PLAYORENA INC, 10KSB, 1997-11-21

PLAYORENA INC
10KSB, 1997-11-21
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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from............ to ............

Commission File number 0-18412

PLAYORENA INC.
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(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
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number: (516) 883-7529
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 1996)
------------------------------------------------------
(Title of class)

Check whether 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 No X

Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not 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: $340,439.

State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of the date hereof, there is no public market for the issuer's
securities.

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(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of October 15, 1997, the
number of shares of common stock outstanding was 12,762,910.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

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PART I

ITEM 1. DESCRIPTION OF BUSINESS.

Playorena Inc. (the "Company") was incorporated in the State of New York in
1981 and currently owns and operates centers that offer recreational play and
exercise programs for children between three months and four years of age, but
as indicated below, the Company will shortly consummate the sale of the assets
comprising this business. 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 $584,110.
Since the Company had been unable to raise the required capital to continue
operating in its present form, the Company decided to divest all of its
operations.

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 formed by Mr. and Mrs. Astor (the
"Purchaser") 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 (the "Playorena Assets"), 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.
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 was a condition precedent
(the "Asset Sale"). The assets to be transferred and the liabilities to be
assumed had an approximate value of $277,000 and $478,000, respectively, at
November 30, 1995 and $131,000 (which the Company has written off as of November
30, 1996) and $481,000, respectively, at November 30, 1996. As indicated below,
this shareholder approval was obtained in February 1997 and the Asset Sale is
expected to be consummated in November 1997.

The terms of the Agreement were negotiated on behalf of the Company by
Robert M. Rubin

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beginning in April 1995. Mr. Rubin owns 2,723,334 shares of Common Stock of the
Company, representing 21.34% 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
has not had 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.
Pursuant to the terms of the Agreement, Mr. Rubin is required, as the Company's
only secured creditor, 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, 1996, the Company has net operating loss carry
forwards of approximately $5,600,000 that expire between 1998 and 2010, 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) plus accrued interest, estimated at $209,420 at
November 30, 1996 (these liabilities are expected to be converted into equity of
the Company);

(ii) liabilities owed to certain professionals who have provided services
to the Company, plus other liabilities all aggregating approximately $152,000 at
November 30, 1996;

(iii) claims made against the Company by shareholders of the Company, none
of which are presently pending or, to the Company's knowledge, threatened;

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

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

The financial statements included in this report indicate that 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 $1,718,375, 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

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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.

The Company has written off all the remaining assets of the discontinued
business, consisting mainly of the undepreciated cost of play equipment, at
November 30, 1996. Such write off totaled approximately $131,000 and is
included with the estimated loss on disposal of the discontinued operations.
Liabilities of the discontinued business consist of accounts payable and accrued
expenses aggregating $481,217. The Company will remain contingently liable to
the extent that assumed liabilities are not satisfied. In this regard, the
Company has not recognized any gain at November 30, 1996 for the impending
assumption of these liabilities. Revenues of discontinued business were
$340,439 and $453,458 in the fiscal years ended November 30, 1996 and 1995,
respectively.

Although the Agreement provides for the assumption by the Purchaser and,
indirectly, by Mr. and Mrs. Astor personally, of significant liabilities of the
Company, the Company will remain contingently responsible for the satisfaction
of such liabilities and there can be no assurance that such liabilities will be
satisfied. The Purchaser was formed by Mr. and Mrs. Astor for the purpose of
acquiring the Playorena Assets and continuing the business on a significantly
smaller scale. Neither the Purchaser nor Mr. Astor will 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 believed it to be in the Company's best interest to reverse split the
15,000,000 shares of Common Stock to be outstanding immediately subsequent to
the Asset Sale (including 3,278,890 pre-split shares to be issued prior to the
closing to Messrs. Rubin, Lawrence Kaplan and Jaroslow in consideration for
their lending the Company an aggregate of $140,333, see "Additional Loans From
Affiliates of the Company") 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. 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. The Company
currently has no understandings, agreements, plans or commitments that would
involve the issuance of additional shares of Common Stock. This reverse split
also was approved by the shareholders of the Company in February 1997.

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.

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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 did not retain an independent
financial advisor to pass upon the fairness of the Agreement.

On February 7, 1997, a meeting of shareholders of the Company was held at
which the Agreement and the reverse stock split were approved by a vote of the
Company's shareholders. The aforementioned conditions to the Agreement have
been approved and ratified.

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

The Company is currently in the process of consummating the Asset Sale,
which is expected to be completed in November, 1997.

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. As indicated above, the loan is secured
by a continuing security interest in all of the assets of the Company.

Advances made pursuant to the Note were due to be repaid on September 30,
1995 and were not paid. The Company is in default of this Note as of November
30, 1995. 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. As part of the Asset Sale, Mr. Rubin will
release this security interest. Mr. Rubin has verbally agreed to accept an
aggregate of 1,905,922 shares (subsequent to the reverse stock split) of Common
Stock as payment in full for such indebtedness to be issued upon consummation of
the Asset Sale.

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 then directors of the Company and the father of a
principal shareholder of the Company in the following amounts: (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 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.

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Such shares will be issued simultaneously upon receipt of the shares to be
delivered to the Company by Mr. and Mrs. Astor at the closing of the Asset Sale.

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 then director (and
current nominee for 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.

These lenders have verbally agreed to accept an aggregate of 1,381,136
shares (subsequent to the reverse stock split) of Common Stock as full payment
for such indebtedness, to be issued upon consummation of the Asset Sale.

LIQUIDITY AND CAPITAL RESOURCES

At November 30, 1996, the Company had a working capital deficit of
$1,718,375 compared to a working capital deficit of $1,390,716 at November 30,
1995. Management has been attempting to reverse this downward trend in its
discontinued operations to be disposed of in the near future 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.

Based upon the 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 $875,333 (all of
which shall be converted into shares of Common Stock as indicated above), 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 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.

TERMINATION OF PLAN OF REORGANIZATION, ISSUANCE OF SHARES AND

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LINE OF CREDIT

As a condition to Mr. Rubin's agreement to make the above described loan to
the Company pursuant to the Note, 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 a merger of such entity with the Company ("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 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 the Company 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 (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 required to be issued pursuant to the Letter
Agreement is 4,500,000. These shares were issued in September 1996.

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 had agreed to resign upon the earlier of repayment of all outstanding

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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.
These lenders have verbally agreed to accept an aggregate of 5,555,965 shares
(subsequent to the reverse stock split) of Common Stock as full payment for such
indebtedness and certain services which have been provided by such individuals,
to be issued upon consummation of the Asset Sale.

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 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, which payment has been made.

OPERATIONS TO BE DISCONTINUED

THE PLAYORENA CENTERS

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The Company opened its first two centers in 1982 and, as of the date of
this Annual Report, operates 9 centers in New York. The Company did not add any
centers in fiscal 1996. Revenues from classroom fees generated by Company-owned
centers were $340,439 in fiscal 1996, representing a decrease of $113,019 from
classroom fees generated in fiscal 1995.

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, 5 of which are now being operated by 2 franchisees -- 4
in Japan, and 1 in Korea. 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 in the United States 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 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

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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.

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, 1996, the Company registered approximately 2500 enrollments in its
programs. During its last three sessions (Spring 1996, Fall 1996 and Winter
1996/97) the Company's 9 owned centers averaged an enrollment of approximately
80 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.

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.

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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 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. The trademarks and
registrations will be assigned to the acquiror as part of the Asset Sale.

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 an office manager and 10 part-time facilitators working at the Company's
9 centers.

Each class is conducted by a trained facilitator. Facilitators are
recruited through

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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.

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 was $38,000 from December 1995 through
September 30, 1996, when the lease expired. The lease was renewed for three
years at an annual rental equal to $45,600 from October 1, 1997 through
September 30, 1998 and $4,800 from October 1, 1998 through September 30, 1999.
The Lease will be assigned as part of the Asset Sale.

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.

13
<PAGE>

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.

In the fourth quarter of the fiscal year ended November 30, 1996 there was
no submission of matters to a vote of security holders.

On February 7, 1997, as indicated above, a special meeting was held at
which the following matters were approved by the vote of the Company's
shareholders.

(i) Adoption by more than two-thirds of the shareholders of the proposal
of sale by the Company of substantially all of its assets to an entity formed by
Michael and Susan Astor, in exchange for the transfer to the Company of
1,041,800 shares of Common Stock of the Company representing all of the capital
stock of the Company owned by Mr. and Mrs. Astor and the assumption by the
entity formed by the Astors of certain liabilities, and approval of a twenty to
one reverse stock split of the outstanding shares of the Company's Common Stock
and designation of new Directors to replace the Astors as officers and
directors of the Company.

(ii) Ratification of the selection of Feldman & Radin as independent
auditors.

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
Company's inclusion on the OTC Bulletin Board.

The Company's Common Stock and Warrants were originally quoted on the
NASDAQ system (known as the "NASDAQ Stock 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 Stock Market
due to the Company's inability to meet certain then newly established criteria
imposed by the NASD for continued inclusion in the NASDAQ Stock Market.
Specifically, the Company did not meet the requirement of shareholders' equity
of $1,000,000.

14
<PAGE>

Upon the NASD's determination of the Company's ineligibility, the Company's
securities 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 October 15, 1997, the quoted bid price of the Company's Common Stock was
$.001per share and the asked price was $.05 per share. On the day immediately
preceding the Company's public announcement of its intention to proceed with the
Asset Sale, the quoted bid price of the Company's Common Stock was $.001 and the
asked price was $.05 per share.

The following tables set forth the high and low closing bid and ask
quotations for each fiscal quarter of 1996 and for each fiscal quarter of 1995
and 1994, with respect to the Common Stock and Warrants as reported by NASD and
quoted on the NASDAQ Stock Market. The prices shown in the tables reflect
inter-dealer 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 September 26, 1997, there were approximately 94 holders of record and
the Company believes that there are in excess of 700 beneficial holders of the
Common Stock.

Common Stock,
.001 par value

BID ASK

Period HIGH LOW HIGH LOW

1996
- -----

First Quarter $.001 $.001 $.05 $.05
(December 1995
through February)

Second Quarter $.001 $.001 $.05 $.05
(March through May)

Third Quarter $.01 $.001 $.05 $.05
(June through August)

15
<PAGE>

Fourth Quarter $.001 $.001 $.05 $.05
September through
November)

1995
- -----

First Quarter $.125 $.01 $.5 $.06
(December 1994
through February)

Second Quarter $.02 $.01 $.10 $.06
(March through May)

Third Quarter $.02 $.01 $.10 $.05
(June through August)

Fourth Quarter $.02 $.001 $.05 $.04
(September through
November)

1994
- -----

First Quarter $.25 $.01 $.625 $.25
(December 1993
though February)

Second Quarter $.3125 $.0625 $.625 $.375
(March through May)

Third Quarter $.125 $.0625 $.625 $.375
(June through August)

Fourth Quarter $.125 $.0625 $.5 $.25
(September
through November)

16
<PAGE>

WARRANTS
--------
CLOSING BID CLOSING ASK
----------- -----------

PERIOD HIGH LOW HIGH LOW
---- --- ---- ---
1996

First Quarter $.01 $.001 $.20 $.02
(December 1995
through
February 20, 1996)

1995
- -----

First Quarter
(December 1994
through February) $.01 $.001 $.20 $.02

Second Quarter $.001 $.001 $.05 $.02
(March through May)

Third Quarter $.001 $.001 $.05 $.02
(June through August)

1994
- -----

First Quarter
(December 1993
through February) $.3125 $.02 $.21875 $.10

Second Quarter $.0625 $01 $.52 $.10
(March through May)

Third Quarter $.03125 $.005 $.20 $.10
(June through August)

Fourth Quarter $.01 $.005 $.20 $.05
(September through
November)

17
<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 of
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 1996 AND FISCAL 1995

During the fiscal year ended November 30, 1996, revenues of discontinued
business decreased to $340,439 from $453,458 in fiscal 1995.

The Company has significantly decreased the number of locations by
terminating many locations in the United States.

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.

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, 1996, the Company had a working capital deficit of
$1,718,375 compared to $1,390,716 at November 30, 1995. 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.

18
<PAGE>

MANAGEMENT'S PLAN OF OPERATION

Management of the operations to be sold continues to believe that the
Playorena program can operate more profitably within a different form of
environment than that in which its program 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 enjoy
more promotional benefits from cross-marketing with the host, and that
relationship could enable each party to provide mutually beneficial services to
the other. Fixed, established locations could provide a more conducive
environment and greater visibility than the current placement of the program
within school, religious and other community based locations on a floating basis
(e.g., different classes being offered in different locations and on changing
schedules). Management believes that operating in such locations would increase
enrollments in the Playorena program, with reduced operating and marketing
costs. Although management has actively sought such outlets, the program has
not yet been operated in any such environment and there can be no assurance that
the Playorena program would work as contemplated or that any such outlets would
be willing to locate a Playorena program at its facility.

Following the Asset Sale, the Company intends to seek financing to fund its
operations going forward. There can be no assurance that the Company will be
successful in its efforts. Without such additional capital, it is unlikely the
Company will be able to fund its operations after the Asset Sale.

ITEM 7. FINANCIAL STATEMENTS

[Remainder of page intentionally left blank.]

19
<PAGE>
PLAYORENA, INC.

INDEX TO FINANCIAL STATEMENTS
------------------------------

PAGE

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

Balance sheet as of November 30, 1996...................................... F-3

Statements of operations for the years
ended November 30, 1996 and 1995....................................... F-4

Statement of changes in shareholders'
equity (deficiency) for the years ended
November 30, 1996 and 1995............................................. F-5

Statements of cash flows for the years
ended November 30, 1996 and 1995....................................... F-6

Notes to financial statements.............................................. F-7

F-1
<PAGE>

[LETTERHEAD OF FELDMAN RADIN & CO., P.C.]

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, 1996, and the related statements of operations, shareholders'
deficiency and cash flows for the years ended November 30, 1996 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Playorena, Inc. as
of November 30, 1996, and the results of its operations and cash flows for the
years ended November 30, 1996 and 1995, 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.
-------------------------------
Feldman Radin & Co., P.C.
Certified Public Accountants

New York, New York
March 31, 1997

F-2
<PAGE>

PLAYORENA INC.

BALANCE SHEET

NOVEMBER 30, 1996

ASSETS

$ -
============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

CURRENT LIABILITIES:
Notes payable $ 875,333
Liabilities of discontinued operations 481,217
Accrued expenses 361,825
------------
TOTAL CURRENT LIABILITIES 1,718,375

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY (DEFICIENCY):
Common stock, $ .001 par value;
15,000,000 shares authorized,
12,762,910 shares issued and outstanding 12,763
Additional paid-in-capital 4,130,283
Accumulated deficit (5,861,421)
------------
TOTAL SHAREHOLDERS' DEFICIENCY (1,718,375)
------------
$ -
============

See Notes to Financial Statements

F-3
<PAGE>

PLAYORENA INC.

STATEMENT OF OPERATIONS

Years ended November 30,
------------------------------
1996 1995
----------- -----------

EXPENSES:
General and administrative $ 51,301 $ 23,133
Non-cash stock compensation 45,000 -
Interest expense 91,704 86,710
----------- -----------
TOTAL EXPENSES 188,005 109,843
----------- -----------

LOSS FROM CONTINUING OPERATIONS (188,005) (109,843)
----------- -----------

LOSS FROM DISCONTINUED OPERATIONS:
Loss from discontinued operations - (227,697)
Loss on disposal, including provision
for losses of $133,611 during
phase-out period (184,653) (246,570)
----------- -----------

TOTAL LOSS FROM DISCONTINUED OPERATIONS (184,653) (474,267)
----------- -----------

NET LOSS $ (372,658) $ (584,110)
=========== ===========

NET LOSS PER SHARE:
Continuing operations $ (0.02) $ (0.01)
Discontinued operations (0.06) (0.06)
----------- -----------

NET LOSS PER SHARE $ (0.08) $ (0.07)
=========== ===========

WEIGHTED AVERAGE SHARES USED IN COMPUTATION 9,762,910 8,262,910
=========== ===========

See Notes to Financial Statements

F-4
<PAGE>

PLAYORENA INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIENCY)

<TABLE>
<CAPTION>
Common Stock
----------------------- Additional Accumulated
Shares Amount Paid-in Capital Deficit Total
----------------------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, November 30, 1994 8,262,910 $ 8,263 $ 4,089,783 $ (4,904,652) $ (806,606)

Net loss - - - (584,110) (584,110)
---------- ---------- ----------- ------------ ------------

Balance, November 30, 1995 8,262,910 8,263 4,089,783 (5,488,762) (1,390,716)

Stock issued for services 4,500,000 4,500 40,500 45,000

Net loss - - - (372,658) (372,658)
---------- ---------- ----------- ------------ ------------
Balance , November 30, 1996 12,762,910 $ 12,763 $ 4,130,283 $ (5,861,420) $ (1,718,374)
========== ========== =========== ============ ============
</TABLE>

See Notes to Financial Statements.

F-5
<PAGE>

PLAYORENA INC.

STATEMENT OF CASH FLOWS

Years ended November 30,
------------------------------
1996 1995
----------- -----------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (372,658) $ (584,110)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 61,292 51,795
Non-cash stock compensation 45,000 -
Gain (loss) on sale of equipment (84,079) 2,219
Change in operating assets and liabilities 271,037 315,372
----------- -----------

CASH USED IN OPERATING ACTIVITIES (79,408) (214,724)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of equipment 84,079 70,742
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES 84,079 70,742
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayment of) debt financing (6,000) 151,333
Decrease of capital lease obligations - (8,966)
----------- -----------

CASH PROVIDED BY FINANCING ACTIVITIES (6,000) 142,367
----------- -----------

NET INCREASE (DECREASE) IN CASH (1,329) (1,615)

CASH AT BEGINNING OF YEAR 1,329 2,944
----------- -----------

CASH AT END OF YEAR $ - $ 1,329
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,489 $ 2,489
=========== ===========

See Notes to Financial Statements.

F-6

<PAGE>

PLAYORENA, INC.

NOTES TO FINANCIAL STATEMENTS

NOVEMBER 30, 1996

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.

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-7
<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) loans owed to certain affiliates of the Company, including Mr.
Rubin, in the aggregate principal amount of $875,333 plus accrued
interest, estimated at $309,420 at November 30, 1996;

(ii) liabilities owed to certain legal and accounting professionals
who have provided services to the Company, plus sundry other
liabilities, all aggregating approximately $152,000 at November 30,
1996;

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

(iv) 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
$1,237,158, 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.

On February 7, 1997, a meeting was held at which the Agreement was approved
by the vote of the Company's shareholders.

The Company has written off all the remaining assets of the discontinued
business, consisting mainly of the undepreciated cost of play equipment, at
November 30, 1996. Such write off totaled approximately $131,000 and is
included with the estimated loss on disposal of the discontinued
operations. Liabilities of the discontinued business consist of accounts
payable and accrued expenses aggregating $481,217. The Company will remain
contingently liable to the extent that assumed liabilities are not
satisfied. In this regard, the Company has not recognized any gain at
November 30, 1996 for the impending assumption of these liabilities.

F-8
<PAGE>

Revenues of the discontinued business were $340,439 and $453,458 in the
fiscal years ended November 30, 1996 and 1995, 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.

There was negative working capital of $1,718,375 at November 30, 1996,
and negative cash flows from operating activities of $79,408 for the
year then ended.

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) 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.

(c) Earnings (Loss) Per Share - The computation of earnings (loss) per
common share is based on the weighted average number of common shares
outstanding during the period.

(d) Accounting Estimates - The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that effect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
period. Actual results could differ from those estimates.

(e) Stock Based Compensation - The Company accounts for stock transactions
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees". In accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation", the
Company has adopted the pro forma disclosure requirements of this
statement. Such adoption did not have a material effect on the
financial statements.

(f) Impairment of Long-Lived Assets - The Company has adopted Statement of

F-9
<PAGE>

Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" as
of January 1, 1996. Such adoption did not have a material effect on
the financial statements.

3. ACCRUED EXPENSES

Following is a summary at November 30, 1996:

Interest $ 209,420
Other 152,405
------------
$ 361,825
============

4. NOTES PAYABLE

Following is a summary of the balance of notes payable at November 30,
1996:

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
------------
$ 875,333
============

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

F-10
<PAGE>

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 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. INCOME TAXES

The Company has available net operating loss carry forwards for federal
income tax purposes of approximately $5,600,000 that expire from 1998
through 2010. 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.

6. 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

F-11
<PAGE>

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 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, 1996, the options had not been issued.

7. 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

F-12
<PAGE>

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 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.

8. 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.

9. WARRANTS

F-13
<PAGE>

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 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.

10. 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. Pursuant to the Letter Agreement, on September 6, 1996, the
Company issued 4,500,000 shares. Such shares were valued at $45,000, the
estimated fair value, resulting in non-cash compensation of this amount.

F-14

<PAGE>

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.

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 48 President and Director 1981
Michael Astor 52 Vice President, Chief 1983
Operating Officer, Chief
Financial Officer, Treasurer
and Director

20
<PAGE>

Lawrence E. Kaplan 54 Nominee (Director) N/A
Robert Rubin 57 Nominee (Director) N/A
Alfred Romano 59 Nominee (Director) N/A

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 and will remain a director until
consummation of the Asset Sale.

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 and
will remain a director until consummation of the Asset Sale.

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. Mr. Kaplan is a director of American United Global, Inc. He
is also a director of Andover Equities, Inc. and the Park Group, Ltd., both of
which are public shell companies. He also is a registered representative and
sole shareholder, officer and director of G-V Capital Corp., an NASD and
SEC-registered broker/dealer engaged in private placements and other offerings.

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,
an American Stock Exchange listed company, is

21
<PAGE>

engaged in providing home care and institutional staffing services and health
care management services. Mr. Rubin is also a director, Chairman and minority
stockholder of American United Global, Inc. ("AUG"), a public company which,
through its public company subsidiary Western Power & Equipment Corp.
("Western"), engaged in the distribution of construction equipment principally
manufactured by Case Corporation and, through its subsidiaries ConnectSoft
Holding Corp. ("ConnectSoft") and eXodus Technologies, Inc. ("eXodus") is
engaged in providing communications software applications and services relating
to the Internet. Mr. Rubin serves as Chairman of the Board of Directors of
Western, the Chairman, CEO and Director of eXodus, and as a Director of
ConnectSoft. 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 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 Korrs 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, 1996, the Board of Directors held
no meetings at which all of the directors were not present. Directors do not
receive compensation for their services in such capacity. The Board of Directors
does not presently have 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

22
<PAGE>

of the Company and the newly elected Board of Directors, comprising of Lawrence
E. Kaplan, Robert M. Rubin and Alfred Romano, 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

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, 1996.

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 1996 in excess of
$100,000.

SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION

Other
Name and Annual Other
Principal Position Year Salary Comp Compensation
- ------------------ ---- ------ ------ ------------
Fred Jaroslow, 1995 -- -- --
Former

23
<PAGE>

Chairman, Chief
Executive Officer, 1994 $12,946 -- --
Executive Vice
President and 1993 $24,092 -- --
Secretary*

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

* This amount does not include perquisites 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.

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. These options will be terminated upon the Asset Sale.

AGGREGATE OPTION EXERCISES

The following table shows stock options exercised by executive officers
during 1996, 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, 1996. 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

<TABLE>
<CAPTION>
No. of Shares Covered
by Unexercised
Options at
11/30/96

Shares Acquired Value Not
Name On Exercise Realized Exercisable(1) Exercisable(2)
- ---- --------------- -------- -------------- --------------
<S> <C> <C> <C> <C>
Fred Jaroslow --- --- 100,000(3) 100,000(3)
Susan Astor --- --- 50,000(3) 131,250(3)
Michael Astor --- --- 50,000(3) 131,250(3)

</TABLE>

24
<PAGE>

(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.

(3) All of these options will be terminated upon consummation of the Asset
Sale.

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, 1996. 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 compensation under this agreement, and
his compensation is not being accrued. Mr. Jaroslow has agreed to waive all
unpaid compensation under this agreement

25
<PAGE>

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"). 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 $6,200.00.

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.

26
<PAGE>

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 October 15, 1997, 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.

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

Susan Astor 543,400(2)(3) 4.3%
22 Manhasset Avenue
Port Washington, NY 11050

Michael Astor 498,400(2)(3) 3.9%
22 Manhasset Avenue
Port Washington, NY 11050

Fred Jaroslow 1,178,888(2) 9.2%
22 Manhasset Avenue
Port Washington, NY 11050

Lawrence E. Kaplan(4) 1,094,444 8.6%
150 Motor Parkway
Suite 311
Hauppauge, NY 11788

Robert M. Rubin(4) 2,723,334 21.3%
6060 Kings Gate Circle
Delray Beach, Florida 33484

27
<PAGE>

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

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

Alfred Romano(4) 11,111 *
4 Wagon Wheel Road
Dix Hills, NY 11746

All directors and officers 1,041,800 8.2%
as a group (only including
Mr. and Mrs. Astor)

*Represents less than a 1% interest

(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 October
15, 1997, there were 12,762,910 shares of Common Stock outstanding.

(2) Does not give 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

28
<PAGE>

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.

(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
each of Lawrence Kaplan and Lawrence K. Fleischman, former directors of the
Company, previously owned 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

29
<PAGE>

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."

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 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 then director of the
Company, all of the units were acquired by unaffiliated persons. These notes
are currently in default and such lenders have verbally agreed to accept an
aggregate of 1,381,136 shares (subsequent to the reverse stock split) of Common
Stock as full payment for such indebtedness, to be issued upon consummation of
the Asset Sale. 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. All three of these individuals
subsequently resigned as directors in and no replacements have 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

30
<PAGE>

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 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 (prior to
the reverse stock split). These shares were issued in September, 1996.

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

31
<PAGE>

Company".

On September 6, 1996, the Board of Directors by unanimous written consent
approved the following: (i) to issue 1,500,000 shares of common stock to
Bernard Tessler in consideration of $2,000; (ii) to issue an aggregate of
100,000 shares of Common Stock to Jerry Feldman in consideration of the payment
of $100; (iii) to issue an aggregate of 3,250,000 shares of Common Stock to
Messrs. Andrew Kaplan and Lawrence Kaplan and Robert Rubin in consideration of
payment of $4,200 in past services rendered and agreement among investors to
make available to the Company $275,000 Line of Credit; (iv) to issue 400,000
shares of common stock to Mr. Rubin in consideration of $400 and his agreement
to waive any defaults by Playorena to make current interest payments through
maturity arising from a Promissory Note; and (i) Mr. Tessler agrees to reduce
total number of shares of Common Stock to be issued to him from 1,500,000 to
750,000; (ii) total number of shares required to be issued to Messrs. Feldman,
Tessler, Rubin, A. Kaplan and L. Kaplan is 4,500,000 (prior to the reverse stock
split). The issuance of such shares occurred in September 1996.

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)

4.0 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 (incorporated by reference to registrant's 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

32
<PAGE>

S-18 (SEC File No. 33-29561-NY)

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

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

10.5 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)

10.6 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)

10.7 Revolving 10% Promissory Note (incorporated by reference to the
registrant's Annual Report on Form 10-KSB for fiscal year ended 11/30/93)]

10.8 Form of Agreement and Plan of Reorganization between the
Company and Kids 'N Things' Inc. (incorporated by reference to the registrant's
Annual Report on Form 10-KSB for fiscal year ended 11/30/93)

10.9 Management Agreement, dated November 9, 1993 between the
Company and Bernard Tessler (incorporated by reference to the registrant's
Annual Report on Form 10-KSB for fiscal year ended 11/30/93)]

10.9(a) Amendment to Management Agreement, dated January 20, 1994
between the Company and Bernard Tessler (incorporated by reference to the
registrant's Annual Report on Form 10-KSB for fiscal year ended 11/30/93)]

10.10 Letter Agreement dated November 18, 1994 (incorporated by
reference to the registrant's Annual Report on Form 10-KSB for fiscal year ended
11/30/94).

10.10(a) Amendment to Letter Agreement dated April 10, 1995
(incorporated by reference to the registrant's Annual Report on Form 10-KSB for
the fiscal year ended November 30, 1995.

10.11 Asset Purchase Agreement dated as of March 31, 1995
(incorporated by reference to the registrant's Quarterly Report on Form 10-QSB
for fiscal quarter ended February 28, 1995).

33
<PAGE>

27.1 Financial Data Schedule

B. REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the
Registrant during the fourth quarter of its last fiscal year.

[Remainder of page intentionally left blank]

34
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

PLAYORENA INC.

Dated: November 18, 1997

By: /s/ Michael Astor
-----------------------------------
Michael Astor, Vice President, Chief
Operating Officer, Chief Financial
Officer and Treasurer (as both a duly
authorized officer of the registrant
and the principal financial officer or
chief accounting officer of the
registrant)

In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

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

/s/ Susan Astor President November 18, 1997
- --------------------- and Director
Susan Astor

/s/ Michael Astor Director November 18, 1997
- ---------------------
Michael Astor

35
<PAGE>

EXHIBIT INDEX

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)

4.0 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 (incorporated by reference to registrant's 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 (incorporated by reference to the registrant's Annual Report on
Form 10-KSB for fiscal year ended 11/30/93)

10.4 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 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)

10.7 Revolving 10% Promissory Note (incorporated by reference to the
registrant's Annual Report on Form 10-KSB for fiscal year ended 11/30/93)]

36
<PAGE>

10.9 Management Agreement, dated November 9, 1993 between the
Company and Bernard Tessler (incorporated by reference to the registrant's
Annual Report on Form 10-KSB for fiscal year ended 11/30/93)]

10.10 Letter Agreement dated November 18, 1994 (incorporated by
reference to the registrant's Annual Report on Form 10-KSB for fiscal year ended
11/30/94).

10.10(a) Amendment to Letter Agreement dated April 10, 1995
(incorporated by reference to the registrant's Annual Report on Form 10-KSB for
the fiscal year ended November 30, 1995.

10.11 Asset Purchase Agreement dated as of March 31, 1995
(incorporated by reference to the registrant's Quarterly Report on Form 10-QSB
for fiscal quarter ended February 28, 1995).

27.1 Financial Data Schedule

<PAGE>
<ARTICLE> 5

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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-01-1995
<PERIOD-END> NOV-30-1996
<CASH> 0
<SECURITIES> 0
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<COMMON> 12,763
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</TABLE>