this downward
trend by significantly decreasing the number of Company owned centers in
operation, implementing staff reductions and seeking additional capital for the
placement of Playorena programs in alternative outlets. The Company has not
been successful in obtaining any additional capital. See "Description of
Business - Recent Events - "Loan to the Company", "Termination of Plan of
Reorganization, Issuance of Shares and Line of Credit" and "Additional Loans
from Affiliates of the Company".

-14-

<PAGE>
MANAGEMENT'S PLAN OF OPERATION

Current management, which has executed the Agreement to acquire the
Company's discontinued operations, continues to believe that the Playorena
program would operate more profitably within a different environment than it has
operated in the past. Specifically, management feels that operating the program
as part of an existing childrens' retail outlet or day-care center would enable
the program to interface promotionally as well as providing mutually beneficial
services. With fixed and established locations providing a more conducive
environment and greater visibility, management believes that enrollments in the
Playorena program could be expanded with reduced operating and marketing costs.
Although management has actively sought such outlets, the program has not yet
been tested in any such environment and there can be no assurance that the
program would work as contemplated or that any such outlets would be interested
in participating.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

As disclosed in the Company's Current Reports on Form 8-K dated
September 16, 1994, and December 16, 1994, in September 1994 Gerstein, Metelka,
Minkow & Co. ("GMM") resigned as the Company's independent accountants. In
December 1994, the Company engaged Eichler Bergsman & Co., LLP ("EB"). The
resignation of GMM was not a result of any disagreements with GMM on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure.

On March 11, 1996, EB was dismissed as the Company's independent
accountants. For the year ended November 30, 1994, the audit report of EB was
qualified concerning the Company's ability to continue as a going concern.
During the Company's two most recent fiscal years, and the subsequent interim
period up to the date of the change of accountants, the Company did not have any
disagreements with EB on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.

On March 12, 1996, the Company engaged its current independent
accountants, Feldman Radin & Co., P.C. ("FRC"). The Company's decision to
engage FRC was made by the executive officers of the Company and approved by the
Board of Directors. At no time during the Company's two most recent fiscal
years has the Company (or anyone on its behalf) consulted FRC regarding the
application of accounting principles to a specified transaction, the type of
audit opinion that might be rendered on the Company's financial statements or
any other matter.

<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

OFFICERS AND DIRECTORS

The present executive officers and directors of the Company, and
nominees for election to the Board of Directors of the Company, as of July 30,
1996 are as follows:

Year First
Name Age Position Elected
---- --- -------- ----------

Susan Astor 45 President and Director 1981
Michael Astor 50 Vice President, Chief 1983
Operating Officer, Chief
Financial Officer, Treasurer
and Director
Lawrence E. Kaplan 53 Nominee (Director) NA
Robert M. Rubin 56 Nominee (Director) NA
Alfred Romano 58 Nominee (Director) NA

SUSAN ASTOR. Ms. Astor is one of the Company's co-founders and has
been its President since its organization in 1981. From 1974 to 1978 Ms. Astor
developed "kindergym", a parent/toddler program in Marin County, California,
which served as the prototype for the Company's program. In response to the
success of the "kindergym" program, in 1979 Ms. Astor co-authored a book
entitled "Gymboree: Giving Your Child Physical, Mental and Social Confidence
Through Play" with the founder of the Gymboree program. Ms. Astor served as the
Director of Preschool Camp at the Marin County Jewish Community Center in 1974,
taught at the Atypical Infant Center of Marin County in 1973 and was Director of
Outdoor Pre-School Programs at the Marin County YMCA in 1972. Ms. Astor has
been recognized as an innovator in the toddler play program field, has made
numerous appearances on national and local television and has frequently been
quoted on play programs in newspaper and magazine articles. Ms. Astor was a
director of the Company from November, 1981 to October, 1990. Ms. Astor was
again elected as a director in August, 1993.

<PAGE>
MICHAEL ASTOR. Mr. Astor is one of the Company's co-founders and
became Chief Operating Officer and Vice President of the Company in December
1983. Mr. Astor, who is the husband of Susan Astor, was the principal owner and
President of Astor Sales, Inc., a company specializing in sales of private label
garment programs to clothing chain and department stores, from 1979 to 1984.
From 1970 to 1979, Mr. Astor was a marriage, family and child counselor in Marin
County, California. Mr. Astor was a director of the Company from November, 1981
to October, 1990. Mr. Astor was again elected as a director in August, 1993.

LAWRENCE E. KAPLAN. Lawrence E. Kaplan became a director of the
Company in October 1994 as a condition of the Letter Agreement and resigned as a
director on March 27, 1995. Since 1987, Mr. Kaplan has been an officer, director
and principal shareholder of Gro-Vest, Inc., an investment banking firm located
on Long Island, New York. He is also a registered representative, officer,
director and principal shareholder of G-V Capital Corp., and since January 1993,
he has been an officer, director and principal shareholder of Gro-Vest
Management. Mr. Kaplan is also an officer and director of Saratoga
Standardbreds, Inc. ("Saratoga"), a company that was engaged in the standardbred
horse industry until it instituted in 1989 a Chapter 11 proceeding under the
Federal Bankruptcy Act. Since the completion of the Chapter 11 proceeding in
1990, Saratoga has had no business operations, but has been looking to acquire a
business. Mr. Kaplan is also a director of (i) American United Global, Inc., a
public holding Company whose principal subsidiary operates a construction
equipment distribution business, and (ii) NFS Services, Inc., a subsidiary of
Walnut Capital Corporation. Finally, Mr. Kaplan also serves as a director of
Andover Equities and The Park Group Ltd, both of which are "blank check"
companies.

ROBERT M. RUBIN. Robert M. Rubin became a director of the Company
in October 1994 as a condition of the Letter Agreement and resigned as a
director on March 27,1995. Mr. Rubin is also a director, Chairman and
minority stockholder of Universal Self Care, Inc., a public company engaged
in the sale of products used by diabetics. Mr. Rubin was the founder,
President, Chief Executive Officer and a director of Superior Care, Inc.
("SCI") from its inception in 1976 until May 1986. Mr. Rubin continued as a
director of SCI, now known as Olsten Corporation ("Olsten"), until the latter
part of 1987. Olsten, a New York Stock Exchange listed company, is engaged in
providing home care and institutional staffing services and health care
management services. Mr. Rubin is also a director, Chairman, President, Chief
Executive Officer and minority stockholder of American United Global, Inc.
("AUG"), a company engaged in the distribution of construction equipment
principally manufactured by Case Corporation. Mr. Rubin is also a director,
Chairman and minority stockholder of Response USA, Inc., a public company
engaged in the sale and distribution of electronic security and personal
emergency response systems; and of Orthopedic Technology, Inc., a public
company engaged in the design and manufacture of custom and off-the-shelf
orthotic products primarily for the sports medicine market. Mr. Rubin is a
director and minority stockholder of Western Power & Equipment Corp., a
public company engaged in the distribution of construction equipment,
principally manufactured by Case Corporation and Diplomat Juvenile Products,
Inc., a public company engaged in the manufacture and distribution of baby
products. Mr. Rubin is

<PAGE>

also a director of: United Vision Group, Inc., a public company engaged in
providing prepaid optical plans and the operation of retail optical centers;
Analytical Nursing Management Corp., a public home health care deliverer in
Baton Rouge, Louisiana; ERD Waste Technology, Inc., a diversified waste
management company specializing in the management and disposal of municipal
solid waste, industrial and commercial non-hazardous waste and hazardous
waste: Help at Home, Inc., a home health care provider; Transcap Medical,
Inc. an insurance development company and Kaye Kotts Associates, Inc., a
provider of tax preparation and assistance services. Mr. Rubin is a former
director and Vice Chairman, and is currently a minority stockholder, of
American Complex Care, Incorporated, a public company formerly engaged in
providing on-site health care services, including intra-dermal infusion
therapies. In March 1995, American Complex Care, Incorporated's operating
subsidiaries made assignments of their assets for the benefit of creditors
without resort to bankruptcy proceedings.

ALFRED ROMANO. Alfred Romano, a nominee to become a director, has
been the President, director and sole shareholder of Pope Liquors, Inc. since
1964. Pope Liquors operates a store engaged in the retail sale of alcoholic
beverages.

During the fiscal year ended November 30, 1995, the Board of Directors
held one (1) meeting at which all of the directors were present. Directors do
not receive compensation for their services in such capacity. The Board of
Directors does not presently have, and has not in the past had, any committees.

None of the executive officers was selected as a result of any
arrangement or understanding with any person pursuant to which he or she was
selected as an executive officer, other than the directors of the Company acting
solely in their capacities as such.

Officers hold office until the first meeting of directors immediately
following the annual meeting of shareholders and until the successors are
appointed and qualified, subject to earlier removal by the Board.

Upon the closing of the Asset Sale, Mr. and Mrs. Astor will resign as
officers and directors of the Company and the newly elected Board of Directors
will elect the following persons to the offices set forth opposite their names:

NAME OFFICE
---- ------

Robert M. Rubin Chairman of the Board

Lawrence E. Kaplan President

Alfred Romano Secretary

<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

The Company was not furnished with copies of Form 5 (Annual Statement
of Beneficial Ownership of Securities) by any officer, director or beneficial
owner of more than ten percent of any class of equity securities of the Company
subsequent to its fiscal year ended November 30, 1995.

ITEM 10. EXECUTIVE COMPENSATION.

ANNUAL COMPENSATION

The following table sets forth the cash compensation in each of the
last three completed fiscal years to the Company's then Chief Executive Officer.
Mr. Jaroslow resigned as an officer and director of the Company effective March
27, 1995. Since Mr. Jaroslow's resignation, the Board of Directors of the
Company has not elected a successor Chief Executive Officer. While Susan Astor
was the President and Michael Astor was the Vice President, Chief Operating
Officer, Chief Financial Officer and Treasurer of the Company at November 30,
1995, the table below omits information as to their compensation, because
neither officer received a total annual salary and bonus for 1995 in excess of
$100,000.

SUMMARY COMPENSATION TABLE

ANNUAL COMPENSATION

Other
Annual All Other
Name and Compensation Compensation
Principal Position Year Salary Bonus($) ($) Shares
- ------------------ ---- ------ -------- ------------ ------------

Fred Jaroslow, 1995 __ __ __ __
Former
Chairman, Chief
Executive Officer, 1994 $12,946 -- -- --
Executive Vice
President and 1993 $24,092 -- -- --
Secretary*

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

* This amount does not include prerequisites and other personal
benefits, securities or property because the aggregate amount thereof in each
fiscal year did not exceed $50,000 or 10% of the total annual salary and bonus
reported for the named executive officer.

<PAGE>
During the last three completed fiscal years, the Company granted no
restricted stock awards or stock appreciation rights (whether freestanding or in
tandem with stock options). In January 1994, however, pursuant to the Company's
1989 Incentive Stock Option Plan, Mr. Jaroslow was granted options to purchase
100,000 shares of the Common Stock of the Company exercisable beginning in 1996
at $.344 per share.

AGGREGATE OPTION EXERCISES

The following table shows stock options exercised by executive
officers during 1995, including the aggregate value of any gains on the date of
exercise. In addition, this table includes the number of shares covered by both
exercisable and non-exercisable stock options as of November 30, 1995. Values
for the options are not reported because none of the exercisable options are
"in-the-money" options which represent the positive spread between the exercise
price of outstanding stock options and the year-end price of Company common
stock.

AGGREGATED OPTION/SAR EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES

No. of Shares Covered
by Unexercised
Options at
11/30/95
----------------
Shares Acquired Value
Name on Exercise Realized Exercisable(1) Not Exercisable(2)
- ---- ----------- -------- ------------- -----------------

Fred Jaroslow --- --- 100,000 100,000
Susan Astor --- --- 50,000 131,250
Michael Astor --- --- 50,000 131,250

(1) Includes the grant in March 1991 pursuant to the Company's 1989 Incentive
Stock Option Plan of options to purchase shares of Common Stock exercisable
beginning in December 1993 at $.8938 per share.

(2) Includes the grant in January 1994 pursuant to the Company's 1989 Incentive
Stock Option Plan of options, exercisable beginning in 1996 to (i) Mr.
Jaroslow to purchase 100,000 shares of Common Stock at $.344 per share. and
(ii) each of Mr. Astor and Ms. Astor to purchase 131,250 shares of Common
Stock at $.3125 per share.

<PAGE>
EMPLOYMENT AGREEMENTS

In December 1988, the Company entered into separate five-year
employment agreements with each of Fred Jaroslow, Susan Astor and Michael Astor
which became effective upon the closing of the Initial Public Offering in March
1990. Pursuant to agreements dated October 22, 1993, the employment agreements
of Michael Astor and Susan Astor were amended to provide that employment shall
continue until December 31, 1996. The terms of such agreements are renewable
for one-year periods subject to the approval of the Board of Directors of the
Company. During the first two years of their agreements, the officers were
entitled to receive salaries at a combined rate of $245,000 and each received
ten percent increases during the third year. Thereafter, their salaries were to
be negotiated, in good faith, with the Board of Directors (with all three
officers abstaining from any vote by the Board). All of such employment
agreements provide for payments to the respective officers upon the termination
of their employment by the Company without cause. While such officers are not
currently receiving salaries at the rates provided in the employment
agreements, to the extent not paid, Mr. and Mrs. Astor's salaries are currently
being accrued. Mr. Jaroslow has agreed to waive his unpaid salary and accrued
vacation as of November 30, 1994. Mr. and Mrs. Astor have agreed to waive
accrued vacation as of November 30, 1995. Such employment agreements will
terminate upon the closing of the Asset Sale and, to the extent not paid prior
to the closing, all accrued salaries and vacations shall be waived.

In addition, the Company has entered into a consulting agreement with
Mr. Jaroslow which became effective upon the termination of his service under
his employment agreement in March 1995, but which Mr. Jaroslow has agreed to
terminate upon the closing of the Asset Sale. The consulting agreement has a
term of five (5) years. In his first year of the consulting agreement, Mr.
Jaroslow's salary will be equal to $56,000. His salary in successive years will
be based upon a formula provided in the consulting agreement and shall not
exceed his salary for the first year of the consulting agreement. During the
term of the consulting agreement, Mr. Jaroslow shall render services to the
Company on a part-time basis not to exceed fifty (50) days per year. Mr.
Jaroslow is not currently receiving any salary under this agreement, and his
compensation is not being accrued. Mr. Jaroslow has agreed to waive all unpaid
compensation under this agreement as of March 1995.

Pursuant to the terms of the Letter Agreement (as defined in
"Description of Business - Recent Events - Termination of Plan of
Reorganization, Issuance of Shares and Line of Credit"), the Company agreed to
enter into a consulting agreement with Bernard Tessler to be effective January
1, 1995 pursuant to which Mr. Tessler shall provide consulting services to the
Company encompassing 75% of his full working time through February 28, 1995 and
20% of his full working time through December 31, 1997. In consideration
therefore, the Company agreed to pay Mr. Tessler at the rate of $75,000 per
annum for the period from January 1, 1995 through February 28, 1995 and $25,000
per annum for the period from March 1, 1995 through December 31, 1997. Pursuant
to the terms of the Second Letter Agreement (as defined in "Description of
Business - Recent Events - Termination of Plan of Reorganization, Issuance of
Shares and Line of Credit"), the consulting agreement was terminated as of April
10, 1995.

<PAGE>
1989 EMPLOYEE INCENTIVE STOCK OPTION PLAN

The Company's 1989 Employee Incentive Stock Option Plan (the "Option
Plan") was adopted by the Board of Directors and approved by the shareholders as
of June 1, 1989. The Option Plan authorizes the Stock Option Plan Committee of
the Board of Directors ("Option Committee") to recommend that the Board grant to
key employees, officers and directors both "incentive stock options" within the
meaning of Section 422A of the Internal Revenue Code of 1986 and nonstatutory
stock options. The Option Plan provides for the issuance of up to 600,000
shares of Common Stock. Each option granted under the Option Plan has a term of
up to five years, is exercisable only at such times as the Board of Directors
determines at the time of grant for a price at least equal to the fair market
value of the Common Stock on the date the option is granted, will terminate
under certain circumstances if the holder ceases to be an employee of the
Company and requires that the exercise price be paid, in the discretion of the
Board of Directors, in cash, shares (valued at the fair market value thereof on
the date of exercise) or a combination thereof. The option exercise price of
"incentive stock options" granted to 10% or greater shareholders of the Company
must be equal to at least 110% of the fair market value of the Company's shares
of Common Stock on the date of grant.

Awards are granted in the discretion of the Option Committee. The
Option Committee awards options to key employees in order to provide an
incentive for them to expend maximum effort for the success of the Company's
business. The Committee uses no set criteria to determine amounts to be awarded
under the Plan. Factors used to determine awards in the past have included
length of service to the Company, job responsibility and achievement.

On March 7, 1991, the Board of Directors, acting upon the
recommendation of the Option Committee, authorized the grant of options to
purchase an aggregate of 267,500 shares of Common Stock under the Option Plan to
eight employees of the Company, including Messrs. Jaroslow, Astor and Ms. Astor.
Two of such employees have since left the Company, upon which options with
respect to 30,000 of such shares expired. In addition, on January 31, 1994, the
Board of Directors authorized the grant of options under the Option Plan to
purchase an aggregate of 362,500 shares to Messrs. Jaroslow and Astor, and Ms.
Astor.

All options granted shall vest from periods of one to five years from
the date of grant. However, all options granted shall terminate upon the
closing of the Asset Sale.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth, as of July 30, 1996, the beneficial
ownership of Common Stock by (i) each of the Company's directors and officers,
(ii) all directors and officers as a group (which ownership constitutes in the
aggregate approximately 48.8% of the outstanding Common Stock) and (iii) by
unaffiliated individuals who beneficially hold in the aggregate more than five
percent of the Common Stock. For all purposes of the calculations set forth in
the following table, it has been assumed that the 4,500,000 shares of Common
Stock to be issued

<PAGE>
pursuant to the Letter Agreement to Messrs. Feldman (100,000), Andrew Kaplan
(1,083,333), Lawrence E. Kaplan (1,083,333), Rubin (1,483,334) and Tessler
(750,000), have been issued and are outstanding.

Amount and Nature Percentage of
of Beneficial Common Stock
Name and Address Ownership(1)(2) Outstanding
- ---------------- --------------- -----------

Susan Astor 593,400(2)(3) 4.6%
22 Manhasset Avenue
Port Washington, NY 11050

Michael Astor 548,400(2)(3) 4.3%
22 Manhasset Avenue
Port Washington, NY 11050

Fred Jaroslow 1,278,888(2) 10.0%
22 Manhasset Avenue
Port Washington, NY 11050

Lawrence E. Kaplan(4) 1,094,443 8.6%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788

Robert M. Rubin(4) 2,923,332 22.9%
6060 Kings Gate Circle
Delray Beach, Florida 33484

Alan Goldberg 643,638 5.0%
170 Fifth Avenue, 6th Flr.
New York, New York 10010

Andrew Kaplan 1,083,333 8.5%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788

Mark Levine 643,638 5.0%
170 Fifth Avenue, 6th Flr.
New York, New York 10010

<PAGE>
Amount and Nature Percentage of
of Beneficial Common Stock
Name and Address Ownership(1)(2) Outstanding
- ---------------- --------------- -----------

Bernard Tessler 750,000 5.9%
22 Manhasset Avenue
Port Washington, NY 11050

Alfred Romano(4) 11,111 .09%
4 Wagon Wheel Road
Dix Hills, NY 11746

All directors and officers 1,141,800 8.9%
as a group (Mr. and Mrs. Astor)

(1) A person is considered to be the "beneficial owner" of any securities with
respect to which he has or shares, directly or indirectly, or has the right
to acquire within 60 days, (1) voting power, which includes the power to
vote, or to direct the voting of, such security and/or (2) investment
power, which includes the power to dispose, or to direct the disposition
of, such security. Each person has both voting and investment power and
considers himself to be the beneficial owner of the securities shown
following his name except as otherwise indicated. Except as otherwise
indicated, the beneficial owners listed here have sole voting and
investment power, subject to community property laws where applicable, as
to all of the shares listed as beneficially owned by them. As of June 14,
1996, there were 8,262,910 shares of Common Stock outstanding and 4,500,000
to be issued pursuant to the Letter Agreement, which are assumed to be
outstanding for purposes of this Table. In accordance with Rule 13d-3 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
shares which a named holder has the right to acquire within 60 days are
deemed to be outstanding for purposes of computing the percentage of the
outstanding shares of Common Stock held by such person.

(2) Gives effect to the grant in March 1991 of options to purchase shares of
the Company's Common Stock pursuant to the Company's 1989 Incentive Stock
Option Plan. At such time, Mr. Jaroslow, Mr. Astor and Ms. Astor were
granted 100,000, 50,000 and 50,000 shares, respectively, of such options.
All such options became exercisable in December 1993 at $.8938 per share.
Does not give effect to the grant in January 1994 of options, exercisable
beginning in 1996, to purchase an aggregate of 362,500 shares to Messrs.
Jaroslow and Astor, and Ms. Astor. Mr. Jaroslow was granted options to
purchase 100,000 shares of Common Stock at $.344 per share and Mr. Astor
and Ms. Astor were each granted options to purchase 131,250 shares of
Common Stock at $.3125 per share. All of such options granted shall
terminate upon the closing of the Asset Sale.

(3) Mr. and Ms. Astor are husband and wife and may be expected to act in
concert with respect to the voting and disposition of their shares of
Common Stock.

<PAGE>

(4) Messrs. Rubin, Romano and Lawrence Kaplan are nominees for election to the
Board of Directors of the Company and will be elected upon consummation of
the Asset Purchase Agreement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In March 1992, the Company issued 600,000 shares of Common Stock to Mr.
Rubin in exchange for his investment of $100,000 in the Company.

In May 1992, Mr. and Mrs. Astor contributed to the Company a total of
500,000 shares of Common Stock owned by them.

In August 1991, the NASD promulgated revised requirements, effective March
2, 1992, for continued inclusion of an issuer's securities on the Nasdaq Stock
Market, including a requirement that the issuer maintain shareholders' equity of
at least $1,000,000 and have assets of at least $2,000,000. In order to meet
such requirements, certain members of the Board of Directors agreed to invest an
aggregate of $500,000 in the Company in exchange for $500,000 principal amount
of 10% Exchangeable Notes. The Notes were exchangeable for a series of
cumulative redeemable preferred stock, subject to, among other things, a
determination by a hearing panel of the NASD that issuance of such preferred
stock would enable the Company to maintain its Nasdaq listing. However, on July
30, 1992, following the determination of an NASD listing qualifications
committee that the issuance of such preferred stock would not enable the Company
to meet the net worth requirements of the NASD, the Company repaid the principal
of the outstanding 10% Exchangeable Notes in the aggregate amount of $500,000 by
the way of an investment by each of the noteholders in the Common Stock of the
Company. Each noteholder purchased the number of shares of Common Stock equal to
the principal amount of 10% Exchangeable Notes held by such noteholder at a
price of $1.00 per share. Such Common Stock was issued to the noteholders as
follows: Fred Jaroslow - 230,888 shares; Gro-Vest, Inc. (a corporation in which
Lawrence K. Fleischman, a former director of the Company, owns a 25% interest) -
19,236 shares; Alan Goldberg - 117,638 shares; Kent Q. Kreh - 5,000 shares; Mark
Levine - 117,638 shares; and Richard Samber - 9,600 shares.

On July 31, 1992, Fred Jaroslow and Michael Astor each purchased
97,500 shares of Common Stock of the Company at a price of $1.00 per share, for
an aggregate price of $195,000.

In January 1994, the Company issued 200,000 shares of its Common Stock
to Robert M. Rubin in consideration of loans made by Mr. Rubin pursuant to a
Revolving 10% Promissory Note under which the Company has borrowed an aggregate
principal amount of $200,000. See "Description of Business - Recent Events -
Loan to the Company."

<PAGE>
with principal and interest due at the earlier of the closing of any debt or
equity offering of the Company's securities yielding gross proceeds in excess of
$1,500,000 or September 30, 1995. As each of the units were sold by the Company
for $50 000, the Company derived an aggregate of $250,000 from the private
placement. With the exception of one-half of one unit acquired by Lawrence E.
Kaplan, a director of the Company, all of the units were acquired by
unaffiliated persons. These notes are currently in default. See "Description of
Business - Recent Events - Private Placement of Equity and Debt".

On October 26, 1994, Messrs. Lawrence E. Kaplan, Rubin and Andrew
Kaplan were elected to the Board of Directors. Each of Messrs. Astor and
Jaroslow and Mrs. Astor, three of the then directors of the Company, agreed to
vote to elect three designees of the Investors (as defined in "Description of
Business - Recent Events - Termination of Plan of Reorganization, Issuance of
Shares and Line of Credit") to the Board of Directors of the Company until such
time as the Line of Credit is repaid or the Investors default on their
obligations arising under the Line of Credit. Each of the Investor's designees
to serve on the Board of Directors have agreed to resign upon the earlier of
repayment of all outstanding amounts of principal and accrued interest under the
Line of Credit or a material breach of the Line of Credit by any of the
Investors, unless such designees have previously been elected to the Board of
Directors by vote of the Company's shareholders. Andrew Kaplan subsequently
resigned as a director in February 1995 and no replacement has as yet been
designated by the Investors. See "Description of Business - Recent Events -
Termination of Plan of Reorganization, Issuance of Shares and Line of Credit".

Pursuant to the terms of the Letter Agreement dated November 18, 1994
among the Company and each of Michael Astor, Susan Astor, Bernard Tessler and
Fred Jaroslow (then directors of the Company), in their individual capacities,
and Lawrence E. Kaplan, Stanley Kaplan and Mr. Rubin (see "Recent Events -
Termination of Plan of Reorganization, Issuance of Shares and Line of Credit"),
the Company agreed to: (i) cause the Board of Directors of each of the Company
and Kids 'N Things to terminate the Reorganization Agreement (see "Recent Events
- - Termination of Plan of Reorganization, Issuance of Shares and Line of
Credit"); (ii) issue 1,500,000 shares of common stock to Bernard Tessler in
consideration of the payment of $2,000 and past services rendered to the
Company; (iii) elect each of Messrs. Lawrence E. Kaplan, Rubin and Andrew Kaplan
(the son of Stanley Kaplan) to fill three vacancies on the Board of Directors
caused by the resignations of Messrs. Tessler, Baird and Horvitz; (iv) issue an
aggregate of 100,000 shares of common stock to Jerry Feldman in consideration of
the payment of $100 and past services rendered to the Company, (v) issue an
aggregate of 3,250,000 shares of Common Stock to Messrs. Andrew Kaplan (as
Stanley Kaplan's designee), Lawrence E. Kaplan and Rubin in consideration of the
payment of an aggregate of $4,200 in past financial consulting services rendered
and the joint and several agreement among the Investors to make available to the
Company a $275,000 Line of Credit (see "Recent Events - Termination of Plan of
Reorganization, Issuance of Shares and Line of Credit"); and (vi) issue 400,000
shares of common stock to Mr. Rubin in consideration of the payment of $400 and
his agreement to waive any and all defaults by Playorena to make current
interest payments through the maturity date arising under the Note. The
5,250,000 shares of Common Stock to be issued to Mr. Tessler

<PAGE>
pursuant to the Letter Agreement were reduced by 750,000 shares pursuant to a
subsequent letter agreement between the Company and Mr. Tessler dated April 10,
1995 (the "Second Letter Agreement"), wherein Mr. Tessler agreed, among other
things, to reduce the total number of shares of Common Stock to be issued to him
from 1,500,000 to 750,000. The total number of shares now required to be issued
pursuant to the Letter Agreement is 4,500,000.

The Letter Agreement establishing the Line of Credit provides that the
outstanding principal amount drawn down shall bear interest at the rate of 10%
per annum, with principal and interest due at the earlier of the closing of any
debt or equity offering of the Company's securities, the gross proceeds of which
is not less than $1,500,000, or September 30, 1995. To date, the Company has
borrowed the maximum amount available under the Line of Credit ($275,000). The
Line of Credit was not repaid and the Company does not at the present time have
the resources to repay the Line of Credit.

Pursuant to the terms of the Letter Agreement, the Company and Mr.
Tessler agreed to terminate the Management Agreement, thereby relieving the
Company of any future obligation to issue any shares thereunder. Mr. Tessler
and the Company further agreed to enter into a Consulting Agreement effective
January 1, 1995, pursuant to which Mr. Tessler agreed to provide consulting
services during 75% of his full working time for a fee of $75,000 per annum
through February 28, 1995 and to provide consulting services during 20% of his
full working time for a fee of $25,000 per annum from March 1, 1995 through
December 31, 1997. Under the terms of the Second Letter Agreement, Mr. Tessler
agreed, among other things, to release the Company from all payment obligations
arising under the Consulting Agreement in consideration for a payment of $6,200.

In February and March 1995, the Company received loans in the
aggregate amount of $143,333 from three directors of the Company and the father
of a principal shareholder of the Company: (i) Lawrence E. Kaplan - $20,426;
(ii) Stanley Kaplan (the father of Andrew Kaplan) - $20,417; (iii) Fred Jaroslow
- - $40,500; and (iv) Robert Rubin - $62,000. The lenders have agreed to accept
an aggregate of 3,278,890 (163,945 shares subsequent to the reverse stock split)
shares of Common Stock as payment in full for such loans. Such shares will be
issued simultaneously upon receipt of the shares to be delivered by Mr. and Mrs.
Astor to the purchaser of the assets of the Company pursuant to the Asset Sale
Agreement. See "Description of Business - Recent Events - Additional Loans from
Affiliates of the Company".

<PAGE>

PLAYORENA, INC.

INDEX TO FINANCIAL STATEMENTS

PAGE

Auditor's report on financial statements . . . . . . . . . . . . . . . . . F-2

Prior auditor's report on financial statements . . . . . . . . . . . . . . F-3

Balance sheet as of November 30, 1995. . . . . . . . . . . . . . . . . . . F-4

Statements of operations for the years
ended November 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-5

Statement of changes in shareholders'
equity (deficiency) for the years ended
November 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . F-6

Statements of cash flows for the years
ended November 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . F-7

Notes to financial statements. . . . . . . . . . . . . . . . . . . . . . . F-8

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

March 15, 1996

The Board of Directors and Shareholders
Playorena, Inc.

We have audited the accompanying balance sheet of Playorena, Inc. as
of November 30, 1995, and the related statements of operations, shareholders'
deficiency 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. The
financial statements of Playorena, Inc. for the year ended November 30, 1994
were audited by other auditors whose report dated March 1, 1995 qualified their
opinion because of doubt as to the Company's ability to continue as a going
concern.

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 financial statements referred to above present
fairly, in all material respects, the financial position of Playorena, Inc. as
of November 30, 1995, and the results of its operations and cash flows for the
year then ended, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

s/ Feldman Radin & Co., P.C.
Certified Public Accountants

F-2

<PAGE>

[EICHLER BERGSMAN & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Playorena, Inc.

We have audited the accompanying balance sheet of Playorena, Inc. as
of November 30, 1994, and the related statements of operations, shareholders'
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. The
financial statements of Playorena, Inc. for the year ended November 30, 1993
were audited by other auditors whose report dated February 7, 1994 and
February 23, 1994 qualified their opinion because of doubt as to the
Company's ability to continue as a going concern.

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 financial statements referred to above present
fairly, in all material respects, the financial position of Playorena, Inc.
as of November 30, 1994, and the results of operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.

The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency that raises substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.

/s/ Eichler Bergsman & Co., LLP
- -------------------------------------

New York, New York
March 1, 1995, except for Note 1 of the financial statements for the years
ended November 30, 1994 and 1995 as to which the date is March 15, 1996.

F-3

<PAGE>

PLAYORENA INC.

BALANCE SHEET

NOVEMBER 30, 1995

ASSETS

CURRENT ASSETS:
Cash $ 1,329
-------------
-------------

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
Notes payable $ 881,333
Accrued expenses 404,295
-------------
TOTAL CURRENT LIABILITIES 1,285,628

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, $ .001 par value;
15,000,000 shares authorized,
8,262,910 shares issued and outstanding 8,263
Additional paid-in-capital 4,089,783
Accumulated deficit (5,382,345)
-------------
TOTAL SHAREHOLDERS' DEFICIENCY (1,284,299)
-------------
$ 1,329
-------------
-------------

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

F - 4

<PAGE>

PLAYORENA INC.

STATEMENT OF OPERATIONS

Years ended November 30,
--------------------------------
1995 1994
------------ ------------

EXPENSES:
General and administrative $ 23,133 $ 46,349
Interest expense 86,710 44,854
------------ ------------
TOTAL EXPENSES 109,843 91,203
------------ ------------

LOSS FROM CONTINUING OPERATIONS (109,843) (91,203)
------------ ------------

LOSS FROM DISCONTINUED OPERATIONS (367,850) (728,495)
------------ ------------

NET LOSS $ (477,693) $ (819,698)
------------ ------------
------------ ------------

NET LOSS PER SHARE:
Continuing operations $ (0.01) $ (0.01)
Discontinued operations (0.05) (0.09)
------------ ------------

NET LOSS PER SHARE $ (0.06) $ (0.10)
------------ ------------
------------ ------------

WEIGHTED AVERAGE SHARES USED IN COMPUTATION 8,262,910 8,181,206
------------ ------------
------------ ------------

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

F - 5
<PAGE>

PLAYORENA INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)

COMMON STOCK ADDITIONAL ACCUMULATED
SHARES AMOUNT PAID-IN CAPITAL DEFICIT TOTAL

<S> <C> <C> <C> <C> <C>
Balance, November 30, 1993 7,951,800 $ 7,952 $4,089,779 $(4,084,954) $ 12,777

Net loss - - - (819,698) (819,698)

Stock issued for cash 200,000 200 - - 200

Private placement 111,110 111 4 - 115
----------- ----------- ----------- ----------- -----------
Balance, November 30, 1994 8,262,910 8,263 4,089,783 (4,904,652) (806,606)

Net loss - - - (477,693) (477,693)
----------- ----------- ----------- ----------- -----------
Balance , November 30, 1995 8,262,910 $8,263 $4,089,783 $(5,382,345) $(1,284,299)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------

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

</TABLE>

F-6

<PAGE>

PLAYORENA INC.

STATEMENT OF CASH FLOWS

Years Ended November 30,
-------------------------
1995 1994
---------- ----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (477,693) $ (819,698)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 51,795 85,662
Gain (loss) on sale of equipment 2,219 (29,230)
Change in operating assets and liabilities 208,955 9,696
---------- ----------

CASH USED IN OPERATING ACTIVITIES (214,724) (753,570)
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property and equipment 0 (3,478)
Proceeds from the sale of equipment 70,742 37,250
---------- ----------

CASH FLOWS FROM INVESTING ACTIVITIES 70,742 33,772
---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) debt financing 151,333 720,000
Decrease of capital lease obligations (8,966) (12,371)
Proceeds from issuance of common stock 0 311
---------- ----------

CASH PROVIDED BY FINANCING ACTIVITIES 142,367 707,940
---------- ----------

NET INCREASE (DECREASE) IN CASH (1,615) (11,858)

CASH AT BEGINNING OF YEAR 2,944 14,802
---------- ----------

CASH AT END OF YEAR $ 1,329 $ 2,944
---------- ----------
---------- ----------

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,489 $ 7,026
---------- ----------
---------- ----------

NON-CASH FINANCING AND INVESTING ACTIVITIES:
At November 30, 1995, the Company had a total of $27,094 included in Accounts
Receivable from sales of equipment during the 1995 year.

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

F - 7

<PAGE>

PLAYORENA, INC.

NOTES TO FINANCIAL STATEMENTS

NOVEMBER 30, 1995

1. DISCONTINUED OPERATIONS

Playorena, Inc. (the "Company") was incorporated on December 4, 1981, under
the laws of the State of New York. The Company operates recreational play
and exercise programs specifically designed for children between three
months and four years of age. As part of its plan to expand the opening of
Company operated centers, in 1989 the Company did not renew its franchise
registration with the proper government authorities and suspended the sale
of franchises. As of November 30, 1995, the Company operated an aggregate
of 9 centers. In addition, there were 7 franchisees operating 12 centers.

On April 14, 1995, the Company entered into an Asset Purchase Agreement
(the "Agreement") with Michael Astor (who, along with his wife, Susan
Astor, comprise all of the current officers and members of the Board of
Directors of the Company), pursuant to which an entity to be formed by Mr.
and Mrs. Astor agreed to acquire all of the assets and properties of the
Company, including, without limitation, all copyrights, trademarks, trade
names (including the name "Playorena"), accounts receivable, equipment,
inventory, cash and cash equivalents, in exchange for the assumption of
certain liabilities of the Company and the transfer to the Company of
1,041,800 shares of Common Stock of the Company, representing all of the
Common Stock of the Company owned by Mr. and Mrs. Astor. Obtaining the
approval of the holders of not less than 66 2/3% of the issued and
outstanding shares of capital stock of the Company is a condition precedent
to the closing of the Asset Sale contemplated by the Agreement.

The terms of the Agreement were negotiated on behalf of the Company by
Robert M. Rubin. Mr. Rubin owns 2,923,334 shares of Common Stock of the
Company, representing 22.9% of the issued and outstanding shares of Common
Stock. In addition, in consideration for a loan made to the Company by
Mr.. Rubin in January 1994 and due in September 1995, Mr.. Rubin was
granted a first priority security interest in all of the assets of the
Company. As the Company does not presently have the resources to repay the
$200,000 principal amount of the secured loan to Mr.. Rubin, since
September 30, 1995, Mr.. Rubin has had the right to foreclose on his
security interest in all of the assets to the Company. Pursuant to the
terms of the Agreement, Mr. Rubin and certain other secured lenders will
be required to release their respective security interest so that Mr.
Astor, or his designee, will obtain title to the Company's assets free and
clear of any liens or encumbrances.

F-8

<PAGE>

The Agreement specifically provides that the Company shall retain "all
claims for tax refunds, tax loss carry forwards or carrybacks of tax
credits or any kind" applicable to the Company's business prior to the
closing of the Asset Sale. Without future profits by the Company, such tax
losses are of limited or no value. The Agreement further specifies that
the following liabilities will not be assumed by the acquiring entity:

(I) liabilities owed to certain affiliates of the Company, including
Mr. Rubin, estimated to be $878,333 in the aggregate (including
$143,333 loaned to the Company since January 1995);

(ii) liabilities owed to Solomon & Moskowitz, P.C. and certain other
professionals who have provided services to the Company, estimated to
be $40,000 aggregate;

(iii) amounts owned to the Company's transfer agent and to Standard
and Poors, estimated to be $6,600 in the aggregate;

(iv) claims made against the Company by shareholders of the Company;

(v) certain fees incurred in connection with compliance with
applicable securities laws and

(vi) all liabilities and obligations of the Company arising after
the closing of the Asset Sale.

Based upon the proposed structure of the transaction set forth in the
Agreement, immediately following the closing of the Asset Sale the Company
will have no assets or business but will retain estimated liabilities of
$878,333, plus certain obligations incurred between August 31, 1995 and the
date of the closing, plus possible liabilities with respect to certain
heretofore unasserted claims against the Company. In light of the fact
that subsequent to the closing the Company will not have any business or
assets with which to generate revenue, the Company will not have any means
to satisfy such liabilities or obligations unless and until the Company is
able to raise additional capital or acquire a profitable business. The
Company does not presently have any such plans and there can be no
assurance that raising such capital or acquiring a new business will be
possible. If such capital should become available or such business should
be offered to the Company, any such transaction is likely to result in
immediate and substantial dilution to the present shareholders of the
Company.

F-9

<PAGE>

Following is a summary of the estimated gain (loss) on the disposition of
the Company's operations:

Property and equipment written off:
Play equipment $ (694,227)
Office furniture (101,052)
Automobile (27,836)
--------
(823,115)
Less: Accumulated Depreciation 602,346
Net property and equipment written off (220,769)
--------
Other Assets written off:
Accounts receivable (39,619)
Prepaid expenses (823)
Other assets (15,781)
-------
Total Assets written off (276,992)
--------
Liabilities to be assumed by others:
Obligations under capital leases 17,324
Unearned registration fees 21,257
Accounts payable 227,575
Accrued expenses 212,232
-------
Total Liabilities to be assumed by others 478,388
-------
Estimated losses through disposal date (106,417)
--------
Estimated gain on disposal 94,979
Gain not recognized (94,979)
-------
$ -
---------
---------

The Company will remain contingently liable to the extent that assumed
liabilities are not satisfied.

Revenues of the discontinued business were $453,458 and $1,006,060 in fiscal
years ended November 30, 1995 and 1994, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation - Going Concern - The Company's financial
statements have been presented on the basis that it is a going
concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business.

The Company's viability as a going concern is dependent upon the
restructuring of its obligations and a return to profitability.

F-10

<PAGE>

There was negative working capital of $1,509,799 at November 30, 1995,
and negative cash flows from operating activities of $214,724 for the
year then ended. Negative cash flows from operating activities have
continued.

Accordingly, the financial statements do not include any adjustments
relating to the recoverability of assets and classification of
liabilities or any other adjustments that might be necessary should
the Company be unable to continue as a going concern in its present
form.

(b) Revenue Recognition - Participant registration fees are fully paid by
participants prior to the session beginning and are recognized over
the term of the class session.

(c) Deferred Charges - Deferred charges represent direct selling expenses
associated with class sessions for which the term has not begun or is
incomplete at year-end. The expenses are recognized over the term of
the class session on a straight-line basis.

(d) Depreciation - Property and equipment are carried at cost. The
straight-line and double declining balance methods of depreciation are
used over their estimated useful lives ranging from three to ten
years.

(e) Earnings (Loss) Per Share - The computation of earnings (loss) per
common and common equivalent share is based on the weighted average
number of common shares outstanding during the period plus (in periods
in which they have a dilutive effect) the effect of common shares
contingently issuable, primarily from stock options and exercise of
warrants.

3. ACCRUED EXPENSES

Following is a summary at November 30, 1995:

Interest $ 121,888
Professional fees 73,511
Other 7,500
Estimated losses through disposal date 106,417
Estimated gain on disposal not recognized 94,979
----------
$ 404,295
----------
----------

F-11

<PAGE>

4. NOTES PAYABLE

Following is a summary of the balance of notes payable at November 30,
1995:

a. Environmental Resources and Disposal, Ltd. $ 10,000
b. Private Placement 250,000
c. Robert M. Rubin 200,000
d. Revolving line of credit 275,000
e. Bridge loans 140,333
f. Other 6,000
--------
$ 881,333
--------
--------

a. The note originated November 18, 1993, bearing interest at 10% per
annum. The principal and interest were due on February 6, 1994, and
is currently in default. The noteholder has not taken action to
enforce payment.

b. In May 1994, the Company commenced and completed a private placement
of five units, each unit costing $50,000 consisted of a $50,000
promissory note and 22,222 shares of common stock offered at $.001 per
share. The terms of the promissory notes are interest at 10% per
annum with principal and interest due at the earlier of (I) the
closing of any debt or equity offering of the Company's securities,
the gross proceeds of which is not less than $1,500,000, or (ii)
September 30, 1995. The notes are currently in default.

c. On January 19, 1994 the Company entered into an agreement with Mr.
Robert M. Rubin, a stockholder/director of the Company, under which
Mr. Rubin loaned the Company $200,000 in exchange for a promissory
note, with interest at 10% per annum payable monthly, and 200,000
shares of the Company's common stock. In addition, the Company must
accelerate the repayment of principal at any time at which the cash
balance of the Company exceeds a certain dollar amount over a certain
time period. The promissory note, which was due on September 30,
1995, and is secured by a general lien in all of the assets of the
Company. The Company is in default of this note as of November 30,
1995.

d. On November 18, 1994, the Company entered into a preliminary agreement
with the following stockholders: Mr. Rubin, Mr. Lawrence E. Kaplan
(also a director) and Stanley Kaplan (the "Investors") regarding
$270,000 that had previously been advanced to the Company. The
investors agreed to lend to the Company up to $275,000 inclusive of
previous advances. Interest is payable at the rate of 10% per

F-12

<PAGE>

annum, with principal and interest due on September 30, 1995 Should
the Company repay any principal before maturity, it is subject to
terms which limit reborrowing against this line of credit. The
Company is in default of these loans at November 30, 1995.

e. In February through April 1995, the Company received loans in the
aggregate amount of $143,333 from three directors of the Company and
the father of a principal shareholder of the Company. Interest is
being accrued at 10% per annum. In connection with the proposed Asset
Purchase Agreement, the lenders have agreed to accept 3,278,890 shares
of common stock in full payment of these loans, simultaneously with
shares to be delivered to the Company by Mr. and Mrs. Astor.

5. OBLIGATIONS UNDER LEASES

The Company leases locations used for class sessions and the corporate
headquarters. The Company operates its class sessions from locations
typically leased on a monthly basis and cancelable at any time without
penalty or legal obligation.

Total rental expense for the years ended November 30, 1995 and 1994 was
$120,249 and $266,197, respectively.

6. INCOME TAXES

The Company has available net operating loss carry forwards for federal
income tax purposes of approximately $4,900,000 that expire from 1998
through 2009. In addition, the Company has investment tax credit carry
forwards of approximately $16,000 that expire in 1998. The Company has
applied a valuation allowance, eliminating entirely only tax benefits or
tax assets that may arise from these favorable tax attributes.

Furthermore, annual utilization of net operating losses can be subject to
limitations due to "equity structure shifts" or "owner shifts" involving 5%
stockholders (as these terms are defined in Section 382 of the Internal
Revenue Code), which result in a more than 50% change in ownership.

7. EMPLOYEE INCENTIVE STOCK OPTION PLAN

The Company's Employee Incentive Stock Option Plan was adopted and approved
as of June 1, 1989. The plan provides for the grant to key employees,
officers and directors of both "incentive stock options" within the meaning
of Section 422A of the Internal Revenue Code of 1986 and non-statutory
stock options. The plan provides for the issuance of up to 600,000 shares
of common stock. Each option granted under the plan has a term of up to
five years, is exercisable only at such times as the board of directors
determine at the time of grant for a price at least equal to the fair
market value of the

F-13

<PAGE>

common stock on the date of the option is granted, will terminate under
certain circumstances if the holder ceases to be an employee of the Company
and requires that the exercise price be paid, in the discretion of the
board of directors, in cash, shares (valued at the fair market value
thereof on the date of exercise) or a combination thereof. The exercise
price of "incentive stock options" granted to 10% or greater shareholders
of the Company must be equal to at least 110% of the fair market value of
the Company's shares of common stock on the date of grant.

On March 7, 1991, the Board of Directors authorized the grant of options to
purchase an aggregate of 267,500 shares of common stock under the plan to
eight employees of the Company, including Messrs. Jaroslow, Astor and Ms.
Astor. Such options shall vest from periods of three to five years from
the date of grant, are exercisable at a price per share of $.8938 - .8125
and expire five years from the date of grant.

At November 30, 1995, there are options to purchase 200,000 shares of
common stock remaining, which are fully vested and have an exercise price
of $.8938 per share, expiring March 7, 1996. The remaining options were
canceled and no options have been exercised to date.

On January 31, 1994, the Board of Directors authorized the grant of options
to purchase an aggregate of 362,500 shares of common stock under the plan
as follows: Fred Jaroslow-100,000 shares, Michael Astor-131,250 shares, and
Susan Astor-131,250 shares. Such options will vest on December 31, 1996.
As of November 30, 1995, the options had not been issued.

8. EMPLOYMENT AGREEMENTS

In December 1988, the Company entered into separate five-year employment
agreements with Fred Jaroslow, Susan Astor and Michael Astor which became
effective upon the closing of the Initial Public Offering in March 1990.

On October 22, 1993, the employment agreements of Michael and Susan Astor
(also directors of the Company) were amended to provide that their
employment shall continue until December 31, 1996. The terms of such
agreements are renewable for one year periods subject to the approval of
the board of directors of the Company. During the first two years of their
agreements, the officers were entitled to receive salaries at a combined
amount of $245,000. Each officer is to receive a ten percent increase
during the third year.

All such employment agreements provide for payments to the respective
officers upon the termination of their employment by the Company without
cause. While such officers are not currently receiving salaries at the
rates provided in the employment agreements, to the extent not paid, Mr.
and Mrs. Astor's salaries are currently being accrued. Mr. Jaroslow

F-14

<PAGE>

has agreed to waive his unpaid salary and accrued vacation as of November
30, 1994. Mr. and Mrs. Astor have agreed to waive accrued vacation as of
November 30, 1995. Such employment agreements will terminate upon closing
of the Asset Sale and, to the extent not paid prior to closing, all accrued
salaries and vacations shall be waived.

A consulting agreement has been entered into with Mr. Fred Jaroslow which
becomes effective upon the termination of his employment agreement. The
consulting agreement will continue for a period of one-half the length of
his services under his employment agreement, described above which period,
however, will not exceed five (5) years. The maximum amount payable under
the consulting agreement will be $56,000 annually. Mr. Jaroslow has agreed
to waive all unpaid salary and accrued vacation under this agreement.

9 CONSULTING AGREEMENTS

On December 16, 1991, the Company entered into a consulting agreement with
Palmer & Moore Ltd., a New York corporation, in which Robert M. Rubin is
the sole shareholder. The consulting services were to assist the Company
in formulating an acquisition strategy, seek out potential acquisition
candidates, negotiate the transaction and assist in the financing
associated with it. The agreement terminated December 16, 1994.

As full compensation for the services, the Company issued 200,000 common
shares to be held in escrow in the year ended November 30, 1992. The
shares were released from escrow, as agreed upon, 100,000 on December 16,
1992 and 100,000 on December 16, 1993. The consultant agreed to pay $200
for these shares. Pursuant to valuation regulations promulgated by the
Securities and Exchange Commission, the fair market value of such shares
was determined to be $200,000 and was charged to operations on a quarterly
basis over a two year period ending November 30, 1994.

Pursuant to the terms of the Letter Agreement (as defined in footnote 11),
the Company entered into a consulting agreement with Bernard Tessler,
effective January 1, 1995, pursuant to which Mr. Tessler agreed to provide
consulting services during 75% of his full working time for a fee of
$75,000 per annum through February 28, 1995 and to provide consulting
services during 20% of his full working time for a fee of $25,000 per annum
from March 1, 1995 through December 31, 1997. Pursuant to the terms of the
Second Letter Agreement, Mr. Tessler agreed, among other things, to release
the Company from all payment obligations arising under this consulting
agreement in consideration for a payment of $6,200.

10. WARRANTS

In March 1990, the Company closed its initial public offering of 2,500,000
units, each consisting of one common share and one common share purchase
warrant. Each common

F-15

<PAGE>

share purchase warrant entitles the warrant holder to purchase one common
share at $1.25 per share until January 16, 1993. In addition, the Company
received $40 from the Underwriter for the Underwriter's purchase of 40,000
shares of common stock of the Company. The Board of Directors has extended
the expiration date of the outstanding warrants until January 16, 1996 with
all original terms of exercise in effect.

11. COMMITMENTS AND CONTINGENCIES

As a condition to Mr. Rubin's agreement to make a previously described loan
to the Company, on April 13, 1994 the Company entered into an Agreement and
Plan of Reorganization (the "Reorganization Agreement") with Kids N
Things, Inc., a newly formed Delaware corporation wholly-owned by Mr..
Rubin, Bernard Tessler and Jerome Feldman for the sole purpose of
facilitating the merger.

Pursuant to the terms of a letter of agreement dated November 18, 1994 (the
"Letter Agreement") among the Company and each of Michael Astor, Susan
Astor and Fred Jaroslow, in their individual capacities, and Lawrence E.
Kaplan, Stanley Kaplan and Mr.. Rubin (the "Investors"), the Company agreed
to: (I) cause the Board of Directors of each of the Company and Kid N
Things to terminate the Reorganization Agreement; (ii) issue 1,500,000
shares of Common Stock to Bernard Tessler in consideration of the payment
of $2,000 and past services rendered to the Company (reduced to 750,000
shares in April 1995); (iii) elect each of Messrs.. Lawrence E. Kaplan,
Rubin and Andrew Kaplan (the son of Stanley Kaplan) to fill three vacancies
on the Board of Directors caused by the resignations of Messrs. Tessler,
Baird and Horovitz; (iv) issue an aggregate of 100,000 shares of Common
Stock to Jerry Feldman in consideration of the payment of $100 and past
services rendered to the Company, (v) issue an aggregate of 3,249,996
shares of Common Stock to Messrs. Andrew Kaplan (as Stanley Kaplan's
designee), Lawrence E. Kaplan, and Rubin in consideration of the payment of
an aggregate of $4,200, past financial consulting services rendered and the
joint and several agreement among the Investors to make available to the
Company a $275,000 line of credit (the "Line of Credit"); and (vi) 400,000
shares of Common Stock to Mr. Rubin in consideration of the payment of $400
and his agreement to waive any and all defaults by Playorena to make
current interest payments through the maturity date arising under the Note.
The 5,250,000 shares of common stock to be issued to Mr. Tessler pursuant
to the Letter Agreement were reduced by 750,000 shares pursuant to a
subsequent letter agreement between the Company and Mr. Tessler dated April
10, 1995, wherein Mr. Tessler agreed, among other things, to reduce the
total number of shares of common stock to be issued to him from 1,500,000
to 750,000. The total number of shares now required to be issued pursuant
to the Letter Agreement is 4,500,000. Issuance of the 4,500,000 shares
required to be issued pursuant to the Letter of Agreement will result in
substantial dilution of the interests of the current shareholders of the
Company.

F-16

<PAGE>

PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits.

3.1 Certificate of Incorporation, as amended - incorporated by reference
to Exhibit 3.1 to Registration Statement on Form S-18 (SEC File No.
33-29561-NY)

3.2 By-Laws - incorporated by reference to Exhibit 3.2 to Registration
Statement on Form S-18 (SEC File No. 33-29561-NY)

4 1989 Incentive Stock Option Plan - incorporated by reference to
Exhibit 4.3 to Registration Statement on Form S-18 (SEC File No.
33-29561-NY)

10.1 Amended and Restated Employment Agreement between Company and Fred
Jaroslow - incorporated by reference to Exhibit 10.1 to Registration
Statement on Form S-18 (SEC File No. 33-29561-NY)

10.2 Amended and Restated Employment Agreement between Company and Susan
Astor - incorporated by reference to Exhibit 10.2 to Registration
Statement on Form S-18 (SEC File No. 33-29561-NY)

10.2(a) Amendment to Employment Agreement between Company and Susan Astor
(Annual Report on Form 10-KSB for fiscal year ended 11/30/93)

10.3 Amended and Restated Employment Agreement between Company and Michael
Astor - incorporated by reference to Exhibit 10.3 to Registration
Statement on Form S-18 (SEC File No. 33-29561-NY)

10.3(a) Amendment to Employment Agreement between Company and Michael Astor
(Annual Report on Form 10-KSB for fiscal year ended 11/30/93)

10.4 Office Lease (Annual Report on Form 10-KSB for fiscal year ended
11/30/93)

10.5 Form of Franchise Agreement - incorporated by reference to Exhibit
10.6 to Registration Statement on Form S-18 (SEC File No. 33-29561-NY)

10.6 Master Franchise Agreement dated as of November 30, 1989, between the
Company and Horikawa Sangyo Kabushiki Kaisha - incorporated by
reference to Exhibit 10.8 to Registration Statement on Form S-18
(SEC File No. 33-29561-NY)

28
<PAGE>

10.7 Consulting Agreement dated December 16, 1991 between the Company and
Palmer & Moore Ltd. - incorporated by reference to Exhibit 10.8 to
1991 Annual Report on Form 10-K (SEC File No. 0-18412)

10.8 Revolving 10% Promissory Note (Annual Report on Form 10-KSB for fiscal
year ended 11/30/93)

10.9 Form of Agreement and Plan of Reorganization between the Company and
Kids 'N Things' Inc. (Annual Report on Form 10-KSB for fiscal year
ended 11/30/93)

10.10 Management Agreement, dated November 9, 1993 between the Company and
Bernard Tessler (Annual Report on Form 10-KSB for fiscal year ended
11/30/93)

10.10(a) Amendment to Management Agreement, dated January 20, 1994 between the
Company and Bernard Tessler (Annual Report on Form 10-KSB for fiscal
year ended 11/30/93)

10.11 Letter Agreement dated November 18, 1994 (Annual Report on Form 10-KSB
for fiscal year ended 11/30/94).

10.11(a) Amendment to Letter Agreement dated April 10, 1995.

10.13 Asset Purchase Agreement dated as of March 31, 1995 (Quarterly Report
on Form 10-QSB for fiscal quarter ended February 28, 1995).

(b) Reports on Form 8-K.

The Company did not file any Current Reports on Form 8-K during the
last fiscal quarter of 1995.

29
<PAGE>
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized this 30th
day of July, 1996.

PLAYORENA INC.

By:/s/ SUSAN ASTOR
-----------------------
Susan Astor, President

Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons in the
capacities and on the dates indicated:

SIGNATURE TITLE DATE
--------- ----- ----

/s/ MICHAEL ASTOR Vice President and Chief July 30, 1996
- ---------------------------- Operating Officer
Michael Astor (principal, financial
and accounting officer)
and Director

/s/ SUSAN ASTOR
- -----------------------------
Susan Astor President and Director July 30, 1996

<PAGE>
GENERAL RELEASE

To all to whom these Presents shall come or may Concern, Know That BERNARD
TESSLER, an individual residing at __________________________, as RELEASOR, in
consideration of the sum of SIX THOUSAND TWO HUNDRED DOLLARS ($6,200.00),
received from PLAYORENA INC, a New York corporation, as RELEASEE, receipt
whereof is hereby acknowledged, agrees to transfer to RELEASEE 750,000 shares
of common stock of Playorena Inc. registered in the name of Releasor and
further releases and discharges RELEASEE, and RELEASEE'S successors and assigns,
from any obligation from all actions, suits, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, contracts,
controversies, agreements, promises, variances, trespasses, damages, judgements,
extents, executions, claims, and demands whatsoever, in law, admiralty or
equity, which against the RELEASEE, RELEASOR and/or RELEASOR's heirs, executors,
administrators, successors and assigns ever had, now have or hereafter can,
shall or may, have for, upon, or by reason of any matter, cause or thing
whatever from the beginning of the world to the day of the date of this RELEASE.
RELEASEE (INCLUDING PLAYORENA INC AND ITS INVESTORS) AGREES TO MUTUALLY RELEASE
AND DISCHARGE RELEASOR FROM ALL OBLIGATIONS AND AGREES TO ISSUE AS AGREED A
TOTAL OF 1,500,000 SHARES OF COMMON STOCK OF PLAYORENA TO RELEASOR OF WHICH
750,000 WILL BE TRANSFERRED AS ABOVE.

The words "RELEASOR" and "RELEASEE" include all releasors and all releasees
under this RELEASE.

The RELEASE may not be changed orally.

IN WITNESS WHEREOF, the RELEASOR has caused this RELEASE to be executed on
the 10th day of APRIL, 1995.

In presence of

/s/Bernard Tessler
-------------------------
Bernard Tessler

/s/Michael Astor
-------------------------
Michael Astor
for Playorena Inc.

STATE OF )
)ss.:
COUNTY OF )

On _____________, 1995 before me, personally came Bernard Tessler to me
known, who, by me duly sworn, did depose and say that deponent resides at
______________________________ and that deponent executed the above release.

_________________________
Notary Public