MULTI MEDIA TUTORIAL SERVICES INC, 10KSB, 1997-06-13

MULTI MEDIA TUTORIAL SERVICES INC
10KSB, 1997-06-13
MOTION PICTURE & VIDEO TAPE PRODUCTION

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For Fiscal Year Ended February 28, 1997 Commission File Number 0-25758
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MULTI-MEDIA TUTORIAL SERVICES, INC.
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(Exact Name of Registrant as Specified in its Charter)

Delaware 73-1293914
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

205 Kings Highway
Brooklyn, New York 11223
- ---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)

Registrant's telephone number,
including Area Code: (718) 234-0404
--------------

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

Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.01 per share)
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Title of Class
Redeemable Warrants
-------------------
Title of Class
Units
-----
Title of Class

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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 ninety (90) days. Yes X No
--- ---

Check if there is no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
registrant's best 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. [ ]

State Issuer's revenues for its most recent fiscal year: $7,890,397

State the aggregate market value of 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: $654,453 as of June 2, 1997.

State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date. As of June 11, 1997, there
were 6,213,297 shares of common stock outstanding.

Documents incorporated by reference: See Index to Exhibits

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FORM 10-KSB REPORT INDEX

PART I

Item 1 Business 1
Item 2 Properties 18
Item 3 Legal Proceedings 18
Item 4 Submission of Matters to a Vote of Security Holders 19

PART II

Item 5 Market Price of Registrant's Common Equity and Related Stockholder Matters 20
Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 21
Item 7 Financial Statements and Supplementary Data 25
Item 8 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 25

PART III

Item 9 Directors and Executive Officers of the Registrant 26
Item 10 Executive Compensation 28
Item 11 Security Ownership of Certain Beneficial Owners and Management 30
Item 12 Certain Relationships and Related Transactions 32
Item 13 Exhibits, Financial Statement Schedules, and Reports on Form 8-K 33
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This document contains certain forward-looking statements that are
subject to certain risks and uncertainties. Forward-looking statements include
certain information relating to trends in the telemarketing industry and the
overall domestic economy, the Company's business strategy including the markets
in which it operates, the services it provides and the customer it targets, the
benefits of certain technologies the Company has acquired, variations in
operating results and the Company's ability to overcome its current liquidity
and working capital deficiencies, as well as information contained elsewhere in
this Report, where statements are preceded by, followed by or include the words
"believes," "expects," "anticipates," or similar expressions. For such
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. The forward-looking statements in this document are subject to the
risks and uncertainties that could cause the assumptions underlying such
forward-looking statements and the actual results to differ materially from
those expressed in or implied by the statements. See "Risk Factors".

The Company has scheduled a special meeting of stockholders for June
13, 1997. At this meeting the stockholders will vote on proposals to amend the
Company's Certificate of Incorporation to effect a one-for-ten reverse stock
split, to thereafter increase the Company's authorized Common Stock to
20,000,000 shares, and to change the Company's name to United Telemarketing
Services, Inc. This annual report on Form 10KSB does not reflect any of the
changes proposed for stockholder action at the special meeting, all of which, if
approved, will be effectuated after the filing of this Report.

PART I

Item 1. BUSINESS

General

The Company produces, acquires and telemarkets a variety of products to
consumers using direct marketing through television, radio and print
advertising. The Company's principal product to date has been proprietary
tutorial education programs on videotape for use by adults and children in
homes, workplaces, schools, libraries and other locales. This principal product
line, which is marketed under the brand Math Made Easy(TM), consists of a series
of over 100 videotapes and supplemental materials on mathematics. The Math Made
Easy(TM) line uses colorful computer graphics and real life vignettes and is the
most complete line of mathematics videotapes available.

The Company specializes in telemarketing generated by its own
television and radio advertisements, which it places on a "direct response"
basis at the lowest available rates. The Company uses different 800 numbers for
each channel on which it advertises, which permits the Company to track the
effectiveness of its advertising. Payment is made by credit card or direct debit
to a checking account. The product is then shipped by a fulfillment house to the
customer. According to Advertising Age of March 1996, the Company was ranked the
19th largest advertiser of brandnames on Cable TV.

The Company's products are sold principally by an internal sales staff
of approximately 108 trained telemarketers, and have been purchased by over
118,000 customers over the last three years. The Company's telemarketing staff
is experienced in converting an individual who is

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inquiring about an advertised product into a customer who will purchase the
product. This expertise, of converting a "call to inquire" into a sale, was
developed as a result of specialized training of telemarketers to sell the Math
Made Easy(TM) product line. See "Sales, Marketing & Distribution."

The Company's objective is expand the scope of its telemarketing
business in a variety of ways. Subject to the availability of additional
financing, the Company intends to expand product offerings for sale to
individual consumers by developing, licensing or acquiring new complementary
educational products. The Company has recently expanded its product offerings to
include three complete new lines, Reading Made Easy(TM), Parenting Made Easy and
ESPN(TM) How-to Sports. These are, or will be, seen on a wide variety of
channels and stations throughout the United States. In addition, subject to the
availability of additional financing, the Company anticipates expanding the
marketing of its products through such efforts as co-branding, joint-marketing
and selling through retail kiosks in shopping malls.

The Company has also begun to expand by offering customized
telemarketing services to companies and institutions who wish to outsource their
telemarketing needs, although these customized services are not yet a material
portion of the Company's business. These companies and institutions can retain
the Company on a project by project basis to take advantage of the Company's
telemarketing expertise and infrastructure instead of having to develop or
support telemarketing in their own operations. The fees for these services are
based on either a per minute charge or a combination of hourly and commission
rate. See "Customized Telemarketing Services."

The Company was incorporated under the laws of the State of Oklahoma in
January 1987 under the name Intechnica Learning Systems, Inc., and was
reincorporated in Delaware in July 1989 when its name was changed to Intechnica
International, Inc. The name of the Company was changed to Multi-Media Tutorial
Services, Inc. in November 1994 shortly after its acquisition of Video Tutorial
Services, Inc. ("VTS"), which is a New York corporation organized in 1985. In
April, 1995, the Company completed its initial public offering ("IPO") of Units
of Common Stock and Warrants, generating net proceeds of $5.8 million.

The Products

The Company's products consist of an extensive line of "Math Made
Easy(TM)", "Reading Made Easy(TM)" and ESPN(TM) How-to Sports videotapes and
ancillary material for direct sale to consumers via direct marketing through
national and local TV and radio advertising. See "Sales Marketing &
Distribution"

Current Products

Math Made Easy(TM) The Company offers over 100 mathematics videotapes
in the Math Made Easy(TM) series. The series, which was developed and produced
by the Company, is geared to students ranging from pre-school to college and
adult education. Topics covered by the series include number concepts, basic
arithmetic, fractions, decimals, percents, word problems, fundamentals of
pre-algebra, algebra, logic, geometry, statistics and probability, pre-calculus
and calculus, trigonometry and advanced calculus. This product line is marketed
by the Company through television and radio advertising with specific "800MATH
telephone numbers directed to

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its telemarketing staff and is also sold directly to schools. The average math
consumer order consists of a set of five educational videotapes at a price of
$200. Sets of five video tapes are sold to schools at a price of $250, and $9.95
per each additional workbook

Reading Made Easy(TM) The Company has also entered into non-exclusive
agreements with various companies to distribute 23 tapes of reading and literacy
educational products as part of its Reading Made Easy(TM) series. The products
include reading readiness, letter identification, grammar, and reading
comprehension which cover topics from preschool through junior high school. The
various titles include videotapes, audiotapes and workbooks and flash cards. The
Company purchases these products at discounted rates from the respective
manufacturers or distributors and distributed through the Company's direct
marketing division. Currently, the Company advertises its Reading Made Easy(TM)
on cable and spot television with specific "800 read" telephone numbers directed
to its trained telemarketing staff. The average reading consumer order consists
of five videotapes at a price of $159.

ESPN How-to Sports The Company entered into an exclusive agreement with
West One Video to distribute a specific line of ESPN sports videos. These videos
are aimed both at the adult and child level, teaching the consumer to perfect
his or her skills at various sports. The Company offers 29 videotapes produced
by ESPN. Professional athletes or coaches teach the fundamentals of their
respective sport. There are 29 tapes covering 17 sports ranging from baseball to
volleyball.

Product Development

The Company produces many of its own math videotape products and
supplemental workbooks by commissioning a curriculum from the Company's
educational coordinators. The Company employs Dr. Meryle Kohn, chairperson of
the mathematics and science departments at New York Institute of Technology, as
its curriculum coordinator and headwriter. The Company's educational writers are
independent contractors retained on a project-by-project basis. Total cost of a
videotape production is approximately $10,000 to $15,000.

Many of the Company's videotapes include colorful computer graphics and
real life vignettes, certain of which are scripted by professional writers. The
curriculum writers seek to augment comprehension of the materials by numerous

examples, which are solved on a step by step basis. The curriculum invites
interaction by requesting the viewer to pause and to solve designated problems
before restarting the videotape to view the step by step solution.

Product Acquisition

In addition to developing its own math product, the Company purchases
or licenses product from third parties, such as the Reading Made Easy(TM) line.
The Company intends to emphasize acquisition of product instead of internal
development because of the lower cost and the greater variety of available
product, as discussed below.

Anticipated Future Products and Services

The launch of new product lines and customized telemarketing services
is subject to the availability of capital to be generated by additional funding.
The potential revenues, costs and

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margins that may be generated by the increased product offerings and
telemarketing services may cause different margins as compared to the historical
margins as a result of different pricing and costs of the acquired product and
services. In addition, the Company anticipates that the initial costs, including
production of commercials or infomercials, initial media buys and training of
the telemarketers will be between $50,000 and $250,000 per product or service.

The Company has entered into a licensing agreement with Cambridge
Educational to direct market a series of 19 videotapes on parenting advice. The
topics assist parents on real life experiences from pre-natal care through
adolescence. This series of videotapes will be marketed under the name
"Parenting Made Easy" through direct telephone contacts and a television
advertisement which is expected to be produced in Winter 1997.

The Company has signed an agreement with Dream Analysis Group, Inc. to
exclusively market a dream analysis product similar to the "Psychic Hotline"
concept. According to an article in Jordan Whitney Inc. Direct Response
Television Monitoring Report of April 1997, the psychic industry is estimated to
be a $300 million industry. This new service may be popular because it is
available to people in the privacy of their own home and is perceived as
substituting for the expensive services of personal psychiatrists,
psychoanalysts and therapists. The agreement calls for the Company to create an
advertisement and to purchase media to attract callers to a 900 telephone number
which will generate revenue for the Company on a per minute basis. The call will
be answered by the Company telemarketers who will be trained in dream analysis
and will discuss the caller's dream. The Company will have access to Dr. Pepsi
Togar, a psychotherapist and author specializing in dreams and dream analysis
who has been featured on such television shows as The Today Show, Maury Povich
and on numerous radio talk shows. The Company will charge the caller's telephone
bill and collect that amount from the long distance carrier. Dream Analysis
Group, Inc. will promote the campaign through various bookings of Dr. Togar as
well as general public relations. The agreement calls for the Company to pay a

royalty based on net cash receipts.

Customized Telemarketing Services

The Company has also begun to expand its telemarketing services by
offering customized telemarketing services to companies and institutions who
wish to outsource their telemarketing needs. These companies and institutions
can retain the Company on a project by project basis to take advantage of the
Company's telemarketing expertise and infrastructure instead of having to

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develop or support telemarketing in their own operations. For example, the
Company has been retained to handle telephone inquiries from potential students
interested in attending St. Johns University as well as to handle telephone
inquiries from potential customers of Windmere Corp. who respond to the
infomercial or 60 second advertisement for Windmere's "Littermaid(TM)" product.
The fees for these services are based on either a per minute charge or a
combination of hourly and commission rate. The Company's telemarketing staff is
trained and experienced in converting an individual who is inquiring about an
advertised product to a customer who will purchase the product. This expertise,
of converting a "call to inquire" into a sale, was developed as a result of
specialized training of telemarketers to sell the Math Made Easy(TM) product.

The Market

Supplemental Education at Home The Company believes that parents are
increasingly concerned about the quality of their children's education and are
seeking to supplement the existing curricula. In particular, they are seeking to
use televisions and videotape players now found in most homes for educational
purposes. In addition, the Company believes that adults going back to school to
prepare for career moves or promotions are an ever growing potential market for
its educational videotapes. The Company has found that its primary customers are
parents with children in the educational system. The Company's efforts to date
have resulted in a database of more than 395,000 names, of which 225,000 ordered
product, and approximately 170,000 names of potential customers.

Schools As part of the drive to improve education, the Company believes
that school districts may increasingly allocate available funds to the
acquisition of educational tools. The Company believes that the possible
expansion of this market and the increased availability of funds may present an
important opportunity for its products.

In the fiscal year ended February 28, 1997, consumer videotape sales
and school videotape sales constituted approximately 95%, and 5% of total sales,
respectively. For the fiscal year ended February 29, 1996, consumer videotape
sales and school videotape sales constituted approximately 80% and 20% of total
sales, respectively.

Customized Telemarketing Services In a recent study conducted by the
WEFA Group for the Direct Marketing Association the total sales generated by
telephone marketing in 1996 was estimated to be $244 billion. The Company

believes that many companies across the nation are interested in out-sourcing
their customer service, sales staff and help desk hotlines. Outsourcing of these
specialized tasks to non-employees has become common in today's business world.
The Company believes that it can successfully enter this market based on its
experience of telemarketing its Math Made Easy(TM) and Reading Made Easy(TM)
videotapes. To date, the Company has signed two agreements to act as an
outsource of telemarketing for third parties.

The Company has entered into agreements with other business entities to
provide marketing and distribution services. The Company expects that these
agreements may ease the seasonality of the Company's educational products,
although there can be no assurance of this in the foreseeable future. "See
Management Discussion and Analysis" and "Risk Factors."

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Sales, Marketing and Distribution

Direct Marketing

The Company markets its videotapes and related materials to consumers
primarily by inbound telemarketing efforts which are supported by advertising on
radio and television on a national and regional level. Each commercial is
assigned a distinct 800 telephone number to call. The Company tests the
efficiency of each commercial on a daily and weekly basis by sourcing each
incoming call by the phone number that was dialed. The results of tracking
consumer response directly affect the placement of future advertising. The
Company's telemarketing staff, which responds to incoming calls, seeks to
convert into sales all leads which are generated by the Company's advertising.
The telemarketer attempts to record all pertinent information regarding the
customer who responded to the advertisement, thereby adding the potential
customer to the Company's database even if they do not purchase at that time. If
the customer agrees to purchase the product, the telemarketer will record either
credit card or checking account information, which is then transferred to the
billing department which processes the payment and sends the information to the
fulfillment center for shipping. The Company has documented repeat sales for
additional items for existing customers. The Company believes that many repeat
sales may be a direct response to the commercial that the customer had initially
seen.

In an effort to maximize efficient use of the telemarketers,
the Company has installed a new predictive dialing system. This system eases the
telemarketing efforts by having the computer dial return calls to prospective
customers for the telemarketers. The Company believes this system will
facilitate the Company's efforts to enter into the telemarketing servicing
arena. In addition, it allows the Company to contact prospective customers who
have not yet purchased products from its math and reading videotapes, as well as
previous customers on a timely basis, in a more efficient manner. The Company
also utilizes the "predictive dialing" system in its off-season to generate new
contacts from its existing customer base.

Credit cards are the preferred method of payment, both for the Company

and for its customers. These cards are either billed in full or in partial
monthly payments.. The Company also offers consumers who do not wish to use
their credit card another means of payment; an automatic check debit, in which
the customer is shipped the merchandise after he offers the Company his bank
name and checking account number.

Advertising

The Company purchases media time on a "direct response" basis. This
allows the Company to have the lowest cost per lead possible, as the direct
response rate is significantly lower than regular advertising rate. Although
this minimizes the advertising costs, reservations for advertising time at
direct response rates are subject to last minute cancellation by the radio and
television stations and are difficult to purchase efficiently. "See Management
Discussion and Analysis" and "Risk Factors."

In January 1997 the Company completed the development of a 30 minute,
Math Made Easy(TM) infomercial starring Charles Shaughnessy of CBS's hit show
"The Nanny." The infomercial aired in a test mode in February and March 1997,
with varying results depending on the locations and stations that were tested.
Subject to the availability of funds, some revisions will

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be made and the testing phase will continue. One major advantage of the
infomercial format is that television advertising time can be purchased and
guaranteed more easily in advance. Thus, the infomercial may reduce the risks
inherent in direct response advertising, particularly the uncertainty of
securing 60 and 30 second spots at the minimum rates. To the extent that the
Company increases the use of infomercials, its production and advertising budget
will increase and its operating margins may be materially affected. However, the
greater availability of infomercial media time may compensate for the increased
costs by permitting more frequent and timely advertising than is usually
available for short form commercials.

The Company has recently signed an agreement with Universal Spanish
Communications, Inc. ("Unispan") a direct marketing company, whereby Unispan
will market the Math Made Easy(TM) series on Spanish language television.
Unispan is a large direct response advertiser on Spanish language television.
The commercials will air in Spanish in order to attract the parent who may not
speak English. This campaign began in Spring 1997. As of the date hereof, the
results have been limited and further testing is to be performed.

Other Marketing Methods

The Company also markets its videotapes using methods other than
telemarketing. In August 1994, the Company entered into a marketing arrangement
with a company which distributes to Publishers Clearing House. In addition, the
Company markets videotape products by direct mail campaigns to schools culled
from commercially available mailing lists, and by inclusion in trade and private
catalogs which are distributed to schools by mail or by independent
representatives of the publisher. Catalog publishers typically purchase products

from the Company at a substantial discount from the Company's retail price.
The Company's efforts in this regard focus on inclusion in an increasing number
of catalogs.

The Company has signed an agreement with Shopworks Inc., to consult and
assist in the creation of "retail kiosks" to be placed in shopping malls across
the country. These kiosks will be marketed under the Learning Made Easy(TM)
tradename and will consist of all of the educational products distributed by the
Company. The Company believes that this may offer the customer a one stop shop
for educational needs. The Company anticipates that the kiosks may reduce the
dependence on telemarketing. In addition, by renting kiosks the burden of long
term leases is obviated as the kiosks are traditionally rented on a month to
month basis. Subject to obtaining financing, the Company is anticipating
beginning this campaign for the school season of 1997-1998.

Customized Telemarketing Services

The Company solicits business for its customized telemarketing services
division by advertising in trade magazines as well as through its own internal
efforts. To date, the Company has entered into agreements with St. John's
University and LitterMaid, a subsidiary of Windmere Corp., pursuant to which the
Company provides inbound and outbound telemarketing services. The Company offers
its clients the advantage of a highly trained sales force as well as the
capability to produce accurate telephone and sales reports. In addition, the
Company can offer its expertise in creating and placing advertisements, for
which it receives a commission on all media placed. The Company is actively
seeking to service additional accounts in this area.

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The Company has recently signed an agreement with Ace Marketing, Inc.
to service all inbound telemarketing needs for St. Johns University of New York
generated from print, radio and television commercials. The main task of the
telemarketers will be to complete a survey of all callers applying to
undergraduate and graduate schools affiliated with St. Johns University. In
addition, the Company will be receiving mail application requests for St. Johns
University and performing data entry. The Company is charging Ace Marketing on a
per minute or per name basis. St Johns advertises on a year round basis.

In the agreement with LitterMaid, the Company agrees to handle inbound
telemarketing calls generated from Littermaid's 60 second national advertising
campaign to sell its $199.99, self-cleaning electronic kitty litter product. The
Company will also receive overflow calls from LitterMaid's infomercial campaign.
In addition, the Company will be contacting prospective customers who have
responded to the advertisements and have received literature The agreement calls
for the Company to be paid on either a per call charge or on a commission basis.

Technology Resources

The Company has created a customized network to augment the efficiency
of its telemarketing operations. This enables the Company to handle over 1,000
simultaneous inbound calls. The Company's PABX (Private Automatic Branch

Exchange telephone switch) uses an open ended ISDN (Integrated Services Digital
Network) architecture which allows the Company to link multiple systems together
in an automated fashion, thus gathering numerical data and other information
from every inbound toll-free call. All inbound and outbound calls are tracked
and tagged for later examination and database development. The Company utilizes
an SMDR (Station Message Detail Recorder) specialized call accounting and
tracking software package to record vital call statistics. The Company uses CTI
(Computer Telephony Integration) to combine voice and data and then delivers
this information into the Company's data management systems. These are then
integrated into centrally managed Local Area Networks (LANs) and Wide Area
Networks (WANs). By using Interactive Voice Response Units (IVRUs) technology,
the Company is able to automate the response to inbound calls. IVRU technology
also enables the Company to provide to telemarketing customers advanced
detailed reports and data management upon request. The Company's modular open
system architecture allows ongoing modifications and updates, thus increasing
efficiency without downtime due to system shutdown for such updating. The
Company's use of (OCDD/RT) On-Line Call Detail Real-Time reporting software,
provides the Company with detailed incoming call information. This assists the
call center managers by enabling them to efficiently schedule proper staffing
levels and accommodate fluctuations in call volumes. OCDD/RT also helps analyze
in real-time the efficiency and reliability of the call connections to the
Company's internal system, and helps the Company predict call volume using
historical models.

The Company utilizes an ACD (Automatic Call Distributor) to help
identify each customer's call and automatically route those calls to specific
telemarketers. The Company's predicative dialer utilizes specific algorithms to
assist in analyzing each telemarketer's performance and the network's
efficiency. The predictive dialer's UNIX processor provides centralized list
management, data consolidation, reporting and interfaces with the LAN as well.

8
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The Company's location is protected by a fire extinguishing system and
it's primary systems have an uninterruptable power supply. In addition, the
Company has a short-term battery back-up in the event of power outage, reduced
voltage or power surge. Furthermore, instantaneous rerouting of all call traffic
takes place in the event of telecommunication failure, natural disaster or other
emergencies, thus insuring calls are usually answered properly even under
duress.

Personnel and Training

The Company believes that the quality of its employees is a key factor
in its effort to develop a profitable telemarketing business. The Company
tailors its recruiting and training techniques towards the industries and
products it services. All telemarketers receive a detailed review of each
product they will be selling. In addition, the Company trains its telemarketers
in the art of converting an inquiry into a sale. A telemarketer is in training
for approximately 7 - 21 days, prior to receiving customer calls on a full-time,
solo basis. Furthermore, the Company continually monitors telemarketers'
conversations to assure quality and customer satisfaction. Compensation is based
on a combination of salary and commission. See "Risk Factors."

Returns, Guaranty and Warranty Policies

The Company offers its customers a 30 day money back guarantee during
which period they may return the merchandise for an exchange or full credit. The
Company believes that a money back guaranty policy is essential to the success
of its telemarketing efforts. In addition, management of the Company has
implemented policies and procedures intended to minimize the number of returned
products. These policies and procedures include the confirmation of each order
by a supervisor, increasing the appeal of the Company's products by designing
more attractive packaging, and enclosing with its shipments full color
catalogues and parent guides. In addition, the customer service department,
which must be contacted before merchandise is returned, has been trained to
specifically reduce returns. "See Management Discussion and Analysis" and "Risk
Factors."

Competition

The Company's educational videotape offerings compete with a variety of
programs, including Hooked on Phonics, Reading Genius, Davidson, Megasystems,
the Video Professor and MegaMath. In the school market, the Company competes
with Video Aided Instruction, Video Tutor and Educational Video Resources.
Almost all of these competitors have greater financial resources, greater public
and industry recognition and broader marketing capabilities than the Company.
The market is characterized by numerous small companies, with whose products the
Company may be unfamiliar, and which may be competitive with the Company's
products. The Company's products also compete with other methods of education
such as private tutors and televised programs. The Company believes that its
products are competitive because it offers a more complete range of subjects,
the products are designed to be more engaging, and the Company has generally
developed more effective use of the telemarketing process.

The telemarketing industry is intensely competitive and the Company's
principal competition in its primary markets comes from large and small
telemarketing companies including

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Apac Teleservices, Inc., Sykes Enterprises, Incorporated, ICT Group, Inc.,
Precision Response Corporation, Teletech Teleservices, West Telemarketing, Iti
Marketing Services, Inc., Matrixx Marketing, Inc., West Teleservices Corporation
and Dial America. Because of the size of this market, the Company believes that
no one entity dominates this business. Nevertheless, the Company's competitors
in this area have greater financial resources, greater public and industry
recognition, advanced technological expertise and equipment and broader
marketing capabilities than the Company. In addition, most businesses that are
significant consumers of telemarketing services utilize more than one
telemarketing firm at one time and reallocate work among various firms from time
to time. A significant amount of such work is contracted on an individual
project basis, thus increasing the competition in the industry. Furthermore, the
Company believes there is a trend among businesses with telemarketing operations
toward outsourcing the management of those operations to others and this trend

may attract new and substantially larger competitors. The Company believes that
it may be able to offer competitive services based upon its expertise developed
by marketing its own products. For example, because the Company produces and
places its own media it is more experienced in linking the telemarketers'
approaches to the clients' specific advertising.

Proprietary Rights

The Company has received certificates of registration with the United
States Trademark Office for the following trademarks: MATH MADE EASY, PASSPORT
TO MATH SUCCESS, LEARNING TRENDS, AND REAL LIFE MATH. The Company has filed
applications with the United States Trademark Office for the registration of
READING MADE EASY.

Employees

As of February 28, 1997, the Company had 137 employees , of whom four
were executive officers, 108 were engaged in sales, and 25 were in marketing,
support and administrative staff. The Company retains outside consultants to
augment its computer, telephone and telemarketing expertise. The Company also
relies on several outside consultants for expertise in hardware, software and
curriculum development. The Company believes that its relationship with its
employees is generally satisfactory.

Risk Factors

The Company's business involves a high degree of risk. Shareholders and
investors, should consider carefully the following risk factors and the other
information included in this Report.

Financial Condition of the Company; History of Losses; Going Concern
Qualification in Certified Public Accountant's Report; Company Highly Leveraged

The Company has experienced significant losses from operations since
inception. It experienced losses of $1,697,000 and $1,659,000 for the fiscal
years ended February 28, 1997, and February 29, 1996. As of February 28, 1997,
the Company had working capital of only

<PAGE>

$1,303 and an accumulated deficit of $8.3 million. The Company's working capital
requirements have been met primarily from loans and private sales of securities
provided by management and other investors and with the net proceeds of the IPO
but there can be no assurance the Company will be able to obtain such funds in
the future. As of the date hereof, the Company has investor loans and advances
aggregating $1.65 million, of which a certain amount may be converted into
equity, subject to ongoing negotiations. All of this amount is due over the next
twelve months; there can be no assurance the Company will be able to convert the
debt to equity, or generate the funds from operations or further financings to
repay these obligations. Currently, the Company's sales volume is not sufficient
to repay this indebtedness or to absorb the fixed overhead arising from the
infrastructure necessary to support the telemarketing effort which causes

current operating losses. In addition, the Company`s operating expenses are
anticipated to increase significantly in the future if the Company is able to
implement its expanded marketing strategy. Although the Company is seeking
additional funds to allow it to repay its current debt, fund its operating
losses, increase the number of products it offers and its advertising budget,
and expand its customized telemarketing operations, there can be no assurance
that the Company will not continue to experience such losses or will ever
generate revenues at levels sufficient to support profitable operations. The
Company has received a report from its independent public accountants, Holtz
Rubenstein & Co., LLP, that includes an explanatory paragraph describing the
uncertainty as to the ability of the Company's operations to continue as a going
concern. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Consolidated Financial Statements."

Need for Additional Financing

The Company has limited resources and has not been able to finance its
activities with the proceeds from operations and there can be no assurance it
will be able to do so in the future. The Company is seeking additional financing
in order to meet its debt repayment obligations and to maintain and potentially
expand its current operations. Even if the Company is able to obtain funding,
there can be no assurance that a sufficient level of sales will be attained to
fund such operations or that unbudgeted costs will not be incurred. Future
events, including the problems, delays expenses and difficulties frequently
encountered by similarly situated companies, as well as changes in economic,
regulatory or competitive conditions, may lead to cost increases that could make
the net proceeds of any new funding and cash flow from operations insufficient
to fund the Company's capital requirements. There can be no assurances that the
Company will be able to obtain such additional funding from management or other
investors on terms acceptable to the Company, if at all. Additional financings
may result in dilution for then current stockholders. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Future Issuances of Stock; Dilution to Current Stockholders

The Company currently has outstanding options, warrants and other
rights to acquire an aggregate of approximately 12,300,000 shares of Common
Stock at exercise prices ranging from 75% of the current market price to $5.60
per share. The Company currently has outstanding 6,213,297 shares of Common
Stock and as of June 2, 1997 the price of the Company's current stock as quoted
on the Nasdaq Electronic Bulletin Board was $.125 per share. The Company is
planning to offer to exchange additional shares of Common Stock with certain of
these warrantholders in order to simplify its capital structure and to certain
lenders in order to reduce its liabilities. In addition, the Company is engaged
in negotiations to obtain additional funding in

<PAGE>

order to maintain the Company's operations and meet current debt repayment
commitments. At the present time, the Company's management believes that these
equity offerings will result in the issuance of shares of Common Stock in an
amount in excess of the Company's current outstanding Common Stock, and will

substantially dilute the holdings of the Company's current stockholders.
Furthermore, such issuances could result in a change of control of the Company.
See "Need for Additional Financing."

Uncertainty of Market Acceptance

Consumer acceptance of the Company's products is difficult to predict.
The success of the Company's marketing strategy is dependent on direct responses
to its advertising campaigns. The Company's marketing techniques are therefore
based on an "impulse buy" which is susceptible to any softening in the
consumer's overall confidence caused by economic turndowns which affect the
consumer. Furthermore, the pool of potential customers for its products
advertised through media may be decreased as a result of market saturation. As a
consequence, there can be no assurance that the Company's present level of sales
will be sustainable in the future. See "Business--Sales, Marketing and
Distribution."

Market acceptance of the Company's products is further dependent on the
existence and development of other means to market similar products, such as
interactive television, which enable the consumer to participate directly in
courses offered on television, and home shopping clubs, which enable the
consumer to directly order and pay for products shown on television. The Company
has currently no plans to employ interactive television as a strategy to sell
its products. Failure of the Company's products to achieve or sustain market
acceptance would have a material adverse effect on the Company's operating
results and financial condition.

High Level of Returned Merchandise; Accounts Receivable Collection & Adequacy of
Reserves

The Company experiences a high level of returns, which generally range
from 25% to 35% for its various products. The Company believes that an important
reason for the high level of returns is that a substantial number of purchasers
return their tutorial videotapes after being unable to motivate their children
to view the tapes or having illegally copied them. There are currently no
cost-effective ways to prevent the illegal copying of the Company's videotapes.
In addition, the Company does not currently have the funds to prosecute
infringers. There can be no assurance that the Company will be able to
successfully prosecute infringements even if the Company is adequately funded.
Further, the Company has sold to customers on credit terms. Although this
procedure has been suspended, there are substantial receivables outstanding as a
result of sales on credit terms and sales to customers whose checking accounts
were drawn upon but the drafts returned unfunded. The Company has implemented
certain procedures that have enhanced the collectibility of the outstanding
amounts. The Company believes it has established appropriate allowances for
anticipated returns and uncollectible receivables based upon historical
experiences and the increased control and procedures to limit and collect
receivables. Notwithstanding the above, there can be no assurance that actual
returns and uncollectible accounts receivable will not exceed the Company's
allowances. Any significant increase in returns or uncollected accounts
receivable beyond the established returns could have a material adverse effect
on the Company's results of operations and financial condition.

<PAGE>

Seasonality and Availability of Media Time

The Company's math and reading videotape business is highly seasonal.
Demand for its products tends to peak during the first and fourth fiscal
quarters when school is in session. Demand is especially slow during the school
vacation periods. This seasonality greatly affects the Company's advertising
campaigns which must be timed to coincide with the annual periods when demand is
traditionally high. In addition, the Company does not reserve advertising time
in advance in order to purchase air time at the lowest possible rates; rather,
it purchases direct response time, which is characterized as remnant time and is
difficult to purchase efficiently. In addition, its reservations are subject to
last minute cancellation by the radio and television stations. As a result of
the Company's dependence on the availability of media time, operating results
can be negatively impacted by difficulty in purchasing media time such as occurs
during elections and holidays. For example, the Company incurred difficulty in
purchasing media time prior to and immediately following the November 1996
elections and thereby experienced lower results for the fiscal year ended
February 28, 1997. Any significant decrease in sales during the season when
business activity is high could have a material adverse impact upon the
Company's operations. Although the Company is trying to reduce its dependence on
curriculum based products, it will in all likelihood continue to experience
significant seasonality in sales of its educational products.

Customer Satisfaction

The Company's revenues are mainly generated through telemarketing to
customers on a national basis. Although the Company attempts to satisfy
customers' needs, there may at times be dissatisfied customers. These customers
may contact local or national consumer advocate groups as well as television, or
radio station reporters to voice their dissatisfaction with the Company. This
negative publicity may have an adverse effect on future sales.

Limited Product Line

In the fiscal year ended February 28, 1997, most of sales were from the
Math Made Easy(TM) product line. Although the Company is continually seeking to
introduce additional product lines there can be no assurance that these new
product lines will generate significant sales. In the event that the popularity
of the Math Made Easy(TM) product line decreases or faces increased competition,
the Company's sales would be adversely affected and if not replaced by
substantially increased sales from other products, the Company could be forced
to cease operations.

Credit Card Fraud

Credit card fraud perpetrated by disreputable telemarketing operations
have increased the reluctance of the consumers to make use of their credit cards
by telephone. This may adversely affect the Company's ability to secure credit
card orders

System Breakdowns

During fiscal 1996, the Company has periodically experienced complete
or partial breakdowns of its incoming and outgoing call systems which have
lasted from several hours to

<PAGE>

several days. Such breakdowns were usually attributable to the Company's long
distance service provider or hardware. In addition, telephone companies are from
time to time unable to provide the Company with accurate computerized telephone
logs which advise the Company of the connection between an 800 number and a
particular television or radio station which has been keyed to such 800 number.
Such logs are essential in the Company's evaluation of the effectiveness of its
advertising campaigns. There can be no assurance that such breakdowns, which are
usually beyond the Company's control, will not occur in the future. Frequent or
prolonged system breakdowns would have a material adverse effect on the
Company's operating results and financial condition. Although, the Company has
implemented certain procedures that it believes will help to reduce this risk,
there can be no assurance the procedures are fail proof. The Company, to its
knowledge, did not incur any extended breakdowns during fiscal 1997.

Turnover rate

Recruiting, training and retaining qualified telemarketers is essential
for the Company. There is a high turnover rate among telemarketers as a result
of the frustration of the telemarketing process, the high pressure atmosphere,
and the reliance on commissions as a major component of salaries. The training
of telemarketers is a lengthy process which involves learning a complex product
line and special sales techniques. In addition, it is essential that the Company
utilize the optimal number of telemarkerters for its level of advertisements and
the number of clients it is servicing. Too many advertisements may overwhelm the
telemarketers while too few advertisements may lead to a drop in the commissions
which will cause the telemarketers to leave the Company. Furthermore, the
ability of the Company to convert leads into sales is largely dependent on the
expertise of its telemarketers. There can be no assurance that the Company will
be able to continue to recruit and retain a qualified team of telemarketers.

New Products; Technological Obsolescence

The Company's prospects depend in significant part on its ability to
develop and/or license new products that achieve market acceptance. Most of the
new electronic tutorial products being introduced into the market are based on
computer technology, usually with interactive capabilities. There can be no
assurance that the Company's ability to market its videotape products will not
be materially adversely affected by the increase in the number and
sophistication of computer based educational products. Furthermore, there can be
no assurance that the introduction of such computer based technologies will not
render obsolete the videotape products currently marketed by the Company. No
assurance can be given that the Company can adapt to such new media
technologies. In addition, when the Company may license new non-educational
products there is no guarantee of market acceptance of these new products. See
"Business--Product Acquisition and Development."

Intellectual Property Rights

The Company realizes that a substantial number of its videotapes are
copied illegally. There are currently no cost-effective ways to prevent the
illegal copying of the Company's videotapes. In addition, the Company does not
currently have the funds to prosecute infringers. There can be no assurance that
the Company will be able to successfully prosecute infringements even if the
Company is adequately funded. The Company's videotapes do not contain a blocking
device to deter unauthorized copying, because newer technologies constantly
develop to override

<PAGE>

such devices and the cost to implement the locking devices would negatively
impact gross margins. There can be no assurance that future illegal copying of
the Company's products will not continue, worsen, exceed the Company's reserves
therefore or have a material adverse effect on operations.

Terms of Contracts and Licenses

Many of the Company's newer products are based on contracts and
licenses with third parties. In general, these contracts and licenses are for
relatively short terms or are terminable at will. There can be no assurance that
these contracts and licenses will be extended or renewed, in which case the
Company's results could be negatively affected..

Competition

The telemarketing industry is intensely competitive and the Company's
principal competition in its primary markets comes from large and small
telemarketing companies including Apac Teleservices, Inc., Sykes Enterprises,
Incorporated, ICT Group, Inc., Precision Response Corporation, Teletech
Teleservices, West Telemarketing, Iti Marketing Services, Inc., Matrixx
Marketing, Inc., West Teleservices Corporation and Dial America. Because of the
size of this market, the Company believes that no one entity dominates this
business. Nevertheless, the Company's competitors in this area have greater
financial resources, greater public and industry recognition, advanced
technological expertise and equipment and broader marketing capabilities than
the Company. In addition, most businesses that are significant consumers of
telemarketing services utilize more than one telemarketing firm at one time and

reallocate work among various firms from time to time. A significant amount of
such work is contracted on an individual project basis, thus increasing the
competition in the industry. Furthermore, the Company believes there is a trend
among businesses with telemarketing operations toward outsourcing the management
of those operations to others and this trend may attract new and substantially
larger competitors. Competition in both the education products and telemarketing
markets may result in loss of sales by the Company or a reduction of the prices
which the Company can charge for its products or services. See "Business -
Competition."

Dependence on Management

The Company's business is significantly dependent upon the personal
efforts and continued availability of Morris Berger, its Chief Executive
Officer. The loss or unavailability to the Company of Mr. Berger could have a
materially adverse effect upon the Company's business operations and prospects.
To the extent that the services of Mr. Berger are unavailable to the

<PAGE>

Company for any reason, the Company would be required to procure other personnel
to manage and operate the Company. The Company is the beneficiary of a $1
million, key man life insurance policy on Mr. Berger. There can be no assurance
that the Company would be able to locate or employ such personnel on acceptable
terms, if at all.

Government Regulation

In response to the concerns of consumer advocacy groups and as a result
of the practices of a number of unscrupulous telemarketing companies, the
Federal Trade Commission and the Federal Communications Commission have
promulgated rules regulating the telemarketing industry. The Federal Telephone
Consumer Protection Act of 1991 (the "TCPA"), enforced by the Federal
Communications Commission, imposes restrictions on unsolicited telephone calls
to residential telephone subscribers. The rules applicable to the Company
include, among other things, an obligation to advise customers of their rights,
to initiate telephone solicitations to residential telephone customers before
8:00AM or after 9:00PM local time at the customer's location, obligation to ship
merchandise in a timely fashion and an obligation to notify a customer of delays
in shipments and to offer a refund in the event of a delay. In addition, many
states are enacting their own laws regulating the telemarketing industry which
are, to the extent applicable to the Company, similar to the Federal rules in
most respects. Furthermore, there exist both state and federal laws governing
false advertising and deceptive trade practices. Due to the subjective nature of
interpreting and enforcing such laws, there can be no assurance that the Company
will be in compliance with such laws at all times. Although such regulations are
expected to have a minimal impact on the Company's ability to operate its
business in its present form, the nature of which is considered inbound
telemarketing, such regulations generally tend to add significant recordkeeping
requirements and, consequently, expenses.

Delisting from Nasdaq Small Cap Market; Maintenance Criteria for Nasdaq

Securities; Penny Stock Rules

On April 17, 1997, the National Association of Securities Dealers, Inc.
Automated Quotation System Stock Market ("NASDAQ") delisted the Company's Common
Stock and Warrants from trading on the NASDAQ Small-Cap Market because the
minimum bid price of the Company's Common Stock had been below the requirement
of $1.00 per share. In order to regain a listing for the Company's securities on
the NASDAQ Small-Cap Market, the Company's Common Stock must have a minimum bid
price of at least $3.00 in trading on NASDAQ's Electronic Bulletin Board for at
least twenty to thirty trading days prior to relisting. The Company must also
have total assets of $4,000,000 and stockholders' equity of $2,000,000. In
addition, NASDAQ has proposed new listing requirements which raise the minimum
bid price requirement for new listings to $4.00 per share. The new listing
requirements also include requirements that the Company have $4,000,000 in net
tangible assets and that at least 1,000,000 shares with a market value of
$5,000,000 be held by non-affiliates. At the present time, it appears probable
that these new requirements, which the Company does not expect to be able to
meet, will be in effect before the Company can apply for relisting on the NASDAQ
Small-Cap Market.

If the Company's securities are again listed on the Nasdaq Small-Cap
Market, in order to maintain such listing the Company must continue to be
registered under Section 12(g) of the Securities Exchange Act of 1934 (the
"Exchange Act") and have total assets of at least $2,000,000, total
stockholders' equity of at least $1,000,000, a public float of at least 100,000

<PAGE>

shares with a market value of at least $200,000, at least 300 holders, a minimum
bid price of $1.00 per share and at least two market makers. In addition, Nasdaq
has proposed increasing the requirements for maintaining a Nasdaq Small-Cap
listing to require either: (1) net tangible assets of at least $2,000,000, (2) a
market capitalization of $35,000,000 or (3) net income in at least two of the
last three years of $500,000 and a public float of at least 500,000 shares with
a market value of at least $1,000,000. There can be no assurance that the
Company would be able to meet the requirements for maintaining a listing on the
Nasdaq Small-Cap Market, particularly if the maintenance requirements are
increased.

Failure to regain or to maintain Nasdaq Small-Cap Market listing will
probably depress the market value of the Common Stock and purchasers likely
would find it more difficult to dispose of, or to obtain accurate quotations as
to the market value of, the Common Stock.

In addition, if the Company cannot obtain a Nasdaq Small-Cap Market
listing for its securities, and no other exclusion from the definition of a
"penny stock" under the Exchange Act is available, then the Company's stock will
continue to be subject to additional federal and state regulatory requirements.
Rule 15g-9 under the Exchange Act, among other things requires that
broker/dealers satisfy sales practice requirements, including making
individualized written suitability determinations and receiving any purchaser's
written consent prior to any transaction. The Company's securities could also be

deemed penny stocks under the Securities Enforcement and Penny Stock Reform Act
of 1990, which requires additional disclosure in connection with trades in the
Company's securities, including the delivery of a disclosure schedule explaining
the nature and risks of the penny stock market. Such requirements can severely
limit the liquidity of the Company's securities and the ability of purchasers to
sell their securities in the secondary market.

Limited Public Trading Market for the Company's Securities, Volatility

There is only a limited public trading market for the Company's
securities and no assurances can be given that a liquid market will develop or,
if developed, that it will continue to be maintained. There can be no assurance
that a more active trading market will develop or, if developed, that it will be
maintained. In addition, there can be no assurance that the Company will obtain
relisting of its Securities on Nasdaq. See "Maintenance Criteria for Nasdaq
Securities; Delisting from Nasdaq Small Cap Market; Penny Stock Rules."

Limitation of Use of Net Operating Loss Carryforwards

As of February 28, 1997 the Company had net operating loss
carryforwards of approximately $3,063,000 portions of which expire yearly from
2002 to 2008 (subject to certain limitations). This balance gives effect to
annual limitations on the utilization of the loss carryforwards caused by
"ownership changes" as defined in Section 382 of the Internal Revenue Code. If
there is any additional ownership change, there can be no assurance as to the
specific amount of net operating loss carryforwards available in any post-change
year since the calculation is based upon a fact-dependent formula. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

<PAGE>

No Dividends

The Company has never paid any dividends on its Common Stock. The
payment of future dividends will be dependent upon earnings, financial
requirements of the Company and other factors deemed relevant by the Company's
Board of Directors. For the foreseeable future it is anticipated that any
earnings which may be generated from operations of the Company will be used to
finance the growth of the Company and that cash dividends will not be paid to
holders of Common Stock.

Issuance of Preferred Stock; Potential Anti-Takeover Effect

Certain provisions of Delaware law and the Company's certificate of
incorporation and By-Laws could make more difficult a merger, tender offer or
proxy contest involving the Company, even if such events could be beneficial to
the interests of the stockholders. The Board of Directors has the authority to
issue up to 1,000,000 shares of Preferred Stock in one or more series and to fix
the number of shares constituting any such series, the voting powers,
designation, preferences and relative participation, optional or other special
rights and qualifications, limitations or restrictions thereof, including the

dividend rights and dividend rate, terms of redemption (including sinking fund
provisions), redemption price or prices, conversion rights and liquidation
preferences of the shares constituting any series, without any further vote or
action by the stockholders. The issuance of preferred stock by the Board of
Directors could adversely affect the rights of the holders of Common Stock. For
example, such issuance could result in a class of securities outstanding that
would have preferences with respect to voting rights and dividends and in
liquidation over the Common Stock, and could (upon conversion or otherwise)
enjoy all of the rights appurtenant to Common Stock. The authority possessed by
the Board of Directors to issue preferred stock could potentially be used to
discourage attempts by others to obtain control of the Company through a merger,
tender offer, proxy contest or otherwise by making such attempts more difficult
to achieve or more costly. Such provisions could limit the price that certain
investors might be willing to pay in the future for shares of the Company's
Common Stock or preferred stock.

Item 2. PROPERTIES

The Company leases an approximately 4,700 square foot facility at 205
Kings Highway, Brooklyn, New York which houses its telemarketing and other
staff. This lease, which calls for monthly rentals of $3,950, is scheduled to
expire in June 1997 with a renewable option for an additional three years. The
Company, as of the date hereof, has not exercised this option. In addition, the
Company leases an approximately 3,208 square feet facility at 201 Kings Highway,
Brooklyn, New York, to house its administrative and product development staff.
This lease, which calls for monthly rental ranging from $4,000 - $4,730, expires
in 1999 and includes an option to extend the term of the lease for two
additional years.

Item 3. LEGAL PROCEEDINGS

On July 10, 1995 the Company commenced an action in the District Court
for the Eastern District of New York for recovery of compensatory damages in the
amount of $1,200,000 and punitive damages in the amount of $25,000,000 from MCI,
the Company's then long distance

<PAGE>

carrier. The Company's suit was based upon damages resulting from MCI's failure
to provide agreed upon services and fraud.

On or about August 17, 1995 MCI commenced an arbitration proceeding
against the Company to recover an alleged $70,000 for unpaid telephone usage
charges. On or about September 11, 1995, MCI commenced additional arbitration
proceedings to recover an alleged $350,000 for the Company's early termination
of the agreement between the Company and MCI. The two arbitration proceedings
were subsequently consolidated.

The Company has moved to stay the arbitration commenced by MCI pending
completion of the court proceedings. MCI has moved to dismiss the Company's
complaint. Both motions are presently awaiting the decision by the Court.

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

No matters were submitted to a vote of stockholders in the fiscal
quarter ended February 28, 1977. A special stockholders meeting was held on
April 15, 1997 to consider a one-for-five reverse stock split and an increase in
the authorized stock. Although the Company's stockholders approved the matters
submitted for vote at the April 15, 1997 special stockholder meeting, the
Company decided not to effectuate the changes. The Company has scheduled a new
special stockholder meeting for June 13, 1997. The matters submitted for vote
are a one-for-ten reverse split, an increase in the authorized shares of Common
Stock to 20,000,000 and the change of the Company's name to United Telemarketing
Services, Inc..

<PAGE>

PART II

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

The Company's Common Stock, Warrants and Units were traded on The
Nasdaq SmallCap Market under the symbols MMTS, MMTSW and MMTSU respectively,
from the Company's initial public offering on April 13, 1995 until they were
delisted on April 17, 1997. Since then, the Company's securities have been
listed on the NASDAQ Electronic Bulletin Board.

The following table sets forth the high and low sales price for the
Company's Common Stock, Warrants and Units in each quarter of the last two
fiscal years. These quotations have been reported by the National Association of
Securities Dealers, Inc. and represent quotations by dealers without adjustments
for retail mark-ups, mark-downs or commissions and may not represent actual
transactions.

<TABLE>
<CAPTION>
Common Stock Warrants Units
------------ -------- -----

Fiscal Quarter High Low High Low High Low
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ended
May 31, 1996 $2.375 $1.625 $.718 $.531 $3.250 $2.375
Ended
August 31, 1996 $1.938 $.875 $.625 $.156 $3.250 $1.000
Ended
November 30, 1996 $1.125 $.750 $.250 $.125 $1.500 $.875
Ended
February 28, 1997 $1.000 $.438 $.156 $.094 $1.250 $.594

<CAPTION>
Common Stock Warrants Units
------------ -------- -----

Fiscal Quarter High Low High Low High Low
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>

Ended
May 31, 1995 $4.750 $3.750 $1.500 $.625 $6.250 $4.250
Ended
August 31, 1995 $4.375 $2.500 $1.531 $.813 $5.625 $3.125
Ended
November 30, 1995 $3.750 $2.375 $1.375 $.750 $4.750 $3.375
Ended
February 29, 1996 $3.125 $1.750 $.938 $.563 $4.000 $2.438

</TABLE>

The Company has not paid a cash dividend on its Common Stock since its inception
and, by reason of its present financial status and its contemplated financial
requirements, does not anticipate paying and cash dividends in the foreseeable
future. It is anticipated that earnings, if any, which may be generated from
operations will be used to finance the operations of the Company.

Sales of Unregistered Securities

In April 1996, the Company entered into a private placement of $500,000
of Convertible 10% Notes due December 31, 1997 to One World Capital Partners
Limited, Vortex Capital Corp. and Odyssey Venture Partners Limited. The Company
placed 909,090 shares of common stock into escrow for the noteholders. In
connection with this financing the Company issued 50,000 warrants to purchase
the Company's Common Stock at a price of $1.50 per share to Cook Investments.
During the year ended February 28, 1997, 341,897 shares were released from
escrow consisting of 142,222 shares to One World Capital Partners Limited and
199,675 shares to Vortex Capital Corp.

In June 1996, the Company entered into agreements with certain of its
noteholders to modify the terms of their notes. As a result of these agreements,
approximately $199,000 of principal and accrued interest was converted into
194,239 shares of Common Stock and warrants to purchase an additional 210,516
shares of Common Stock exercisable at $1.50 per share. In consideration for this
extension, the debt holders were issued warrants to purchase 492,700 shares of
Common Stock at $1.50 per share. The noteholders were S. Bandremer, R. Englard,
L. Englard, M. Englard, R. Folger, O. Horning, J. Lucas, B. Schreier, L.
Schreier, M. Schreier, S. Schreier, R. Selevan, A. Weiss and C. Weiss.

In September and October 1996, the Company entered into loans in the
principal amount of $1,000,000. In connection with this funding, the lenders
were granted warrants to purchase 3,300,000 shares of Common Stock exercisable
at 75% of the market price. The Company issued warrants to P. Brodchandel,
Congregation Ohel Yonah, R. Grossman, J. Kossoff, S. Leifer, J. Mermelstein, R.
Nafash, M. Nafash, M. Rubin, Seafish Partners, P. Shapiro, The Trading Post,
Venetech Investments, Ltd., William Walters Individual Retirement A/C Cowen &
Company, custodian, Water-Jel Technologies, Inc., Michael Weiss, Yeshiva Beth
Hillel and E. Zimberg.

In November, 1996, the Company issued $750,000 of convertible preferred
stock to F. Brosens, Elisabeth M. Custer, TTEE for William M. Custer Trust,
Generation Capital Associates, D. Germain, J. & P. Mahtani, Private Investors
Equity Group and Star Properties Limited.

In June 1996, the Company issued to Slim Goodbody Corp., AJS Consultants
Ltd. Profit Sharing Trust and Atlaz International, Ltd. 80,000 shares of Common
Stock and a warrant to purchase 70,000 shares of Common Stock exercisable at
$1.50 per share, in exchange for cancellation of $70,700 of the Company's
obligations to them.

During the year ended February 28, 1997, the Company issued an aggregate
of 89,900 shares of Common Stock and warrants to acquire 50,000 shares of Common

Stock to CRG Group, G. Simon, H. Gress, R. Katzoff, J. Leibowitz, E. Miles, A.
Moses, J. Plutovski, for $82,000 of value in services.

In May 1996, the Company issued 20,000 shares of Common Stock for
$20,000 to Bayit Care Corp.

In August 1996, the Company issued warrants to purchase 355,000 shares of
Common Stock at prices ranging from $1.00 to $1.10 to I. Bader, M. Berger, O.
Folger, W. Haase, J. Lucas, A. Reichman, B. Reichman and Target Capital Corp.
for compensation for services.

In May, June and July 1996 S. Berger and A. Reichman advanced $54,000 to
the Company. In consideration for these loans, the Company issued warrants to
acquire 108,000 shares of Common Stock exercisable at $1.50 per share.

The issuance of Convertible Notes in April 1996 was exempt from
registration pursuant to Regulation S promulgated under the Securities Act of
1933. All other transactions were exempt from registration pursuant to Section
4(2) of the Securities Act of 1933.

<PAGE>

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction
with the Financial Statements and notes thereto appearing elsewhere herein. In
August 1994, the Company acquired Video Tutorial Service, Inc. ("VTS"). The
acquisition has been accounted for on a pooling-of-interests basis. The
financial information for all periods appearing below and elsewhere represent
the combination of such information for the Company and VTS as though they had
been combined throughout such periods. See Notes to Consolidated Financial
Statements.

Results of Operations

Years ended February 28, 1997 and February 29, 1996

Net sales for the year ended February 28, 1997 (the "1997 Period") were
$7,890,397 compared to $9,228,538 in the year ended February 29, 1996 (the "1996
Period"). The decrease of $1,338,141 or 14.5% is primarily attributable to the
lack of availability of direct response media time resulting from the national
and local elections during the 1997 Period as well as the discontinuance of
sales to customers without credit cards or checking accounts.

Gross profit was $7,080,233 in the 1997 Period compared to $8,047,577
in the 1996 Period. Gross profit was higher in the 1996 Period primarily as a
result of higher sales volume. Gross profit margins were 89.7% and 87.2% for the
1997 and 1996 Periods, respectively. The improvement in gross margins was mainly
due to a decrease in purchases of third party videos and a reduction in
duplication costs.

Selling and marketing expenses were $7,012,788 or 88.9% of net sales
for the 1997 Period compared to $7,980,667 or 86.5% of net sales in the 1996
Period. This $967,879 or 12.1% decrease in expenditures is primarily due to the
lower advertising expenditures and a higher ratio of sales to advertising. It is
expected that selling and marketing expenses will vary with revenue and
seasonality.

General and administrative expenses were $1,642,204 or 20.8% of net
sales in the 1997 Period compared to $1,735,212 or 18.8% of net sales in the
1996 Period. The 5.4% decrease in expenditures was due principally to reduced
staff and other office expenses.

Interest expense increased to $141,896 in the 1997 Period compared to
$94,904 in the 1996 Period as a result of the increased outstanding debt and the
cost of issuing the debt.

Loss from continuing operations was $1,697,030 or (21.5%) of net sales
in the 1997 Period compared to an operating loss of $1,676,416 or (18.2%) in the
1996 Period. Fiscal 1997's loss resulted principally from the adverse impact on
sales caused by the lack of availability of direct response media time and the
costs to support the increased capabilities of the telemarketing efforts. Net
loss for the 1996 Period was $1,658,906 including income from discontinued
operations of $17,510. Net loss per share was $.32 in the 1997 Period compared
to a net loss per share of $.37 for the 1996 Period, after effecting a 19.2%
increase in the weighted average number of common share outstanding in the 1997
Period.

<PAGE>

Years ended February 29, 1996 and February 28, 1995

Net sales for the year ended February 29, 1996 (the "1996 Period") were
$9,228,538 compared to $4,607,616 in the year ended February 28, 1995 (the "1995
Period"). The increase of $4,620,922 or 100.3% is primarily attributable to
increased sales of the Company's "Math Made Easy(TM)" videotapes, the Company's
main product, to both new and repeat customers. The 1996 Period was adversely
affected by the periodic breakdowns of the Company's incoming calls system
during the fiscal first and second quarters, which lasted from several hours to
several days, and which were caused by damage suffered during electrical storms.
In addition, during the same period, the Company's long distance carrier was
unable to provide the Company with accurate computerized telephone logs, which
assist the Company in evaluating the effectiveness of its advertising campaigns.
During May 1995, the Company changed to a new long distance carrier and
telephone hardware vendor. The new telephone system became fully functional in
August 1995. The Company's insurance carrier has agreed to reimburse the Company
approximately $65,000 for loss of business income during this period. The
Company has commenced litigation against its former long distance carrier. See
Item 3 - Legal Proceedings.

Gross profit was $8,047,577 in the 1996 Period compared to $3,731,699
in the 1995 Period, primarily as a result of higher sales volume. Gross profit
margins were 87.2% and 81% for the 1996 and 1995 Periods, respectively. The

improvement in gross margins was mainly due to a decrease in purchases of third
party videos and a reduction in duplication costs.

Selling and marketing expenses were $7,980,667 or 86.5% of net sales
for the 1996 Period compared to $3,906,547 or 84.8% of net sales in the 1995
Period. This $4,074,120 or 104.3% increase in expenditures is primarily due the
augmentation of the Company's direct marketing efforts, including a shift from
radio to television advertising expenditures, the test marketing of new products
and new media outlets and the hiring and training of additional telemarketing
staff to meet the expected increase in sales volume in the third and fourth
quarters, which have traditionally been the Company's strongest periods.
Advertising during fiscal 1996 was designed to increase current revenues and to
develop and maintain brand awareness, which would result in future revenue

General and administrative expenses were $1,735,212 or 18.8% of net
sales in the 1996 Period compared to $1,083,465 or 23.5% of net sales in the
1995 Period. The 60.2% increase in expenditures was due principally to
additional staff and other office expenses related to the increased sales
effort. These cost increases were due to additional management to supervise the
new telephone system and telemarketing staff.

Interest expense declined to $94,904 in the 1996 Period compared to
$206,317 in the 1995 Period as a result of the repayment of certain debt during
the current period from proceeds of the Company's Initial Public Offering (the
"IPO").

Loss from continuing operations was $1,676,416 or (18.2%) of net sales
in the 1996 Period compared to an operating loss of $1,464,630 or (31.8%) in the
1995 Period. Fiscal 1996's loss resulted principally from the adverse impact on
sales from problems relating to the telephone system, the increase in
advertising expenditures and the increase in the provision for returns and
allowances. Net loss for the 1996 Period was $1,658,906 including income from

<PAGE>

discontinued operations of $17,510, as compared to a net loss of $1,041,714 in
the 1995 Period, which included an extraordinary gain of $571,579, net of taxes
of $88,000, on the conversion of debt to equity and a loss from discontinued
operations of $148,663. Net loss per share was $.37 in the 1996 Period compared
to a net loss per share of $.38 for the 1995 Period after effecting a 61.6%
increase in the weighted average number of common share outstanding in the 1996
Period. The loss for the 1995 Period included income of $.21 per share from the
extraordinary gain on a conversion of debt to equity.

Liquidity and Capital Resources

Working capital at February 28, 1997 was $1,303 compared to working
capital of $433,016 at February 29, 1996. The decrease in the working capital
was principally attributable to the increased debt necessitated from the
operating losses and equipment financing. The Company's cash and short-term
investments increased to $535,093 including $259,021 in restricted cash at
February 28, 1997 from $374,055 including $275,000 in restricted short term

investments at February 29, 1996.

Net cash used in operations in the 1997 Period was $ 1,417,007
principally due to the loss from continuing operations, the increase in accounts
receivable, inventories and prepaid expenses, which were partially offset by the
increase in accounts payable and the increase in depreciation and amortization.

Net cash used in investing activities in the 1997 Period was $315,965
principally as a result of the purchase of a components for the telephone system
for the telemarketing operations and development and production of additional
series of videotapes.

Net cash provided by financing activities in the 1997 Period was
$1,909,989 principally as a result of the issuance of debt and preferred stock.

In April 1996, the Company and several investors entered into a private
placement of $500,000 of Convertible 10% Notes due December 31, 1997. Under
terms of the notes, the noteholders have the right to convert the principal and
accrued interest into shares of the Company's Common Stock a price of either (i)
$1.2656 per share or (ii) 75% of the closing bid for the five trading days
immediately preceding the conversion. If the noteholders have not converted at
December 31, 1997, the Company has the right to compel conversion at $1.2656 per
share. However, in the event of default, as defined, the Company will not have
the right to compel conversion. The Company has placed 909,090 shares of common
stock into escrow for the noteholders. In connection with this financing the
Company paid $60,000 and issued 50,000 warrants to purchase the Company's Common
Stock at a price of $2.51 per share as finders' fees. These warrants expire
April 17, 2000. Subsequently, the exercise price was lowered to $1.50. During
the 1997 Period $250,000 were converted into 341,897 shares and 112,648 shares
were canceled leaving 454,545 shares in escrow.

During 1996, the Company negotiated agreements with certain of its
noteholders to modify the terms of their notes. These agreements were concluded
in June 1996. As a result of these agreements, $198,792 of principal and accrued
interest was converted into 194,239 restricted shares of common stock and
warrants to purchase an additional 210,516 restricted

<PAGE>

shares of common stock at $1.50 per share. In consideration for this extension,
the debt holders were issued warrants to purchase 492,700 restricted shares of
common stock at $1.50 per share. During the quarter ended November 30, 1996, all
remaining principal and interest was paid.

The Company has instituted new policies and procedures for its
installment sales program. As a result of this new initiative, the Company has
experienced an improvement in its cash collections. There can be no assurance
that this improvement will continue in the future.

The Company arranged a six month short term loan that yielded the
Company in the months of September 1996 and October 1996 approximately
$1,000,000 which was used to retire existing debt and fund working capital. In

connection with this funding, the lenders were granted 2.2 million warrants
exercisable at $1.50. Interest accrues at a rate of 8.0%. Warrants to acquire an
additional 1,100,000 shares at $1.50 per share were issuable on the 180th day of
the loan. Since the Company's shares are no longer listed on the Nasdaq Small
Cap Market, the exercise price is 75% of the market price. Certain lenders in
this short term loan have agreed to extend the maturity date for 6 months or
until the next significant equity offering. Several lenders were not prepared to
extend and were therefore repaid. As of the date hereof a total of $200,000 has
been repaid.

In addition, during the quarter ended November 30, 1996, the Company
issued $750,000 of convertible preferred stock. The preferred is convertible
into common stock at a price equal to the lesser of $1 per share or 70% of the
market value of the common stock at the time of conversion, but in no event less
than $.50 per share. In addition, if the holders of the preferred stock do not
convert to common stock within the first six months of purchase, the holder
receives a warrant to purchase one share of common stock for each dollar
invested in the preferred and held for six months.

The Company's educational business is highly seasonal. Demand for its
products tends to peak during the first and fourth fiscal quarters when school
is in session. Demand is especially slow during the school vacation periods.
This seasonality greatly affects the Company's advertising campaigns which must
be timed to coincide with the annual periods when demand is traditionally high.
The Company does not reserve advertising time in advance and purchases air time
at the lowest possible rates. Consequently, its reservations are subject to last
minute cancellation by the radio and television stations. In addition, as a
result of the Company's dependence on the availability of media time, operating
results can be negatively impacted by difficulty in purchasing media time such
as occurs during elections and holidays. For example, the Company incurred
difficulty in purchasing media time prior to the November 1996 elections which
negatively affected results for the fiscal quarters ending November 30, 1996 and
February 28, 1997. Although the Company has entered into certain ventures
which may reduce the impact of seasonality on the Company's business, it will in
all likelihood continue to experience a certain amount of seasonality in its
operations.

The Company continues to meet its working capital requirements through
internally generated funds and debt and equity funding from outside sources. In
addition, the Company may have increased capital requirements as it seeks to
expand its product lines and customized telemarketing services. The Company also
has investor loans and advances aggregating $1.65 million payable within the
next 12 months. In order to meet its current and future cash requirements, the
Company is in discussions to negotiate additional financing. There can be no
assurance that any financing will be successful nor that the Company will be
able to fund internally its working capital

<PAGE>

requirements or meets its debt repayment obligations. In the event that the
Company is unable to secure additional financing, it may be obligated to
significantly reduce its operations and seek to sell assets, which would have a

material adverse affect on the Company's prospects and financial results. The
Company has received a report from its independent public accountants, Holtz
Rubenstein & Co., LLP, that includes an explanatory paragraph describing the
uncertainty as to the ability of the Company's operations to continue as a going
concern. In May and June 1997, the Company secured certain loans which will be
used for working capital and for debt repayment. Lenders in these six-month
loans receive a promissory note bearing interest at 10% and shares of the
Company's common stock. These loans are to be repaid from the Company's next
major equity financing. Upon an event of default in the repayment of the loans,
the Company is obligated to issue shares of stock at a price of $.125 per share
in an amount equal to the unpaid loan. As of the date hereof, the Company has
received $400,000 towards the funding of these loans and is seeking further
loans on these terms. In addition, the Company has received advances aggregating
$450,000, of which $200,000 was received prior to February 28, 1997. The Company
is currently negotiating to convert these advances into equity, which may result
in substantial dilution to the Company's stockholders. See "Risk Factors - Need
For Additional Financing" and "Future Issuances of Stock; Dilution to Current
Stockholders."

The Company's operations have not been materially affected by the
impact of inflation.

Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements are included herein commencing on page F-1

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

Not applicable.

<PAGE>

PART III

Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Officers and Directors

The officers and directors of the Company are as follows:

Name Age Position
---- --- --------

Morris I. Berger (1) 38 Chief Executive Officer and
Director

Barry Reichman 46 President and Director

Anne Reichman 43 Secretary and Director

Gary M. Simon 36 Chief Financial Officer

Irving Bader (1) 57 Director

Werner Haase (1) 59 Director

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

(1) Member of the Audit Committee.

Morris Berger has served as Chief Executive Officer and a Director of
the Company since August 1994. He was a Vice President of VTS from 1985 until
1994 in which capacity he was involved in the creation of the Math Made Easy(TM)
consumer line of products, directed the advertising campaigns and was the
principal contact with that company's commercial lenders. Mr. Berger holds a
B.A. in Political Science and International Relations from Bar Ilan University
in Israel.

Barry Reichman has been President and a Director of the Company since
August 1994. From 1985 until 1994, he was Secretary and a Director of VTS. Mr.
Reichman holds a B.A. in Economics from Yeshiva University and an M.B.A. from
Baruch College. He is the husband of Anne Reichman, a Director of the Company.

Anne Reichman has been a Director of the Company since October 1994.
Ms. Reichman was elected Secretary of the Company in March 1995. From 1985 until
1994 she developed and oversaw the computer and order fulfillment system for VTS
and supervised internal accounting. Ms. Reichman was also an assistant producer
in a number of VTS mathematics videotape productions and authored several math
workbooks. Ms. Reichman holds a B.A. in Mathematics from Yeshiva University. Ms.
Reichman is the wife of Barry Reichman, President and a Director of the Company.

<PAGE>

Gary M. Simon was appointed Chief Financial Officer of the Company in
August 1996. Mr. Simon was Chief Financial Officer of Concord Camera Corp. from
May 1992 through July 1996. Prior to that Mr. Simon was vice-president of
Oxbridge Partners, a merchant banking firm in New York. Prior to that, Mr. Simon
was Senior Manager with Ernst & Young's Mergers & Acquisition Group, a division
within the Corporate Finance Services Group. Mr. Simon holds an M.B.A. in
Finance from New York University Graduate School of Business Administration and
a B.S. in Accounting form Yeshiva University.

Irving Bader was elected a Director of the Company in March 1995. Mr.
Bader has been Director of Adaptive Physical Education with the New York City
Board of Education since 1973. He has also been an Adjunct Professor of Physical
Education at Brooklyn College since 1980. In addition, he has been the area
coordinator of the New York Special Olympics since 1985. Mr. Bader holds a B.A.
in English from Yeshiva College and M.S.E. from Yeshiva Graduate School of
Education.

Werner Haase has served as director of the Company since September
1987. For more than the past five years, Mr. Haase has been Chairman and a
Director, and since 1986, has been Chief Executive Officer of Journeycraft,
Inc., a diversified services company with interests in incentive marketing,
healthcare and corporate travel management. Mr. Haase is a director and CEO of
Water-Jel Technologies, Inc., a publicly held company which owns Journeycraft,
Inc. and also develops, produces and markets products which provide emergency
first aid on burns, and shields against heat and fires. Mr. Haase is also a
director of PureTec Corporation, a publicly held manufacturer of specialty
plastic products and materials.

The underwriter of the Company's Initial Public Offering is entitled to
designate one member of the Board of Directors subject to the Company's good
faith approval. Directors are elected to serve until the next annual meeting of
stockholders and until their successors are elected and qualified. Officers
serve at the discretion of the Board.

The Board of Directors of the Company held four meetings in the fiscal
year ended February 28, 1997, at which all of the directors were in attendance.
The directors also consulted informally and acted by written consent during the
year. Non-employee directors receive $500 for each meeting that they attend for
their service.

Audit Committee

The Board has designated an Audit Committee consisting of Messrs.
Berger, Haase and Bader. There were no meetings held for this committee during
the most recent fiscal year.

<PAGE>

Item 10. EXECUTIVE COMPENSATION

The following table sets forth information with respect to compensation
paid by the Company for services to the Company during the three fiscal years
ended February 28, 1997, to the Company's Chief Executive Officer and one other
officer of the Company received annual compensation in excess of $100,000.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
Fiscal Annual Restricted Securities
Name and Position Year Compensation Total Stock Underlying
- ----------------- ---- ------------ ----- ----- ----------

Salary Bonus Awards Options
------ -----

<S> <C> <C> <C> <C> <C> <C>
Morris Berger, 1997 $115,883 $-0- $115,883 55,000
Chief Executive Officer
1996 $101,900 $18,750 $120,650

1995 $45,420 --- $45,420

Gary M. Simon 1997 $112,083 $112,083 10,000 150,000
Chief Financial Officer
</TABLE>

The above table does not include certain insurance and other personal
benefits, the total value of which does not exceed $50,000 or 10% of such
person's cash compensation. Mr. Simon joined the Company in August 1996. The
salary above only indicates his earned salary since the inception of his
employment with the Company.

Employment Agreements

The Company has entered into employment agreements with Morris Berger
and Barry Reichman, pursuant to which they are paid annual base salaries of
$105,000 and $90,000 respectively. Mr. Berger and Mr. Reichman are entitled to a
bonus of respectively .5% and 1.5% of net earnings before taxes, provided that
such earnings attain certain levels. Each agreement contains a non-compete
clause and a provision for the continued payment of salaries for a period of one
and a half years or the remainder of the term of the agreement, whichever is
shorter, in the event of termination by the Company other than for cause. In
addition, Mr. Berger's agreement provides for the use, at the Company's expense,
of an automobile and key man insurance with the Company as the beneficiary for
$1,000,000.

Bonus Plan For Senior Executives

On April 20, 1995, the Board of Directors voted to grant Mr. Berger and

Mr. Reichman a bonus of $18,250 and $7,500, respectively.

Stock Option Plan

The Company's 1995 Stock Option Plan (the "Stock Option Plan") provides
for the granting of options to purchase not more than an aggregate of 350,000
shares of Common Stock, subject to adjustment under certain circumstances. Such
options may be Incentive Stock Options

<PAGE>

("ISO") within the meaning of the Internal Revenue Code of 1986, as amended, or
Non-Qualified Options ("NQO").

The Stock Option Plan is administered by the Board of Directors or by a
stock option committee (the " Committee") which may be appointed by the Board of
Directors. To date the Board has not appointed a Committee. The Committee has
full power and authority to interpret the provisions, and supervise the
administration, of the Stock Option Plan. The Committee determines, subject to
the provisions of the Stock Option Plan, to whom options are granted, the number
of shares of Common Stock subject to each option, whether an option shall be an
ISO or a NQO and the period during which each option may be exercised. In
addition, the Committee determines the exercise price of each option, subject to
the limitations provided in the Stock Option Plan, including that (i) for a NQO
the exercise price per share may not be less than 85% of the fair market value
per share of Common Stock on the date of grant and (ii) for an ISO the exercise
price per share may not be less than the fair market value per share of Common
Stock on the date of grant (110% of such fair market value if the grantee owns
stock possessing more than 10% of the combined voting power of all classes of
the Company's stock). In determining persons to whom options will be granted and
the number of shares of Common Stock to be covered by each option, the Committee
considers various factors including each eligible person's position and
responsibilities, service and accomplishments, anticipated length of future
service and other relevant factors. Options may be granted under the Stock
Option Plan to all officers, directors and employees of the Company and, in
addition, NQO may be granted to other parties who perform services for the
Company. No options may be granted under the Stock Option Plan, after March 31,
2004. The Stock Option Plan may be amended from time to time by the Board of
Directors of the Company. The Board of Directors may not, however, without
stockholder approval, amend the Stock Option Plan to increase the number of
shares of Common Stock which may be issued under the Stock Option Plan (except
upon changes in capitalization as specified in the Stock Option Plan), decrease
the minimum exercise price provided in the plan or change the class of persons
eligible to participate in the plan.

Option/SAR Grants in Fiscal Year Ended February 28, 1997
--------------------------------------------------------

Number of Percent of
Name and Position Securities Total Options/
Underlying SARs Granted Exercise Or
Options/Sars To Employees base Price

granted In Fiscal Year ($/SH)

Morris Berger,
Chief Executive Officer 55,000 18.0% $1.10

Gary M. Simon
Chief Financial Officer 150,000 49.1% $1.00

<PAGE>

Aggregated Option/SAR Exercises in Fiscal Year Ended February 28, 1997 and
Option/SAR Values

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Number of Options/SARs at Options/SARs at
Shares February 28, 1997 February 28, 1997
Acquired Value Exercisable/ Exercisable/
Name and Position on Exercise Realized Unexercisable Unexercisable
- ----------------- ----------- -------- ------------- -------------

<S> <C> <C> <C> <C>
Morris Berger,
Chief Executive Officer - - 55,000/0 -

Gary M. Simon
Chief Financial Officer - - 50,000/100,000 -
</TABLE>

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Officers, directors and greater than ten-percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) forms
they file.

Based solely on review of the copies of such forms furnished to the
Company, or written representations that no Forms 5 were required, the Company
believes that during the period from April 13, 1995 through February 29, 1996
all Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with except that
Messrs. Berger, Reichman, Haase and Bader and Mrs. Reichman were late in
reporting the grant of stock warrants and Mr. Brosens has failed to file a Form
3.

Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of June 11, 1997, information
regarding the beneficial ownership of the Common Stock based upon the most
recent information available to the Company for (i) each person known by the
Company to own beneficially more than five percent of the Common Stock, (ii)
each of the Company's named executive officers and directors and (iii) all
officers and directors of the Company as a group. Unless otherwise indicated,
each stockholder's address is c/o the Company, 205 Kings Highway, Brooklyn, New
York, 11223.

<PAGE>

Shares Owned Beneficially and of Record (1)

Beneficial Owner Number of Shares % of Total
- ---------------- ---------------- ----------

Frank Brosens(2)
10 Bedford Center Road
Bedford Hills, NY 10507 633,000 9.3%

Morris Berger (3) 617,500 9.9%

Werner Haase (4) 511,822 7.8%

Rita Folger(5)
521 Fifth Avenue
New York, NY 10175 498,084 7.6%

Odyssey Venture Partners Limited(6)
c/o Tremont House
4 Park Road
Hamilton, HM11, Bermuda 454,545 7.3%

Star Properties Limited(7)
2nd Floor - Mansion House
Gibraltar 450,000 6.8%

Joseph Sorbara(8)
33 Maiden Lane
New York, NY 10038 374,000 5.7%

Steven Markowitz(9)
33 Maiden Lane
New York, NY 10038 365,700 5.6%

Barry Reichman (10) 344,250 5.5%

Anne Reichman (10) 344,250 5.5%

Irv Bader (11) 160,504 2.5%

Gary M. Simon (12) 160,000 2.5%

All Officers and Directors as a Group 1,794,076 25.5%

(1) Except as noted otherwise, all shares are owned beneficially and of
record.

(2) Includes 400,000 shares of Common Stock issuable upon conversion of
Preferred Stock and 200,000 shares of Common Stock issuable upon
exercise of a warrant.

(3) Includes 55,000 shares of Common Stock issuable upon exercise of
warrant.

(4) Includes 328,541 shares of Common Stock issuable upon exercise of a
warrant

<PAGE>

(5) Includes 307,721 shares of Common Stock issuable upon exercise of a
warrant.

(6) These shares are held in escrow and may be released upon election by
holder to convert a promissory note into shares of Common Stock

(7) Includes 300,000 shares of Common Stock issauble upon conversion of
Preferred Stock and 150,000 shares issauble upon conversion of a
warrant.

(8) Includes 363,500 shares of Common Stock issuable upon exercise of
warrants, of which 325,000 are held by Joseph Stevens & Company Inc.
See (9).

(9) Includes 342,000 shares of Common Stock issuable upon exercise of
warrants, of which 325,000 are held by Joseph Stevens & Company, Inc.
See (8).

(10) Consist of 206,250 shares and 50,000 shares of Common Stock issuable
upon exercise of warrant owned by Mr. Reichman. Also includes 38,000
shares of Common Stock and 50,000 shares of Common Stock issuable upon
exercise of warrant, owned by Anne Reichman, a director of the Company.
Mr. and Mrs. Reichman are married.

(11) Includes 144,860 shares of Common Stock issuable upon exercise of
warrant.

(12) Includes 150,000 shares of Common Stock issuable upon exercise of
options.

Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In November 1995, the Company as part of its agreement with certain
noteholders, converted $172,685 or 60% of the debt due to Werner Haase, a
director of the Company, into 69,074 shares of the Company's Common Stock and
388,540 of the Company's Redeemable Warrants, and $97,742 or 60% of the debt due
to Rita Folger into 39,097 shares of the Company's Common Stock and 219,921 of
the Company's Redeemable Warrants. In addition, in January 1996, the Company
repaid Mr. Haase and Mrs. Folger a portion of the debt due to them in the
amounts of $43,756 and $24,850, respectively.

In June 1996, the Company as part of its agreement with certain

shareholders converted approximately $42,900 of principal and interest due to
Rita Folger into 43,171 shares of the Company's Common Stock and into 43,171 of
the company's Redeemable Warrants.

In April 1996, the Company received gross proceeds of $250,000 from the
issuance of convertible notes to Odyssey Venture Partners Limited
("Noteholder"). The notes bear interest at 10% per annum and are due on December
31, 1997. The Noteholder has the right to convert the principal and accrued
interest into common shares of the Company at a price equal to 75% of the
closing bid for the five trading days immediately preceding the conversion. The
Company placed 454,545 shares of common stock into escrow for the Noteholder.

<PAGE>

Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) 1. and 2. Financial Statements and Schedules

The financial statements are listed in the Index to
Financial Statements on page F-1 and are filed as
part of this annual report.

3. Exhibits

The Index to Exhibits following the Signature Page
indicates the exhibits which are being filed herewith
and the exhibits which are incorporated herein by
reference.

<PAGE>

EXHIBITS

Except where otherwise indicated, the following exhibits are incorporated by
reference to the correspondingly numbered exhibit in the Company's Registration
Statement on Form SB-2 (No. 33-88494) declared effective April 13, 1995:

3.1 Certificate of Incorporation, as amended

3.2 By-Laws

4.1 Form of Warrant Agreement to be entered into between Registrant and
American Stock Transfer & Trust Company

4.2 Specimens of Registrant's Stock, Redeemable Warrant and Unit
Certificate

10.1 Form of 1995 Stock Option Plan

10.2 Agreement between VTS and The Ernest Lawrence Group

10.3 Employment Agreement between Registrant and Morris Berger

10.4 Employment Agreement between Registrant and Barry Reichman

10.5 Form of Note Conversion Agreement dated November 15, 1995 (1)

10.6 Form of Amendment No. 1 to Note Conversion Agreement dated November 30,
1995 (1)

10.7 Form of Modification Agreement dated May 30, 1996 (1)

10.8 Form of Convertible Debt Offering (2)

10.9 Form of 1996 Short Term Loan (2)

10.10 Certificate of Designation of Series A Preferred Stock (2)

10.11 Form of 1997 Short Term Loan (2)

27 Financial Data Schedule (2)

- -------------------------------
(1) Incorporated by reference from the Company's 10KSB for the Fiscal year
ended February 29, 1996

(2) Filed herewith

<PAGE>

SIGNATURES

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

MULTI MEDIA TUTORIAL SERVICES, INC.

By: /s/ Morris Berger
-----------------------------------
Morris Berger, CEO and Director

Dated: June 11, 1997

Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below as of June 11, 1997 by the following persons
on behalf of Registrant and in the capacities indicated.

/s/Morris Berger
---------------------------------------
Morris Berger, CEO and Director

/s/Barry Reichman
---------------------------------------
Barry Reichman, President and Director

/s/Anne Reichman
---------------------------------------
Anne Reichman, Secretary and Director

/s/Irving Bader
---------------------------------------
Irving Bader, Director

/s/Werner Haase
---------------------------------------
Werner Haase, Director

/s/Gary M. Simon
---------------------------------------
Gary M. Simon, Chief Financial Officer
and Principal Accounting Officer

<PAGE>

MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

CONTENTS

Page
----

Report of Independent Certified Public Accountants F-1

Consolidated balance sheet as of February 28, 1997 F-2

Consolidated statements of operations for the years
ended February 28, 1997 and February 29, 1996 F-3

Consolidated statement of stockholders' equity for
the years ended February 28, 1997 and February 29, 1996 F-4

Consolidated statements of cash flows for the years ended
February 28, 1997 and February 29, 1996 F-5

Notes to consolidated financial statements F-6 - F-15

<PAGE>

Independent Auditors' Report

Board of Directors and Stockholders
Multi-Media Tutorial Services, Inc. and Subsidiary
Brooklyn, New York

We have audited the accompanying consolidated balance sheet of Multi-Media
Tutorial Services, Inc. and Subsidiary as of February 28, 1997 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the two years ended February 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Multi-Media Tutorial Services, Inc. and Subsidiary as of February 28, 1997, and
the results of their operations and their cash flows for the two years then
ended, in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2, the
Company's recurring losses from operations and limited capital resources raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

HOLTZ RUBENSTEIN & CO., LLP
Certified Public Accountants

April 25, 1997 (except for Note 17, as to which the date is June 5, 1997)
Melville, New York

F-1

<PAGE>
MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET

FEBRUARY 28, 1997

ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 276,072
Restricted cash 259,021
Accounts receivable, net of allowance of $1,411,000 1,670,864
Note receivable - current (Note 4) 26,250
Inventories 288,245
Deferred advertising expense (Note 13) 361,731
Prepaid expenses and other current assets 394,480
--------------
Total current assets 3,276,663

PROPERTY AND EQUIPMENT, net (Notes 5 and 7) 670,490
INTANGIBLE ASSETS, net (Note 6) 456,651
NOTE RECEIVABLE (Note 4) 180,000
OTHER ASSETS 21,420
--------------
$ 4,605,224
==============
LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,813,499
Capital lease obligations (Note 7) 151,861
Accrued product returns 60,000
Notes payable (Note 8) 1,250,000
--------------
Total current liabilities 3,275,360
--------------
LONG-TERM DEBT (Note 10) 200,000

COMMITMENTS AND CONTINGENCIES (Note 11)

STOCKHOLDERS' EQUITY: (Notes 8,12 and 17)
Common stock, $.01 par value, 20,000,000 shares
authorized; 6,213,297 shares issued and outstanding 62,133
Preferred stock, $.01 par value, 1,000,000 shares
authorized; 13 issued and outstanding 1
Additional paid-in capital 9,377,060
Deficit (8,309,330)
---------------

1,129,864
---------------
$ 4,605,224
===============

See notes to consolidated financial statements

F-2

<PAGE>

MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Years Ended
February 28, February 29,
1997 1996
----------- -----------

NET SALES $ 7,890,397 $ 9,228,538

COST OF GOODS SOLD 810,164 1,180,961
----------- -----------

GROSS PROFIT 7,080,233 8,047,577
----------- -----------

COSTS AND EXPENSES: (Notes 11, 12 and 13)
Selling and marketing 7,012,788 7,980,667
General and administrative 1,642,204 1,735,212
Interest expense 141,896 94,904
Interest income (19,625) (86,790)
----------- -----------

TOTAL COSTS AND EXPENSES 8,777,263 9,723,993
----------- -----------

LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM (1,697,030) (1,676,416)

DISCONTINUED OPERATIONS (Note 4) -- 17,510
----------- -----------

NET LOSS $(1,697,030) $(1,658,906)
=========== ===========

(LOSS) INCOME PER SHARE: (Note 12)
(Loss) from continuing operations $ (.32) $ (.38)
Income from discontinued operations -- .01
----------- -----------
NET LOSS $ (.32) $ (.37)
=========== ===========

WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING (Note 12) 5,295,743 4,444,456
=========== ===========

See notes to consolidated financial statements

F-3

<PAGE>

MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Note 12)

<TABLE>
<CAPTION>
Common Stock Preferred Stock
20,000,000 Shares 1,000,000 Shares
$.01 Par Value $.01 Par Value
-------------------------- --------------------------
Shares Value Shares Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>

Balance at February 28, 1995 2,750,000 $ 27,500 -- $ --

Public issuance of securities for cash,
net 1,868,750 18,688 -- --
Conversion of debt for stock (Note 8) 221,310 2,213 -- --
Issuance of securities for services 8,000 80 -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------

Balance at February 29, 1996 4,848,060 48,481 -- --

Issuance of securities for services 89,900 899 -- --
Conversion of debt for stock 274,239 2,742 -- --
Issuance of shares to escrow 909,090 9,091 -- --
Release/return from escrow for conversion (112,648) (1,126) -- --
Issuance of preferred stock for cash -- -- 15 1
Conversion of preferred stock 184,656 1,846 (2) --
Issuance of warrants -- -- -- --
Issuance of common stock for cash 20,000 200 -- --
Fees incurred in connection with
various stock issuances -- -- -- --
Net loss -- -- -- --
----------- ----------- ----------- -----------

Balance at February 28, 1997 6,213,297 $ 62,133 13 $ 1
=========== =========== =========== ===========

Additional
Paid-in
Capital Deficit Total
----------- ----------- -----------
<S> <C> <C> <C>

Balance at February 28, 1995 $ 1,712,922 $(4,953,394) $(3,212,972)

Public issuance of securities for cash,
net 5,850,346 -- 5,869,034
Conversion of debt for stock (Note 8) 548,758 -- 550,971
Issuance of securities for services 15,920 -- 16,000
Net loss -- (1,658,906) (1,658,906)
----------- ----------- -----------

Balance at February 29, 1996 8,127,946 (6,612,300) 1,564,127

Issuance of securities for services 84,307 -- 85,206
Conversion of debt for stock 273,208 -- 275,950
Issuance of shares to escrow (9,091) -- --
Release/return from escrow for conversion 251,126 -- 250,000
Issuance of preferred stock for cash 749,999 -- 750,000
Conversion of preferred stock (1,846) -- --
Issuance of warrants 25,000 -- 25,000
Issuance of common stock for cash 19,800 -- 20,000
Fees incurred in connection with
various stock issuances (143,389) -- (143,389)
Net loss -- (1,697,030) (1,697,030)
----------- ----------- -----------

Balance at February 28, 1997 $ 9,377,060 $(8,309,330) $ 1,129,864
=========== =========== ===========
</TABLE>

See notes to consolidated financial statements

F-4

<PAGE>

MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended
--------------------------
February 28, February 29,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,697,030) $(1,658,906)
Adjustments to reconcile loss from continuing operations and
extraordinary item to cash used in operating activities:
Provision for returns and allowance 171,000 845,000
Depreciation and amortization 295,818 213,640
Non-cash compensation 72,150 16,000
Gain from discontinued operations -- (17,510)
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Restricted cash (259,021) --
Restricted short-term investments 275,000 (275,000)
Accounts receivable (787,612) (2,090,194)
Inventories (110,078) (94,967)
Deferred advertising 27,769 (389,500)
Prepaid expenses and other current assets (82,065) (192,495)
Other assets (7,115) (4,005)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 684,177 (6,356)
----------- -----------
Total adjustments 280,023 (1,995,387)
----------- -----------
Net cash used in operating activities from continuing operations (1,417,007) (3,654,293)
Net cash used in operating activities from discontinued operations -- (300,373)
----------- -----------
Net cash used in operating activities (1,417,007) (3,954,666)
----------- -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (222,708) (434,258)
Increase in intangibles (99,090) (224,865)
Collection of note receivable 5,833 --
----------- -----------
Net cash used in investing activities (315,965) (659,123)
----------- -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital lease obligations (12,494) --
Repayment of notes payable - bank -- (70,223)
Proceeds from issuance of notes payable 1,640,000 --
Repayment of notes payable and long-term debt (344,128) (1,501,888)

Repayment of stockholder loans -- (155,819)
Net proceeds from issuances of securities 626,611 6,210,537
----------- -----------
Net cash provided by financing activities 1,909,989 4,482,607
----------- -----------

Net increase (decrease) in cash and cash equivalents 177,017 (131,182)
Cash and cash equivalents at beginning of year 99,055 230,237
----------- -----------

Cash and cash equivalents at end of year $ 276,072 $ 99,055
=========== ===========
</TABLE>

See notes to consolidated financial statements

F-5

<PAGE>

MULTI-MEDIA TUTORIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996

1. Nature of Operations:

Multi-Media Tutorial Services, Inc. (the "Company"), a Delaware
corporation, is engaged in the production and sales of educational videotapes
through its wholly-owned subsidiary, Video Tutorial Services, Inc. ("VTS").

2. Going Concern:

The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. The Company incurred a net loss
of approximately $1,697,000 for the year ended February 28, 1997, and as of
February 28, 1997 had an accumulated deficit of approximately $8,309,000 and
working capital of $1,303. Management recognizes that the Company must generate
additional resources and the eventual achievement of sustained profitable
operations. Management's plans include obtaining additional capital through
debt/equity financing ,(see Note 17) and the extension of existing debt.
Management is also addressing improved collection of customer accounts and the
implementation of additional products. The consolidated financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.

3. Summary of Significant Accounting Policies:

a. Principles of consolidation

The accompanying consolidated financial statements include the
accounts of Multi-Media Tutorial Services, Inc. (the "Company") and its
wholly-owned subsidiary. Upon consolidation, all significant intercompany
accounts and transactions are eliminated.

b. Inventories

The cost of inventories is determined by the first-in, first-out
method and is stated at the lower of cost or market. Inventories are composed
primarily of videotapes and textbooks. Inventory carrying values are composed
entirely of product costs.

c. Master production costs

Costs incurred in producing a master video program are capitalized and
expensed over the estimated life of the program (7 years).

d. Patents and copyrights

Patents and copyrights, stated at cost less accumulated amortization,
are amortized using the straight-line method over their estimated useful lives
(5 years).

F-6

<PAGE>

3. Summary of Significant Accounting Policies: (Cont'd)

e. Revenue recognition

Sales revenue is recognized when products are shipped to customers.
The Company provides a reserve for anticipated returns from customers and
doubtful collections based upon historical return levels.

f. Depreciation

Depreciation is computed using the straight-line and accelerated
methods over the estimated useful lives ranging from five to seven years.
Maintenance and repairs of property and equipment are charged to operations as
incurred.

g. Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

h. Income taxes

Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.

i. Statement of cash flows

For the purpose of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.

j. Stock based compensation

The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation to employees. Stock compensation to
non-employees is accounted for at fair value in accordance with FASB Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").

k. New standards

In February 1997, the FASB issued Statement 128, "Earnings Per Share"

("Statement 128"), which simplifies the standards for computing earnings per
share previously used and makes them comparable to international standards. The
Statement is effective for financial statements issued for periods ending after
December 15, 1997, and earlier application is not permitted. The Company does
not believe that the adoption of this Statement will have a material effect to
its financial statements.

F-7

<PAGE>

4. Discontinued Operations:

In November 1995, the Company sold essentially all the assets and
transferred certain liabilities of its language instruction operations based in
Oklahoma (the "Oklahoma" operations) to a group headed by a former officer of
the Company ("Purchaser"). The purchase price of $250,000 consisted of cash of
$35,000 and a secured promissory note in the amount of $215,000 bearing interest
at the prime rate. In addition, commencing January 15, 1997, the Purchaser
agreed to pay a quarterly royalty to the Company. The royalty agreement
terminates when either $1,600,000 in cumulative royalties have been paid or
November 30, 2002, whichever is earlier. As of February 28, 1997, certain
amounts are overdue. The Company has notified the Purchaser that the Purchaser
is in default and that the Company is seeking remedies to insure that it
receives payment.

A summary of the discontinued operation for the year ended February 29,
1996:

Loss from Oklahoma operations $ (144,009)
Income tax benefit 33,000
------------
Net loss from Oklahoma operations $ (111,009)
============

Gain on sale of Oklahoma operations $ 161,519
Provision for income taxes (33,000)
------------

Net gain on sale of Oklahoma operations $ 128,519
============

Net (loss) gain on discontinued operations $ 17,510
============

5. Property and Equipment:

Property and equipment, at cost, consists of the following at February
28, 1997:

Furniture and fixtures $ 78,144
Machinery and equipment 773,474

Leasehold improvements 110,473
------------
962,091

Less accumulated depreciation 291,601
------------
$ 670,490
============

F-8

<PAGE>

6. Intangible Assets:

Intangible assets consists of the following at February 28, 1997:

Master video production costs $1,091,063
Other 22,088
----------
1,113,151
Less accumulated depreciation 656,500
----------
$ 456,651
==========

Approximately $238,000 of the master video production costs represents
capitalized salaries.

7. Capital Lease Obligations:

During the year ended February 28, 1997 the Company entered into capital
lease obligations, aggregating $164,355, in connection with the acquisition of
equipment with a net book value of approximately $157,000. The leases, bearing
interest at 16% per annum, provide for aggregate monthly payments of $5,851. As
of February 28, 1997, the Company was delinquent in its payments and
accordingly, the entire balance has been classified as a current liability.

8. Notes Payable:

Notes payable consists of the following at February 28, 1997:

Short term loans payable(a) $ 1,000,000
Convertible notes payable (b) 250,000
-------------
$ 1,250,000
=============

(a) In September 1996 and October 1996, the Company entered into
six month short term loans aggregating $1,000,000 which were
used to retire existing debt and fund working capital. In
connection with this funding, the lenders were granted 2
million warrants exercisable at $1.50. Interest accrues at a

rate of 8.0%. Warrants to acquire an additional 1,000,000
shares, or 50% more, at $1.50 per share, were issuable on the
180th day of the loan. If the loan is not repaid by the 210th
day, the exercise price of the warrants will be reduced to
$1.00. If the loan is not repaid by the 240th day, the price
of the warrants will be reduced to the lesser of $1.00 per
share and the greater of 75% of the market price of the Common
Stock or $.55 per share. If the Company's shares are no longer
listed on the Nasdaq Small Cap, the exercise price will be 75%
of the market price. As a finder's fee the Company issued
warrants to acquire 200,000 shares of common shares, with the
same conditions the lenders received.

(b) In April 1996, the Company received gross proceeds of $500,000
from the issuance of convertible notes. The notes bear
interest at 10% per annum and are due on December 31, 1997.
The note holders have the right to convert the

F-9

<PAGE>

principal and accrued interest into common shares of the
Company at a price of (i) $1.2656 per share or (ii) 75% of the
closing bid for the five trading days immediately preceding
the conversion. The Company placed 909,090 shares of
common stock into escrow for the noteholders. In connection
with this financing the Company paid $60,000 and issued
50,000 warrants to purchase the Company's Common Stock at a
price of $2.51 per share as finders' fees. These warrants
expire April 17, 2000. Subsequently, the exercise price was
lowered to $1.50. During fiscal 1997 $250,000 of principal
was converted into 341,897 shares and 112,648 shares were
canceled leaving 454,545 shares in escrow.

9. Income Taxes:

At February 28, 1997, the Company had net operating loss carryforwards
("NOLs") of approximately $3,063,000 available to offset against future federal
income tax liabilities. However, under Section 382 of the Internal Revenue Code,
a greater than 50% change in ownership, as defined, restricts the annual
utilization of available NOLs to a prescribed amount. The transactions described
in Notes 10 and 17 may meet the criteria of Section 382. Accordingly, future
utilization of the NOLs may be severely limited.

As of February 28, 1997, the Company has a 100% valuation allowance
against its deferred tax asset.

10. Long-Term Debt:

In February 1997, the Company obtained a $200,000 advance which
matures on March 31, 1998. It is expected that the lender will receive equity
compensation for these advances. In addition, subsequent to year end, the
Company received an additional $250,000 which has been classified as an advance.
Furthermore, the Company is currently negotiating with the lender to convert
these amounts to equity, which may substantially dilute current shareholders.
There is no prepayment penalty associated with these advances.

F-10

<PAGE>

11. Commitments and Contingencies:

a. Litigation

In July 1995, the Company commenced an action against its former
long-distance telephone carrier for damages based upon the carrier's fraud and
failure to deliver telephone services. The carrier has also commenced an
arbitration proceeding against the Company in which it seeks to recover for
long-distance telephone services rendered and for early termination damages.
While the ultimate results of the matter described cannot be determined,
management does not expect that they will have a material adverse effect on the
Company's results of operations or financial position.

b. Operating leases

The Company occupies office space and has a vehicle under leases which
expire through April 1999. Future minimum rental payments under these
non-cancelable leases are as follows:

1998 $110,000
1999 116,000
2000 31,000

Rent expense approximated $106,000 and $76,200 for the years ended
February 28, 1997 and February 29, 1996, respectively.

c. Employment agreements

The Company has entered into employment agreements with four employees
which provide for aggregate salaries of $400,000, $298,000 and $187,500 in the
years ending February 28, 1998 and 1999 and February 29, 2000, respectively.

12. Stockholders' Equity:

a. Capitalization

The Company's authorized capital consists of 20,000,000 shares of
common stock and 1,000,000 shares of preferred stock. All stock has $.01 par
value. Each share of common and preferred stock has one vote per share in all
matters. The preferred shares have priority over the Company's common stock in
respect to dividend rights and liquidation preferences.

b. Initial public offering

In April 1995, the Company successfully completed a public offering of
1,625,000 units at $4 per unit for gross proceeds of $6,500,000. Each unit
consisted of one share of common stock and one warrant entitling the holder to
purchase one share of the Company's stock at $5.60 per share. In addition, the
underwriters exercised their overallotment option for 243,750 units, resulting
in additional gross proceeds of $975,000. Net proceeds of public offering and
overallotment option approximated $5,870,000.

F-11

<PAGE>

c. Common stock

In November 1995, the Company entered into agreements whereby
outstanding debt and accrued interest approximating $551,000 was exchanged for
221,310 shares of common stock and warrants to purchase 1,244,850 shares of
common stock at $2.50 per share. The value of the securities issued approximated
the amount of the liability exchanged.

In January 1996, the Company issued 8,000 shares of common stock and
warrants to acquire 45,000 shares of common stock as consideration for services
provided. The warrants have an exercise price of $2.50 per share and expire in
2005. The value of these securities ($16,000) was charged to operations. The
exercise price of the warrants was reduced to $1.50 in 1997.

In June 1996, the Company entered into agreements with certain of its
noteholders to modify the terms of their notes. As a result of these agreements,
approximately $199,000 of principal and accrued interest was converted into
194,239 restricted shares of common stock and warrants to purchase an additional
210,516 restricted shares of common stock at $1.50 per share. In consideration
for this extension, the debt holders were issued warrants to purchase 492,700
restricted shares of common stock at $1.50 per share. In addition, the exercise
price of the 1,244,850 warrants issued in November 1995 was reduced to $1.50.

In addition, certain of the Company's vendors and lenders converted
approximately $70,700 of the Company's obligations into 80,000 shares of common
stock and a warrant to purchase 70,000 shares of stock at $1.50 per share. The
value of the securities issued approximated the amount of the liability
exchanged.

During the year ended February 28, 1997, the Company issued 89,900 shares
of common stock and warrants to acquire 50,000 shares of common stock to
employees and third parties for future services. The warrants have exercise

prices ranging from $1.50 to $2.00. The value of these shares, approximating
$82,000, is being charged to operations over the period the services are being
performed. In addition, the Company issued warrants to acquire approximately
590,000 common shares as consideration for services performed and as additional
interest. The warrants have exercise prices ranging from $1.00 to $1.50.

The Company issued 20,000 shares of common stock for gross cash proceeds
of $20,000 during the year ended February 28, 1997.

Options and warrants issued to non-employees during the year ended
February 28, 1997 had a fair value of $25,000, which has been charged to
operations.

d. Preferred stock:

During the year ended February 28, 1997, the Company raised gross
proceeds of $750,000 through the issuance of convertible preferred stock. The
preferred stock is convertible into common stock at a price equal to the lesser
of $1 per share or 70% of the market value of the common stock at the time of
conversion, but in no event less than $.50 per share. In addition, if

F-12

<PAGE>

the holders of the preferred stock do not convert to common stock within the
first six months of purchase, the holder is entitled to a warrant to purchase
one share of common stock for each dollar invested and held for six months.
During the year ended February 28, 1997, stockholders converted 2 shares of
preferred stock into 184,656 shares of common stock. The Company incurred fees
of $75,000 in cash and warrants to acquire 93,750 shares of common stock at
$1.50 in connection with this financing.

e. Subscription agreement

During the year ended February 28, 1995, the Company entered into a
Subscription Agreement under which the subscribers were issued warrants ("Bridge
Warrants") which entitle the holders to purchase an aggregate of 1,875,000
shares of common stock at the same terms, including exercise price, included in
the warrants issued in the public offering. The warrants expire 10 years after
issuance.

f. Stock option plan

The Company has adopted a stock option plan (the "Plan") for 350,000
shares of the Company's common stock. The Plan is administered by the Board of
Directors or by a Stock Option Committee to be appointed by the Board of
Directors. The Stock Option Committee determines, subject to the provision of
the Plan, to whom options are granted, the number of shares of common stock
subject to each option, whether an option shall be an incentive stock option
("ISO") or a Non-Qualified Option, and the period during which each option may
be exercised. In addition, the Stock Option Committee determines the exercise

price of each option, subject to the limitations provided in the Stock Option
Plan, including that (i) for a Non-Qualified Option the exercise price per share
may not be less than 85% of the fair market value per share of common stock on
the date of grant and (ii) for an ISO the exercise price per share may not be
less than the fair market value per share of common stock on the date of grant
(110% of such fair market value if the grantee owns stock possessing more than
10% of the combined voting power of all classes of the Company's stock). In
determining persons to whom options will be granted and the number of shares of
common stock to be covered by each option, the Stock Option Committee considers
various factors including each eligible person's position and responsibilities,
service and accomplishments, present and future value to the Company,
anticipated length of future service and other relevant factors. Options may be
granted under the Stock Option Plan to all officers, directors and employees of
the Company. No options may be granted under the Plan after March 31, 2004. To
date the Board has not appointed a Stock Option Committee.

During the fiscal year ended February 28, 1997, the Company granted
150,000 options with an exercise price of $1.00.

F-13

<PAGE>

g. Common shares reserved at February 28, 1997

1996 short term loan warrants 3,300,000
Shares underlying Preferred Stock and warrants 1,950,000
1996 debt conversion warrants 1,948,100
1995 subscription warrants 1,875,000
IPO warrants 1,868,750
Stock option plan 350,000
Underwriter's warrants 162,500
Other 869,212
----------
12,323,562
==========
h. Loss per share

Loss per share amounts were computed by dividing net loss by the
weighted average number of shares outstanding. Common stock equivalents have
been excluded as their effect would be anti-dilutive.

13. Advertising:

The Company uses direct-response advertising media advertising,
consisting primarily of television and radio commercials. The cost of the
direct-response advertising is deferred and charged to operations over the
period during which the benefits of the commercial are expected (1 month).

Advertising expense approximated $3,350,000 and $4,073,000 for the years
ended February 28, 1997 and February 29, 1996, respectively.

14. Concentration of Credit Risk:

Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts receivable from
sales to (i) schools and institutions and (ii) home consumers on an installment
basis. The customers are located throughout the United States. The Company
generally does require collateral or other security to support customer
receivables.

The Company monitors its exposure for credit losses and maintains
allowances for anticipated losses.

15. Fair Value of Financial Instruments:

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

Current Assets, Notes Receivable and Liabilities: The carrying amount of
cash and temporary cash investments, current receivables and payables,
notes receivable and certain other financial instruments approximate
their fair value.

F-14

<PAGE>
The carrying amount and fair value of the Company's financial instruments
at February 28, 1997 are as follows:

<TABLE>
<CAPTION>
Carrying Fair
Value Value
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 276,000 $ 276,000
Restricted cash 259,000 259,000
Accounts receivable, net 1,671,000 1,671,000
Note receivable 206,000 206,000
Accounts payable and accrued expenses 1,813,000 1,813,000
Notes payable 1,250,000 1,250,000
Long-term debt 200,000 200,000
</TABLE>

16. Supplementary Information - Statement of Cash Flows:

Cash Paid during the year for:

Years Ended
February 28, February 29,
1997 1996
----------- ------------

Interest $81,936 $60,566
Income taxes $ 4,011 $ 1,837

During the year ended February 28, 1997, the Company entered into direct
financing capital leases totaling $164,000.

The Company converted $525,950 and $551,000 of liabilities into common
stock for the years ended February 28, 1997 and February 29, 1996, respectively.

The Company issued common stock and warrants for services and interest
valued at $110,000 and $16,000 for the years ended February 28, 1997 and
February 29, 1996, respectively.

17. Subsequent Events:

In May 1997 and June 1997, the Company secured certain loans whose
proceeds will be used for working capital and debt repayment. Lenders in these
six-month loans receive a promissory note bearing interest at 10% and a
negotiated number of shares of the Company's common stock. These loans are to be
repaid from the Company's next major equity financing. As of June 5, 1997, the
Company has received $400,000 towards the funding of these loans and is seeking
further loans on these terms.

F-15

<PAGE>
SUBSCRIPTION AGREEMENT

THE SECURITIES WHICH ARE THE SUBJECT OF THIS SUBSCRIPTION
AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1993 (THE "ACT") OR UNDER THE LAWS OF ANY STATE OR OTHER
JURISDICTION. THEY MAY NOT BE OFFERED OR SOLD IN THE UNITED
STATES OR TO U.S. PERSONS (AS THAT TERM IS DEFINED IN
REGULATION S UNDER THE ACT), UNLESS THEY ARE REGISTERED UNDER
THE ACT AND UNDER THE LAWS OF THE STATES WHERE EACH SALE IS
MADE, OR AN EXEMPTION FROM REGISTRATION REQUIREMENTS IS
AVAILABLE IN THE OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY.

You (the "Subscriber") hereby agree to purchase, and Multi-Media
Tutorial Service, Inc., a Delaware corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, a convertible subordinated note of the
Company in the principal amount of $100,000.00 and in the form annexed as
Exhibit B (the "Note"), convertible in accordance with the terms thereof into
shares of the Company's common stock (the "Company Shares"). (The Company Shares
are sometimes referred to herein as the "Shares"). (The Note and the Company
Shares are collectively referred to herein as, the "Securities"). Upon
acceptance of this Agreement by the Subscriber, the Company shall issue and
deliver to the Subscriber the Note against payment, by wire transfer or bank
cashier's check, of the principal amount of the Note.

The following terms and conditions shall apply to this
subscription.

1. Subscriber's Representations and Warranties. The
Subscriber hereby represents and warrants to and agrees with the Company that:

2. Information on Company. The Subscriber has
been furnished with and has read the Company's registration statement on Form
S-1 declared effective by the Securities and Exchange Commission on April 13,
1995, and all of its Forms 10-Q and 8-K reports filed subsequent thereto,
(collectively, with exhibits thereto, hereinafter referred to as the "Reports").
In addition, the Subscriber has received from the Company such

<PAGE>
other information concerning its operations, financial condition and other
matters as the Subscriber has requested, and considered all factors the
Subscriber deems material in deciding on the advisability of investing in the
Securities (such information in writing is collectively, the "Other Written
Information").

3. Information on Subscriber. The Subscriber
is experienced in investments and business matters, has made investments of a
speculative nature and has purchased securities of United States publicly-owned
companies in the past and, with its representatives, has such knowledge and
experience in financial, tax and other business matters as to enable the

Subscriber to utilize the information made available by the Company to evaluate
the merits and risks of and to make an informed investment decision with respect
to the proposed purchase. The Subscriber has the authority and is duly and
legally qualified to purchase and own the Securities.

4. Site and Condition of Sale. The Subscriber
is not a U.S. Person (as that term is defined in Exhibit A attached hereto). The
Subscriber acknowledges that the Company has not solicited this offer to
purchase the Securities within the United States and that the sale of the Note
and conversion into the Shares will not take place within the United States (for
this purpose, the "United States" means the Unites States of America, its
territories and possessions, and any state of the United States and the District
of Columbia). The Subscriber also acknowledges that the Securities have not been
registered under the laws of any other country or jurisdiction and that the
Company takes no responsibility for complying with any such laws.

5. Investment Intent. The Subscriber is
subscribing for the Securities for its own account and benefit and not as a
nominee or for the account of any other person or entity. The Subscriber has no
present intention of selling or distributing the Securities or any part thereof.
The Subscriber has sufficient financial resources to hold the Securities for an
indefinite period of time.

6. No Market Manipulation; Short Sales. The
Subscriber has not taken, and will not take, directly or indirectly, any action
designed to, or that might reasonably be expected to, cause or result in a
manipulation of the price of the Company Shares (including making, or causing to
be made, any short sales of the Company's common stock) in order to facilitate
the sale or resale of the Company Shares or affect the price at which such
shares are purchasable upon conversion of the Note.

7. No Offer in United States. No offer to buy
the Securities was made to the Company by the Subscriber in the United States.

8. No Pre-Arranged Transaction. The
transactions contemplated by this Agreement:

0.0.0.1.Have not been pre-arranged with a
purchaser who is in the United States or is a U.S. Person; and

<PAGE>

0.0.0.2. are not part of a plan or scheme to
evade the registration provisions of the Securities and Exchange Act of 1933
(the "Act").

(h) No Directed Selling Efforts in Regard to
this Transaction. To the best knowledge of the Subscriber, neither the Company
nor any distributor, if any, participating in the offering of the Securities nor
any person acting for the Company or any such distributor has conducted any
"directed selling efforts" as that term is defined in Regulation S. Such
activity includes, without limitation, the mailing of printed material to

investors residing in the United States, the holding of promotional seminars in
the United States, the placement of advertisements with radio or television
stations broadcasting in the United States or in publications with a general
circulation in the United States, which discuss the offering of Preferred Stock.

0.0.0.2.1. Company Representations and
Warranties. The Company represents and warrants to and agrees with the
Subscriber that:

0.0.0.2.2. Due Incorporation. The Company and
each of its subsidiaries has been duly incorporated and is validly existing as a
corporation in good standing under the laws of Delaware.

0.0.0.2.3. Outstanding Stock. All issued and
outstanding shares of capital stock of the Company and each of its subsidiaries
has been duly authorized and validly issued and are fully paid and
non-assessable.

0.0.0.2.4. Authority; Enforceability. This
Agreement has been duly authorized, executed and delivered by the Company and is
a valid and binding agreement enforceable in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity; and the Company has full
corporate power and authority necessary to enter into this Agreement and to
perform its obligations hereunder.

0.0.0.2.5. Additional Issuances. There are
no outstanding agreements or preemptive or similar rights affecting the
Company's common stock and no outstanding rights, warrants or options to
acquire, or instruments convertible into or exchangeable for, or agreements or
understandings with respect to the sale or issuance of, any shares of common
stock or equity of the Company or other equity interest in any of the
subsidiaries of the Company, except as described in the Reports or Other Written
Information, or with respect to Existing Option Obligations, as defined in
paragraph 2.1(e)D of the Note, attached hereto.

0.0.0.2.6. Consents. No consent, approval,
authorization or order of any court, governmental agency or body or arbitrator
having jurisdiction over the Company, or any of its affiliates is required for
execution of this Agreement, including, without limitation, issuance and sale of
the Note and the issuance of the Shares upon any conversion of the Note or the
performance of obligations hereunder.

0.0.0.2.7. No Violation or Conflict. Assuming
the representations and warranties of the Subscriber in paragraph 1 are true
and

<PAGE>

correct and the Subscriber complies with its obligations under this Agreement,
neither the sale of the Note nor any conversion of the Note, nor the issuance of
the Company Shares upon any conversion of the Note nor the performance of its
obligations under this Agreement by the Company will:

0.0.0.3. violate, conflict with, result in a
breach of, or constitute a default (or an event which with the giving of notice
of the lapse of time or both would be reasonably likely to constitute a default)
under (A) the articles of incorporation, charter or bylaws of the Company, or
any of its affiliates, (B) any decree, judgment, order, law, treaty, rule,
regulation or determination applicable to the Company, or any of its affiliates
of any court, governmental agency or body, or arbitrator having jurisdiction
over the Company, or any of its affiliates or over the properties or assets of
the Company, or any of its affiliates, (C) the terms of any bond, debenture,
note or any other evidence of indebtedness, or any agreement, stock option or
other similar plan, indenture, lease, mortgage, deed of trust or other
instrument to which the Company, or any of its affiliates is a party, by which
the Company, or any of its affiliates is bound, or to which any of the
properties of the Company, or any of its affiliates is subject, or (D) the terms
of any "lock-up" or similar provision of any underwriting or similar agreement
to which the Company, or any of its affiliates is a party; or

0.0.0.4. result in the creation or
imposition of any lien, charge or encumbrance upon the Securities or any of the
assets of the Company, or any of its affiliates.

0.0.0.4.1. The Securities. The Securities upon
issuance:

0.0.0.5. are, or will be, free and clear of
any security interests, liens, claims or other encumbrances;

0.0.0.6. have been, or will be, duly and
validly authorized and on the date of issuance (hereinafter the "Closing Date")
or the Conversion Date as such term is defined in the Note (hereinafter the
"Conversion Date"), as the case may be, the Note and Shares issuable upon
conversion of the Note, will be duly and validly issued, fully paid and
nonassessable;

0.0.0.7. will not have been issued or sold
in violation of any preemptive or other similar rights of the holders of any
securities of the Company;

0.0.0.8. will not subject the holders
thereof to personal liability by reason of being such holders; and

0.0.0.9. the Company Shares, are quoted
on, and to the best knowledge of Company will be, at the completion of the
Restricted Period, eligible for trading on, the National Association of
Securities Dealers Automated Quotations Systems ("NASDAQ") SmallCap Market.

<PAGE>

0.0.0.9.1. Litigation. There is no pending or,
to the best knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or arbitrator
having jurisdiction over the Company, or any of its affiliates that would
materially affect the execution by the Company or the performance by the Company
of its obligations under this Agreement.

(i)No Directed Selling Efforts in Regard to this
Transaction. Neither the Company nor any distributor, if any, participating in
the offering of the Securities nor any person acting for the Company or any such
distributor has conducted any "directed selling efforts" as that term is defined
in Regulation S. Such activity includes, without limitation, the mailing of
printed material to investors residing in the United States, the holding of
promotional seminars in the United States, the placement of advertisements with
radio or television stations broadcasting in the United States or in
publications with a general circulation in the United States, which discuss the
offering of Preferred Stock.

(j)No Market Manipulation. The Company has not
taken, and will not take, directly or indirectly, any action designed to, or
that might reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to facilitate the
sale or resale of the Company Shares or affect the price at which the Company
Shares are purchasable upon conversion of the Note.

(k)Reporting Company. The Company is a publicly-held
company whose common stock is (and has been for the past 90 days) registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "1934
Act") and is duly listed for trading on The NASDAQ SmallCap Market. Pursuant to
the provisions of the 1934 Act, the Company has filed all reports and other
materials required to be filed thereunder with the Securities and Exchange
Commission during the preceding twelve months.

(l)Information Concerning Company. The Reports and
Other Written Information contain all material information relating to the
Company and its operations and financial condition as of their respective dates
which information is required to be disclosed therein. Since the date of the
financial statements set forth in the Reports, there has been no material
adverse change in the Company's business, financial condition or affairs not
disclosed in the Reports. The Reports and Other Written Information do not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading.

(m)Offer to Buy. No offer to buy the Note was made
to the Company by any person in the United States.

(n)Pre-Arranged Transaction. The transactions
contemplated by this Agreement:

<PAGE>

(i) have not been pre-arranged with a
purchaser who is in the United States or is a U.S. Person; and

(ii) are not part of a plan or scheme to
evade the registration provisions of the Act.

(o)Stop Transfer. The Company has not issued, and
provided nothing comes to the Company's attention after the closing date that
will cause it to believe in good faith that the issuance of the Note or the
Shares underlying the Note was in contravention with any United States law, will
not issue, any stop transfer order or other order impeding the sale and delivery
of the Securities, or any underlying shares.

(p)Use of Funds. To the extent the Subscribers
identified on Schedule A to the Escrow Agreement annexed as Exhibit C hereto
collectively purchase Notes in the principal amount of $750,000 or more, then
the Company agrees that no more than $250,000 of the sums advanced by the
Subscribers to purchase the Note will be used to satisfy any non-trade accounts
payable or debt. In the event less than $750,000 of principal Note amount is
purchased, then none of the sums advanced will be used to satisfy non-trade
accounts payable or debt.

(q)Correctness of Representations. The Company
represents that the foregoing representations and warranties are true and
correct as of the date hereof and, unless the Company otherwise notifies the
undersigned prior to the Closing Date on which the undersigned purchases the
Note, shall be true and correct as of the Closing Date. The foregoing
representations and warranties shall survive the Closing Date.

0.0.0.9.2. Regulation S Offering. The sale of Securities
hereby is being made pursuant to Rule 903(c)(2) of the Regulation S, and is
intended to comply with the provisions of Regulation S. The Securities have not
been and will not be registered under the Act or under the securities laws of
any state or jurisdiction of the United States ("State Laws").

0.0.0.9.3. Transfer of Securities. Neither the Note nor the
Shares may be transferred or resold to any U.S. Person until the 41st day from
the date the Subscriber purchases the Note (the "Restriction Period") and then
only in accordance with the Act and applicable State Laws in the opinion of
counsel satisfactory to the Company which will not unreasonably be withheld. The
Subscriber agrees that it is solely responsible for compliance therewith with
respect to any such transfer or resale.

0.0.0.9.4. Reverse Split. The Company shall give the
Subscriber not less than thirty (30) days' prior written notice of any proposed
combination of shares or other reclassification or recapitalization of the
common stock resulting in a reduction of the number of Shares issuable upon
conversion of the Note, and the Subscriber shall have the right to consult with
the Company with respect to such proposed combination or recapitalization.

<PAGE>

0.0.0.9.5. Legal Fees. On receipt of the purchase price for

the Note, the Company shall pay to counsel to the Subscriber its bill for
services rendered to the Subscriber in reviewing this Agreement and closing the
Note purchase. The maximum legal fees shall be 1% of the principal amount of the
Note subscribed for.

0.0.0.9.6. Covenants of the Company. The Company covenants
and agrees with the Subscriber to:

0.0.0.9.7. continue to comply with all
applicable reporting requirements of the Exchange Act;

0.0.0.9.8. refrain form engaging, and insure
that none of its affiliates will engage, in any Directed Selling Efforts, as
defined in Regulation S, with respect to the Securities; and

0.0.0.9.9. advise the Subscriber, promptly
after it receives notice of issuance by the Securities and Exchange Commission,
any state securities commission or any other regulatory authority of any stop
order or of any order preventing or suspending the use of any offering of any
securities of the Company, or of the suspension of the qualification of the
common stock of the Company for offering or sale in any jurisdiction, or the
initiation of any proceeding for any such purpose.

0.0.0.9.10. Covenants of the Company and Subscriber Regarding
Indemnifications.

0.0.0.10. The Company agrees to indemnify,
hold harmless, reimburse and defend Subscriber against any claim, costs,
expense, liability, obligation, loss or damage (including legal fees) of any
nature, incurred by or imposed upon Subscriber which results, arises out of or
is based upon (a) any misrepresentation by Company or breach of any warranty by
Company in this Agreement or in any Exhibits or Schedules attached hereto, or
Reports or other Written Information; or (b) any breach or default in
performance by Company of any covenant or undertaking to be performed by Company
hereunder.

0.0.0.11. Subscriber agrees to indemnify, hold
harmless, reimburse and defend the Company at all times against any claim,
costs, expense, liability, obligation, loss or damage (including legal fees) of
any nature, incurred by or imposed upon the Company which results, arises out of
or is based upon (a) any misrepresentation by Subscriber in this Agreement or in
any Exhibits or Schedules attached hereto; or (b) any breach or default in
performance by Subscriber of any covenant or undertaking to be performed by
Subscriber hereunder.

<PAGE>

0.0.0.11.1. Escrow of Shares. In order to fulfill the
Company's obligation to deliver the Company Shares upon conversion of the Note,
the Company shall, deliver to Barbara R. Mittman, Esq. (the "Escrow Agent"), on
the Closing Date, shares of Common Stock of the Company equal to the maximum
number of shares the principal of the Note is convertible into based upon the
minimum conversion price described in Section 2.1(d) of the Note (the "Escrowed
Shares") to be held in escrow. The certificate representing the Escrowed Shares

shall not bear a restrictive legend or have a stop transfer order placed against
it on the books of the Company's transfer agent. The terms and conditions of
escrow shall be set forth in an escrow agreement in the form annexed as Exhibit
C hereto (the "Escrow Agreement").

0.0.0.11.2. Registration Rights; Procedure; Indemnification.

0.0.0.11.3. Registration Rights.

0.0.0.11.4. If available under the securities
laws in effect on the date of conversion, the shares of Common Stock issuable
upon full or partial conversion of the Note shall be issued pursuant to
Regulation S of the Securities Act of 1933, as amended, and shall be
transferable and assignable pursuant to Regulation S. Provided the shares issued
upon the conversion of the Note so qualify, the shares will be issued without
any restrictive or other legend. In the event the Common Stock that may be
acquired upon conversion of the Note cannot upon issuance, be resold in the
United States without any restrictive legend and unless registered under the
Securities Act of 1933, as amended (the "Securities Act"):

0.0.0.12. On one occasion, for a period
commencing 41 days after the date hereof, but not later than three years from
the date hereof, the Company, upon a written request therefor from any record
holder or holders of more than 50% of the aggregate of the Company's shares
issued on the conversion of the Notes, which are still held by the Subscribers
on the day the Shares are no longer transferable without any restricting legend
(the common stock of the Company issued and issuable on conversion of the Note
being, the "Registrable Securities"), shall prepare and file with the SEC a
registration statement under the Securities Act covering the Registrable
Securities which are the subject of such request. In addition, upon the receipt
of such request, the Company shall promptly give written notice to all other
record holders of the Registrable Securities that such registration statement is
to be filed and shall include in such registration statement Registrable
Securities for which it has received written requests within 20 days after the
Company gives such written notice. Such other requesting record holders shall be
deemed to have exercised their demand registration right under this Section
10.1. As a condition precedent to the inclusion of Registrable Securities, the
holder thereof shall provide the Company with such information as the

<PAGE>

Company reasonably requests and shall enter into an appropriate underwriting
agreement with the underwriter(s), if any, of the Registrable Securities. The
obligation of the Company under this Section 10.1(a)(i) shall be limited to one
registration statement.

0.0.0.13. If the Company at any time proposes
to register any of its securities under the Securities Act for sale to the

public, whether for its own account or for the account of other security holders
or both, except with respect to registration statements on Forms S-4, S-8 or
another form not available for registering the Registrable Securities that may
be acquired upon exercise of the Note for sale to the public, each such time it
will give at least 45 days' prior written notice to the record holder of the
Registrable Securities of its intention so to do. Upon the written request of
the holder, received by the Company within 30 days after the giving of any such
notice by the Company, to register any of the Registrable Securities, the
Company will cause such Registrable Securities as to which registration shall
have been so requested to be included in the securities to be covered by the
registration statement proposed to be filed by the Company, all to the extent
required to permit the sale or other disposition of the Registrable Securities
so registered by the holder of such Registrable Securities (the "Seller"). In
the event that any registration pursuant to this Section 10.1 shall be, in whole
or in part, an underwritten public offering of common stock of the Company, the
number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the extent
that the Company and the underwriter shall be of the opinion that such inclusion
would adversely affect the marketing of the securities to be sold by the Company
therein; provided, however, that the Company shall notify the Seller in writing
of any such reduction. Notwithstanding the forgoing provisions, the Company may
withdraw any registration statement referred to in this Section 10.1 without
thereby incurring any liability to the Seller.

0.0.0.14. If, at the time any written request for
registration is received by the Company pursuant to Section 10.1(a)(i), the
Company has determined to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection with the proposed
offer and sale for cash of any of its securities for the Company's own account,
such written request shall be deemed to have been given pursuant to Section
10.1(a)(ii) rather than Section 10.1(a)(i), and the rights of the holders of
Registrable Securities covered by such written request shall be governed by
Section 10.1(a)(ii).

0.0.0.14.1. Registration Procedures. If and whenever the
Company is required by the provisions hereof to effect the registration of any
shares of Registrable Securities under the Securities Act, the Company will, as
expeditiously as possible:

0.0.0.14.0.1. prepare and file with the Securities
and Exchange Commission (the "Commission") a registration statement with respect
to such securities and use its best efforts to cause such registration statement
to become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided):

0.0.0.14.0.2. prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in

<PAGE>

connection therewith as may be necessary to keep such registration statement
effective for the period specified in paragraph (a) above and comply with the
provisions of the Securities Act with respect to the disposition of all of the

Registrable Securities covered by such registration statement in accordance with
the Seller's intended method of disposition set forth in such registration
statement for such period;

0.0.0.14.0.3. furnish to the Seller, and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or their
disposition of the securities covered by such registration statement;

0.0.0.14.0.4. use its best efforts to register or
qualify the Seller's Registrable Securities covered by such registration
statement under the securities or "blue sky" laws of such jurisdictions as the
Seller or, in the case of an underwritten public offering, the managing
underwriter reasonably shall request, provided, however, that the Company shall
not for any such purpose be required to qualify generally to transact business
as a foreign corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;

0.0.0.14.0.5. list the Registrable Securities
covered by such registration statement with any securities exchange on which the
Registrable Securities of the Company is then listed;

(f) immediately notify the Seller and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;

(g) make available for inspection by the Seller, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by the Seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by the seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.

(h)at the request of the Holder, provided a demand
registration has been made pursuant to section 10.1(a)(i) or 10.1(a)(ii), the
shares issuable upon the conversion of the unpaid note will be included in a
registration statement filed pursuant to this Section 10.

<PAGE>

For purposes of this Section 10, the period of distribution of
securities in a firm commitment underwritten public offering shall be deemed to
extend until each underwriter has completed the distribution of all securities

purchased by it, or sooner if the managing underwriter consents, and the period
of distribution of securities in any other registration shall be deemed to
extend until the earlier of the sale of all securities covered thereby and 120
days after the effective date thereof.

In connection with each registration hereunder, the Seller
will furnish to the Company in writing such information with respect to itself
and the proposed distribution by it as reasonably shall be necessary in order to
assure compliance with federal and applicable state securities laws. In
connection with each registration pursuant to this Section 10 covering an
underwritten public offering, the Company and the Seller agree to enter into a
written agreement with the managing underwriter in such form and containing such
provisions as are customary in the securities business for such an arrangement
between such underwriter and companies of the Company's size and investment
stature.

0.0.0.14.0.5.1. Expenses. All expense's incurred by the
Company in complying with Section 10, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel and independent public accountants for the Company, fees and expenses
(including counsel fees) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses".

The Company will pay all Registration Expenses in connection
with each registration statement under Section 10. All Selling Expenses in
connection with each registration statement under Section 10 shall be borne by
the Seller in proportion to the number of shares sold by the Seller relative to
the number of shares sold under such registration statement or as all sellers
thereunder may agree.

0.0.0.14.0.5.2. Indemnification and Contribution.

0.0.0.14.0.6. In the event of a registration of any
Registrable Securities under the Securities Act pursuant to Section 10, the
Company will indemnify and hold harmless the Seller, each officer of the Seller,
each director of the Seller, each underwriter of such Registrable Securities
thereunder and each other person, if any, who controls such Seller or
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in
any registration statement under which such Registrable Securities was
registered under the Securities Act pursuant to Section 10, any preliminary
prospectus or
<PAGE>

final prospectus contained therein, or any amendment or supplement thereof, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse the Seller, each such
underwriter and each such controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with information furnished by any such Seller, the underwriter or any
such controlling person in writing specifically for use in such registration
statement or prospectus.

0.0.0.14.0.7. In the event of a registration of any
of the Registrable Securities under the Securities Act pursuant to Section 10,
the Seller will indemnify and hold harmless the Company, each person, if any,
who controls the Company within the meaning of the Securities Act, each officer
of the Company who signs the registration statement, each director of the
Company, each underwriter and each person who controls any underwriter within
the meaning of the Securities Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer, director,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration statement
under which such Registrable Securities was registered under the Securities Act
pursuant to Section 10, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereof, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and each such officer, director, underwriter and
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Seller will be liable hereunder
in any such case if and only to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with information pertaining to such Seller, as such, furnished in
writing to the Company by such Seller specifically for use in such registration
statement or prospectus, and provided, further, however, that the liability of
the Seller hereunder shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the public
offering price of the Registrable Securities sold by the Seller under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not in any event to exceed the
proceeds received by the Seller from the sale of Registrable Securities covered
by such registration statement.

0.0.0.14.0.8. Promptly after receipt by an
indemnified party hereunder of notice of the commencement of any action, such
indemnified party shall, if a

<PAGE>

claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 10.4(c) and shall only
relieve it from any liability which it may have to such indemnified party under
this Section 10.4(c) if and to the extent the indemnifying party is prejudiced
by such omission. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 10.4(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so selected,
provided, however, that, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be reasonable defenses available to it
which are different from or additional to those available to the indemnifying
party or if the interests of the indemnified party reasonably may be deemed to
conflict with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such legal
defenses and otherwise to participate in the defense of such action, with the
expenses and fees of such separate counsel and other expenses related to such
participation to be reimbursed by the indemnifying party as incurred.

0.0.0.14.0.9. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) the Seller, or any controlling person of the Seller, makes a
claim for indemnification pursuant to this Section 10.4 but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last
right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 10.4 provides for indemnification in
such case, or (ii) contribution under the Securities Act may be required on the
part of the Seller or controlling person of the Seller in circumstances for
which indemnification is provided under this Section 10.4; then, and in each
such case, the Company and the Seller will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from others) in such proportion so that the Seller is responsible for the
portion represented by the percentage that the public offering price of its
securities offered by the registration statement bears to the public offering
price of all securities offered by such registration statement, and the Company
is responsible for the remaining portion; provided, however, that, in any such
case, (A) the Seller will not be required to contribute any amount in excess of
the public offering price of all such securities offered by it pursuant to such
registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.

<PAGE>

11. (a)Exclusive Option. For a period of six months from the
issue date of the Convertible Note, Subscriber is hereby granted the option of
lending to the Company additional sums to be evidenced by convertible notes in
the principal amount up to two times the amount of the principal amount of this
Convertible Note. The terms of such other convertible note shall be identical to
the terms of this Convertible Note except that the Conversion Price described in
Section 2.1(b) of the Convertible Note shall be equal to 75% of the average bid
price of the Company's common stock for the five trading days immediately
preceding the Subscriber's exercise of the option described in this Section
11(a). The Company agrees to pay commissions and finders fees to the same
parties and entities entitled to receive same in connection with the Convertible
Note, in the same proportions as payable by the Company in connection with the
Convertible Note. This option will not be exercisable by the Subscriber unless
Subscriber is able to make the same representations, warranties and undertakings
as made and undertaken herein.

(b)Right of First Refusal. Until the later of
December 31, 1997 or for so long as the principal and interest of the Note are
outstanding, the Subscriber shall be given not less than fifteen (15) days prior
written notice of any proposed sale by the Company of its common stock or other
securities in offerings made pursuant to the provisions of Regulation D or
Regulation S under the 1933 Act, or any other exemption from registration,
whether state or federal. The Subscriber shall have the right during the fifteen
(15) days following the notice to purchase an amount of securities in the same
proportion as being purchased in the aggregate offering to which this
Subscription Agreement relates, of those securities proposed to be issued and
sold, in accordance with the terms and conditions set forth in the notice of
sale, provided that, in the case of securities offered pursuant to Regulation D,
the Subscriber may purchase such securities pursuant to Regulation S if it is
then not a U.S. Person, and such regulation is then available to the Company. In
the event such terms and conditions are modified during the notice period, the
Subscriber shall be given prompt notice of such modification and shall have the
right during the original notice period or for a period of ten (10) days
following the notice of modification, whichever is longer, to exercise such
right.

(c)Right of Participation. The Subscriber shall be
given not less than thirty (30) days' prior written notice of any proposed
public offering by the Company of its common stock. The Subscriber shall have
the right during such thirty (30) day period to irrevocably subscribe for up to
that percentage of the total number of Shares being offered by the Company in
such public offering as equals the percentage obtained by dividing by the number
of the Company Shares owned by the Subscriber immediately prior to such public
offering together with such Common Shares issuable upon conversion of the Note,
by the number of shares of the Company's outstanding common stock immediately
prior to such public offering. This right of participation shall expire on
December 31, 1997, with respect to
any public offering by the Company that has not commenced prior to such date.

12. Miscellaneous.

0.0.0.14.0.9.1. Notices. All notices or other

communications given or made hereunder shall be in writing and shall be deemed
delivered the day telecopied (with copy mailed by certified or registered

<PAGE>
mail, or overnight courier) to the party to receive the same at its address set
forth below or to such other address as either party shall hereafter give to the
other by notice duly made under this Section 14(a): (i) if to the Company, to
Morris Berger, Chief Executive Officer, Multi-Media Tutorial Service, Inc., 205
Kings Highway, Brooklyn, New York 11223, telecopier number (718) 234-6930; and
(ii) if to the Subscriber, to the name, address and telecopy number set forth on
the first page hereof.

0.0.0.14.0.9.2. Entire Agreement; Assignment. This
Agreement represents the entire agreement between the parties hereto with
respect to the subject matter hereof and may be amended only by a writing
executed by both parties. No right or obligation of either party shall be
assigned by that party without prior notice to and the written consent of the
other party.

0.0.0.14.0.9.3. Execution. This Agreement may be
executed by facsimile transmission, followed by delivery of an executed original
copy.

0.0.0.14.0.9.4. Law Governing this Agreement. This
Agreement shall be governed by and construed in accordance with the laws of the
United States of America and the State of New York. Any action brought by either
party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties agree to submit to
the jurisdiction of such courts.

Please acknowledge your acceptance of the foregoing
Subscription Agreement by signing and returning a copy to the undersigned
whereupon it shall become a binding agreement between us.

Very truly yours,

MULTI-MEDIA TUTORIAL
SERVICE, INC.

By:___________________________

Dated: April ____, 1996

Accepted:

By:____________________________

Dated as of April ____, 1996

EXHIBIT A
<PAGE>
U.S. PERSON

1. "U.S. Person" means:

(i) Any natural person resident in the United States;

(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;

(iii) Any estate of which any executor or administrator
is a U.S. person;

(iv) Any trust of which any trustee is a U.S. person;

(v) Any agency or branch of a foreign entity located in
the United States;

(vi) Any non-discretionary account or similar account
(other than an estate or trust) held by a dealer or other fiduciary for the
benefit or account of a U.S. person;

(vii) Any discretionary account or similar account (other than an
estate or trust) held by a dealer or other fiduciary organized, incorporated, or
(if an individual) resident in the United States; and

(viii) Any partnership or corporation if: (A) organized or incorporated
under the laws of any foreign jurisdiction; and (B) formed by a U.S. person
principally for the purpose of investing in securities not registered under the
Act, unless it is organized or incorporated, and owned, by accredited investors
(as defined in Rule 501(a)) who are not natural persons, estates or trusts.

2. Notwithstanding paragraph 1 of this rule, any discretionary account
or similar account (other than an estate or trust) held for the benefit or
account of a non-U.S. person by a dealer or other professional fiduciary
organized, incorporated, or (if an individual) resident in the United States
shall not be deemed a "U.S. person."

3. Notwithstanding paragraph 1, any estate of which any professional
fiduciary acting as executor or administrator is a U.S. person shall not be
deemed a U.S. person if:

(i) An executor or administrator of the estate who is not
a U.S. person has sole or shared investment discretion with respect to the
assets of the estate; and

(ii) The estate is governed by a foreign law.
4. Notwithstanding paragraph 1, any trust of which any professional
fiduciary acting as trustee is a U.S. person shall not be deemed a U.S. person
if a trustee who is not a U.S. person has sole or shared investment discretion
with respect to the trust assets, and no beneficiary of the trust (and no

settlor if the trust is revocable) is a U.S. person.

<PAGE>

5. Notwithstanding paragraph 1, an employee benefit plan established and
administered in accordance with the law of a country other than the United
States and customary practices and documentation of such country shall not be
deemed a U.S. person.

6. Notwithstanding paragraph 1, any agency or branch of a U.S. person
located outside the United States shall not be deemed a "U.S. person" if:

(i) The agency or branch operates for valid business
reasons; and

(ii) The agency or branch is engaged in the business of insurance or
banking and is subject to substantive insurance or banking regulation,
respectively, in the jurisdiction where located.

7. The International Monetary Fund, the International Bank for Reconstruction
and Development, the Inter-American Development Bank, the Asian Development
Bank, the African Development Bank, the United Nations, and their agencies,
affiliates and pension plans, and any other similar international organizations,
their agencies, affiliates and pension plans shall not be deemed "U.S. persons."

<PAGE>

CONVERTIBLE NOTE

THIS NOTE AND THE COMMON STOCK INTO WHICH IT IS CONVERTIBLE
(COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER THE LAWS
OF ANY STATE OR OTHER JURISDICTION. THE SECURITIES MAY NOT BE
OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS (AS
THAT TERM IS DEFINED IN REGULATION S UNDER THE ACT), UNLESS
THEY ARE REGISTERED UNDER THE ACT AND UNDER THE LAWS OF THE
STATES WHERE EACH SALE IS MADE, OR AN EXEMPTION OR SAFE HARBOR
FROM REGISTRATION REQUIREMENTS IS AVAILABLE IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY.

FOR VALUE RECEIVED, MULTI-MEDIA TUTORIAL SERVICE, INC., a
Delaware corporation (hereinafter called "Borrower"), hereby promises to pay to

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

- --------------------------------------------------------------------------------
(the "Holder") or order, without demand, the sum of $100,000, with interest
accruing at the annual rate of 10%, on December 31, 1997 (the "Maturity Date"),
as such date may be extended by agreement of the parties hereto.

The following terms shall apply to this Note:

ARTICLE I

DEFAULT RELATED PROVISIONS

1.1 Payment Grace Period. The Borrower shall have a thirty
(30) day grace period to pay any monetary amounts due under this Note, after
which grace period a default interest rate of 17% per annum shall apply to the
amounts owed hereunder.

1.2 Conversion Privileges. The Conversion Privileges set forth
in Article II shall remain in full force and effect from the 41st day after the
date hereof until the Note principal is paid in full.

1.3 Interest Rate. At the Maturity Date, accelerated or
otherwise but only to the extent the Borrower is required to repay such
principal then the Borrower shall pay interest at the annual rate of 10% per
annum together with such principal payment.

/ /
<PAGE>
ARTICLE II

CONVERSION RIGHTS

The Holder shall have the right to convert the principal
amount due under this Note into Shares of the Borrower's Common Stock as set
forth below.

2.1. Conversion into the Borrower's Common Stock.

(a) The Holder shall have the right from and after the date 41
days following issuance of this Note and then at any time on or prior to the
Maturity Date, as it may be extended by agreement of the parties hereto, to
convert any outstanding and unpaid principal portion of this Note and accrued
interest of $25,000 or greater amount (or any lesser amount representing the
full remaining outstanding and unpaid principal portion and accrued interest on
Note (the date of giving of such notice of conversion being a "Conversion Date")
into fully paid and nonassessable shares of Common Stock of Borrower as such
stock exists on the date of issuance of this Note, or any shares of capital
stock of Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price as defined in Section
2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon the
surrender of this Note, accompanied by the Holder's written request for
conversion, Borrower shall issue and deliver to the Holder that number of shares
of Common Stock for the portion of the Note converted and a new Note in the form
hereof for the balance of the principal amount hereof, if any. The number of
shares of Common Stock to be issued upon each conversion of this Note shall be
determined by dividing that portion of the principal and interest on the Note to
be converted by the Conversion Price. In the event the Holder does not convert
the entire principal amount of this Note before the Maturity Date, Borrower
shall have the option of compelling the conversion of the Note or paying
Borrower the remaining unpaid principal of the Note and interest as herein
described.

(b) Subject to adjustment as provided in Section 2.1(e)
hereof, the Conversion Price shall be $1.2656.

(c) Notwithstanding the foregoing sections 2.1(a) and 2.1(b)
the Holder may, on or before six months after the date hereof, elect in writing
the alternate conversion price as defined in Section 2.1(d) hereof ("Alternate
Conversion Price"). In the event the Holder elects in writing the Alternative
Conversion Price, then the Holder must convert the entire principal portion of
this Note and accrued interest on or before the Maturity Date. In the event the
Holder elects the Alternate Conversion Price, but does not convert the entire
principal of this Note on or before the Maturity Date then the remaining
unconverted principal of this Note and accrued interest shall be converted into
shares of Borrower's Common Stock at the Alternate Conversion Price, at the
Borrower's election, and the Maturity Date shall be the Conversion Date.

(d) Subject to adjustment as provided in Section 2.1(e)
hereof, the Alternate Conversion Price shall be (i) seventy-five percent (75%)
of the average closing bid price for the Common Stock on the NASDAQ SmallCap
Market, or on any securities exchange or other securities market on which the
Common Stock is then being traded, for the five (5) trading days

<PAGE>

immediately preceding the Conversion Date (the "Average Bid Price"), provided,
however, that notwithstanding anything to the contrary contained in this
agreement or the Subscription Agreement, relating hereto, in no event shall the

Alternate Conversion Price be less than $.55 per share or more than $3.55 per
share, subject to adjustment as provided in Section 2.1(e)A, 2.1(e)B and
2.1(e)C, below.

(e) The Conversion Price, Alternate Conversion Price and
number and kind of shares of other securities to be issued upon conversion
determined pursuant to Section 2.1(a), 2.1(b), 2.1(c) and 2.1(d), shall be
subject to adjustment from time to time upon the happening of certain events
while this conversion right remains outstanding, as follows:

A. Merger, Sale of Assets, etc. If the Borrower at any
time shall consolidate with or merge into or sell or convey all or substantially
all its assets to any other corporation, this Note shall thereafter evidence the
right to purchase such number and kind of shares or other securities and
property as would have been issuable or distributable on account of such
consolidation, merger, sale or conveyance, upon or with respect to the
securities subject to the conversion or purchase right immediately prior to such
consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section 2.1(e) shall apply to such securities
of such successor or purchaser after any such consolidation, merger, sale or
conveyance.

B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes, this Note shall
thereafter evidence the right to purchase such number and kind of securities as
would have been issuable as the result of such change with respect to the Common
Stock immediately prior to such reclassification or other change.

C. Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price or Alternate Conversion Price,
as the case may be, shall be proportionately reduced in case of subdivision of
shares or stock dividend or proportionately increased in the case of combination
of shares, in each such case by the ratio which the total number of shares of
Common Stock outstanding immediately after such event bears to the total number
of shares of Common Stock outstanding immediately prior to such event.

D. Share Issuance. Subject to the provisions of
Section 2.1(e), if the Borrower at any time shall issue any shares of Common
Stock prior to the conversion of the entire principal amount of the Note
(otherwise than as: (i) provided in Sections 2.1(e)A, 2.1(e)B or 2.1(e)C or this
subparagraph D; (ii) pursuant to options, warrants, or other obligations to
issue shares, outstanding on the date hereof as described in the Reports and
Other Written Information, as such terms are defined in the Subscription
Agreement; [(i) and (ii) above, are hereinafter referred to as the "Existing
Option Obligations"] for a consideration less than the Conversion Price or
Alternate Conversion Price that would be in effect at the time of such issue,
then, and

<PAGE>

thereafter successively upon each such issue, the Conversion Price or Alternate
Conversion Price shall be reduced as follows: (i) the number of shares of Common
Stock outstanding immediately prior to such issue shall be multiplied by the
Conversion Price in effect or Alternate Conversion Price at the time of such
issue and the product shall be added to the aggregate consideration, if any,
received by the Borrower upon such issue of additional shares of Common Stock;
and (ii) the sum so obtained shall be divided by the number of shares of Common
Stock outstanding immediately after such issue. The resulting quotient shall be
the adjusted conversion price. Except for the Existing Option Obligations and
options that may be issued under any employee incentive stock option and/or any
nonqualified stock option plan adopted by the Company, for purposes of this
adjustment, the issuance of any security of the Borrower carrying the right to
convert such security into shares of Common Stock or of any warrant, right or
option to purchase Common Stock shall be deemed to constitute the issuance of
the maximum number of shares of Common Stock issuable on full exercise of such
conversion or purchase rights, and the consideration for such security plus any
consideration payable upon exercise of its conversion or purchase right shall be
deemed to have been paid to the Borrower. Upon the expiration of any such
conversion or purchase right, the adjustment to the Conversion Price or Adjusted
Conversion Price shall be extinguished.

(f) During the period the conversion right exists, Borrower
will reserve from its authorized and unissued Common Stock a sufficient number
of shares to provide for the issuance of Common Stock upon the full conversion
of this Note. Borrower represents that upon issuance, such shares will be duly
and validly issued, fully paid and non-assessable. Borrower agrees that its
issuance of this Note shall constitute full authority to its officers and agents
who are charged with the duty of executing stock certificates to execute and
issue the necessary certificates for shares of Common Stock upon the conversion
of this Note.

(g) Anything to the contrary herein notwithstanding, in the
event the Holder would not be able to convert all or part of the Note into
Common Stock which would not within forty-five (45) days of the Conversion Date
be fully and freely tradable without restriction or filing of a registration
statement with the Securities and Exchange Commission, then Borrower shall not
have the option described in Section 2.1(a) hereof to compel conversion, nor
will the conversion described in Section 2.1(c) hereof take place without the
consent of the Holder.

2.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part by the surrender of this Note at the principal office
of the Borrower. Upon partial exercise hereof, a new Note containing the same
date and provisions of this Note shall be issued by the Borrower to the Holder
for the principal balance of this Note which shall not have been converted.

ARTICLE III

EVENT OF DEFAULT

The occurrence of any of the following events of default
("Event of Default") shall, at the option of the Holder hereof, make all sums or
principal and interest then remaining unpaid

<PAGE>

hereon and all other amounts payable hereunder immediately due and payable, all
without demand, presentment or notice, or grace period, all of which hereby are
expressly waived, except as set forth below:

3.1 Failure to Pay Principal or Interest. The Borrower fails
to pay any installment of principal or interest hereon when due and such failure
continues for a period of thirty (30) days after written notice to the Borrower
from the Holder.

3.2 Breach of Covenant. The Borrower breaches any covenant or
other term or condition of this Note and such breach continues for a period of
ten (10) days after written notice to the Borrower from the Holder.

3.3 Breach of Representations and Warranties. Any
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection herewith shall be false or misleading in any
material respect.

3.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.

3.5 Judgments. Any money judgment, writ or similar process
shall be entered or filed against Borrower or any of its property or other
assets for more than $100,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.

3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower.

3.7 Material Adverse Event. The occurrence of a Material
Adverse Event involving the Company, shall mean (i) delisting of the Common
Stock from the NASDAQ SmallCap Market; (ii) a concession by the Company of a
default under any obligation in a monetary amount in excess of $100,000, except
for obligations due under Notes referred to in Note 4 of the Company's report on
Form 10Q-SB for the quarter ended November 30, 1995 and any replacement Notes,
not to exceed an aggregate $450,000 in principal amount; (iii) an SEC stop trade
order or NASDAQ trading suspension, if either applies for a period of ten days
or longer; (iv) the failure to deliver Company Common Stock to the Escrow Agent
pursuant to Section 12 of the Subscription Agreement, between the parties
hereto, executed as of this date; (v) Morris Berger ceasing to be Chief
Executive Officer of the Company; and (vi) receipt by the Company of a qualified
audit opinion in connection with the Company's financial statements for the year
ended February 28, 1996. A twenty (20) day grace period shall apply with respect
to defaults under this Section 3.7. Upon the occurrence of an Event of Default,
including the occurrence of a Material Adverse Event, the Borrower will not have
the option of compelling conversion of this Note into shares of the Borrower's

Common Stock, nor will the principal of the

<PAGE>

Note and accrued interest be converted as described in Section 2.1(c) hereof
without the consent of the Holder.

ARTICLE IV

MISCELLANEOUS

4.1 Failure or Indulgency Not Waiver. No failure or delay on
the part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.

4.2 Notices. Any notice herein required or permitted to be
given shall be in writing and may be personally served or sent by United States
mail and shall be deemed to have been given three (3) days after being deposited
in the United States mail, certified, registered, with postage pre-paid and
properly addressed or on receipt, if sent by fax transmission (with copy sent by
certified or registered mail or by overnight courier). For the purposes hereof,
the address and fax number of the Holder is as set forth on the first page
hereof the address and fax number of the Borrower shall be Multi-Media Tutorial
Service, Inc., 205 Kings Highway, Brooklyn, New York 11223, fax number (718)
234-6930. Both Holder and Borrower may change the address and fax number for
service by service of written or fax notice to the other as herein provided.
Notice of Conversion shall be deemed given when made to the Escrow Agent
identified in Section 12 of the Subscription Agreement.

4.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.

4.4 Assignability. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns.

4.5 Cost of Collection. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof costs of collection, including
attorneys' fees.

4.6 Governing Law. This Note has been executed in and shall be
governed by the internal laws of the State of New York, without regard to the
principles of conflict of laws.

IN WITNESS WHEREOF, Borrower has caused this Note to be signed
in its name by its Chief Executive Officer on this 23rd day of April, 1996.

MULTI-MEDIA TUTORIAL SERVICE, INC.

<PAGE>
By:
--------------------------------

<PAGE>
October 7, 1996
Multi-Media Tutorial Services, Inc.
205 Kings Highway

Brooklyn New York 11223

Gentlemen,

1. The Offering.

(a) At a closing to occur at the offices of your company (the
"Company") simultaneously herewith, the undersigned ("Subscriber") will
for S50,000 per Unit (as defined below) purchase from you, and you will
sell, the number of Units set forth below opposite Subscriber's name
below. Such purchase by Subscriber is part of an offering in which an
aggregate of 20 Units will be sold simultaneously with such sale to
Subscriber.

(b) Each Unit consists of S50,000 principal amount of Promissory Notes
of the Company (the "Notes") and warrants to purchase a minimum of
100,000 shares of common stock of the Company (the "Warrants").

2. The Securities.

(a) The Notes shall be in the form of Exhibit A. The Warrants
shall be in the form of Exhibit B.

(b) If the Note is not paid in full at maturity, then, at any time
thereafter, Target Capital shall be entitled to send a notice to the Company in
which Target Capital designates two persons who shall be elected to the Board as
additional directors of the Company. Effective upon the giving of such notice,
the size of the Board shall be deemed increased by two, and such persons shall
be deemed automatically elected to the Board.

3. Required Prepayment. The Company will apply to the prepayment and payment of
the Notes, allocated among them or rata with their outstanding principal
amounts, any and all equity funds which are hereafter raised by the Company.

4. Registration Rights. The Company will on or before the 120th day after the
date of this Agreement file a registration statement on Form S-3 or Form S-1
(the "Registration Statement") for the public sale by the holders of the shares
which are issuable upon exercise of the Warrants. The Company shall use its best
efforts to cause the Registration Statement to become effective not later than
90 days after the date of filing and to remain effective for three years with
respect to Common Stock issued upon exercise of Warrants. The registration shall
be accompanied by blue sky clearances in such states as the holders may
reasonably request. The Company shall pay all expenses of the registration
hereunder, other than the holders' underwriting discounts. Registration rights
may be assigned to assignees of the Warrants or the underlying stock.

5. Company Information. Subscriber has reviewed the most recent proxy statement
and the most recent report on Form 10-K of the Company and all reports on Form
10-Q and 8-K since such report on Form 10-K. Subscriber has been given access to

all exhibits referred to in these reports, and it has had the opportunity to
discuss the Company's affairs with the Company's officers. The Company
represents and warrants to the Subscriber that all such filings and exhibits
thereto and other disclosures, taken as a whole, are correct and accurate and
state all facts necessary to make not misleading such filings and exhibits
thereto and other disclosures, taken as a whole. Such disclosures represent all
of the disclosures made by the Company to the Subscriber.

6. Certain Representations.

<PAGE>

(a) Subscriber represents and warrants that it is purchasing the Units solely
for investment solely for its own account and not with a view to or for the
resale or distribution thereof .

(b) Subscriber understands that it may sell or otherwise transfer the Units, the
Warrants or the shares of Common Stock issuable on exercise of the Warrants only
if such transaction is duly registered under the Securities Act of 1933, as
amended, under the Registration Statement or otherwise, or if Subscriber shall
have received the favorable opinion of counsel to the holder, which opinion
shall be reasonably satisfactory to counsel to the Company, to the effect that
such sale or other transfer may be made in the absence of registration under the
Securities Act of 1933, as amended, and registration or qualification in every
applicable state. The certificates representing the aforesaid securities will be
legended to reflect these restrictions, and stop transfer instructions will
apply. Subscriber realizes that the Units are not a liquid investment.

(c) Subscriber has not relied upon the advice of a "Purchaser Representative"
(as defined in Regulation D of the Securities Act) in evaluating the risks and
merits of this investment. Subscriber has the knowledge and experience to
evaluate the Company and the risks and merits relating thereto.

(d) Subscriber represents and warrants that Subscriber is an "accredited
investor" as such term is defined in Rule 501 of Regulation D promulgated
pursuant to the Securities Act of 1933, as amended, and shall be such on the
date any shares are issued to the holder; Subscriber acknowledges that
Subscriber is able to bear the economic risk of losing Subscriber's entire
investment in the shares and understands that an investment in the Company
involves substantial risks; Subscriber has the power and authority to enter into
this agreement, and the execution and delivery of, and performance under this
agreement shall not conflict with any rule, regulation, judgment or agreement
applicable to the Subscriber; and Subscriber has invested in previous
transactions involving restricted securities.

7. Commissions. Subscriber acknowledges that Target Capital is receiving an
commission in respect of the offering which is equal to 10% of the total number
of warrants included in the Units.

8. Miscellaneous. This Agreement may not be changed or terminated except by
written agreement. It shall be binding on the parties and on their personal
representatives and permitted assigns. It sets forth all agreements of the
parties. It shall be enforceable by decrees of specific performance (without
posting bond or other security) as well as by other available remedies.

MULTI-MEDIA TUTORIAL SERVICES, INC.

By:
------------------------------------

Subscriber:

Address:

Number of Units:

<PAGE>

Exhibit A

$50,000

PROMISSORY NOTE

(the "Note")

MULTI-MEDIA TUTORIAL SERVICES, INC.

MULTI-MEDIA TUTORIAL SERVICES, INC., a Delaware corporation (hereinafter called
the "Corporation"), for value received, hereby promises to pay to the order of
(hereinafter the "Holder") the principal sum of
$50,000 on March 24, 1997, together with interest accruing at the rate of 8% per
annum and payable at Maturity or, if earlier, out of the proceeds of any equity
sales by the Corporation (applied pro rata among all Notes of similar tenor).
Principal and interest shall be payable at the address of the Holder.

1 . An "event of default " with respect to this Note shall exist if any of the
following shall occur:

(a) The Corporation shall breach or fail to comply with any provision
of this Note and such breach or failure shall continue for thirty (30)
days after written notice by any Holder of any Note to the Corporation.

(b) A receiver, liquidator or trustee of the Corporation or of a
substantial part of its properties shall be appointed by court order
and such order shall remain in effect for more than sixty (60) days; or
the Corporation shall be adjudicated bankrupt or insolvent; or a
substantial part of the property of the Corporation shall be
sequestered by court order and such order shall remain in effect for
more than sixty (60) days; or a petition to reorganize the Corporation
under any bankruptcy, reorganization or insolvency law shall be filed
against the Corporation and shall not be dismissed within sixty (60)
days after such filing.

(c) The Corporation shall file a petition in voluntary bankruptcy or
request reorganization under any provision of any bankruptcy,
reorganization or insolvency law, or shall consent to the filing of any
petition against it under any such law.

(d) The Corporation shall make an assignment for the benefit of its
creditors, or admit in writing its inability to pay its debts generally
as they become due, or consent to the appointment of a receiver,
trustee or liquidator of the Corporation, or of all or any substantial
part of its properties.

<PAGE>

2. If an event of default shall occur, the Holder may, in addition to such
Holder's other remedies, by written notice to the Corporation, declare the
principal amount of this Note, together with all interest accrued thereon, to be
due and payable immediately. Upon any such declaration, such amount shall become
immediately due and payable and the Holder shall have all such rights and
remedies provided for under the terms of this Note and the Stock Pledge
Agreement.

3. Miscellaneous.

(a) All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
telegram, recognized overnight mail carrier, telex or other standard
form of telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows: (a) if to the
Holder, to such address as such Holder shall furnish to the Corporation
in accordance with this Section, or (b) if to the Corporation, to it at
its headquarters office, or to such other address as the Corporation
shall furnish to the Holder in accordance with this Section.

(b) THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED
ENTIRELY WITHIN SUCH STATE.

(d) If any provision of this Note shall for any reason be held to be
invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision hereof, but this Note shall be construed as
if such invalid or unenforceable provision had never been contained
herein.

(e) The waiver of any event of default or the failure of the Holder to
exercise any right or remedy to which it may be entitled shall not be
deemed a waiver of any subsequent event of default or of the Holder's
right to exercise that Or any other right or remedy to which the Holder
is entitled.

(f) The Holder of this Note shall be entitled to recover his legal and
other costs of collecting on this Note, and such costs shall be deemed
added to the principal amount of this Note.

(g) In addition to all other remedies to which the Holder may be
entitled hereunder, Holder shall also be entitled to decrees of
specific performance without posting bond or other security.

IN WITNESS WHEREOF, the Corporation has caused this Note to be duly executed on
the date first written above.

MULTI-MEDIA TUTORIAL SERVICES, INC.

By:

<PAGE>

Exhibit B

Neither this Warrant nor the shares of Common Stock issuable on exercise of this
Warrant have been registered under the Securities Act of 1933. None of such
securities may be transferred in the absence of registration under such Act or
an opinion of counsel to the effect that such registration is not required.

MULTI-MEDIA TUTORIAL SERVICES, INC.

WARRANT

DATED: September 24, 1996
Number of Shares: 100,000 (subject to increase to 150,000 on the terms set forth
below)

Holder:

Address:

THIS CERTIFIES THAT the holder of this Warrant ("Holder") is entitled
to purchase MULTI-MEDIA TUTORIAL SERVICES, INC., a Delaware corporation
(hereinafter called the "Company"), at the exercise price per share set forth
below the number of shares of the Company's common stock set forth above
("Common Stock"). The exercise price of this Warrant is $1.50 per share, subject
to decrease as set forth below. The warrants expire on the tenth anniversary of
the date hereof.

1. On the date of issuance of this Warrant the holder has loaned certain amounts
to the Company pursuant to a promissory note dated of even date herewith (the
"Note") . In addition to, and without limiting any remedies which are otherwise
available to the Holder if the Note is not paid when due:

(a) the number of shares of common stock which may be acquired
upon exercise of this Warrant shall be increased to 150,000 if
the note has not been paid by maturity;

(b) the exercise price of this Warrant shall be reduced to $1.00
per share if the Note has not been paid by the 30th day after
maturity;

(c) if the Note has not been paid within 60 days after maturity
and the Company's shares are listed on the Nasdaq Small Cap or
the Nasdaq National Market System, the exercise price of this
Warrant shall thereafter be equal to the lesser of $1.00 per
share and the greater of 75% of Market Price (as hereinafter
defined) or $.55 per share. The term "Market Price" means with

<PAGE>

respect to any exercise of this Warrant, the average closing
bid price of the Company's common stock during the 15 trading
days immediately preceding the date of such exercise;

(d) if the Note has not been paid within 60 days after maturity
and the Company's shares are not listed on the Nasdaq Small
Cap or the Nasdaq National Market System, the exercise price
of this Warrant shall be equal to the lesser of $ 1.00 per
share and 75% of Market Price; and

<PAGE>

(e) in no event shall the exercise price of this Warrant exceed
the lowest exercise price under any Warrant which is issued by
the Company while any portion of the principal or interest
under the Note has not been paid.

2. This Warrant and the Common Stock issuable on exercise of this Warrant (the
"Underlying Shares") may be transferred, sold, assigned or hypothecated, only if
registered by the Company under the Securities Act of 1933 (the "Act") or if the
Company has received from counsel to the Company a written opinion to the effect
that registration of the Warrant or the Underlying Shares is not necessary in
connection with such transfer, sale, assignment or hypothecation. The Warrant
and the Underlying Shares shall be appropriately legended to reflect this
restriction and stop transfer instructions shall apply. The Holder shall through
its counsel provide such information as is reasonably necessary in connection
with such opinion.

3. The Holder is entitled to certain registration rights under an agreement of
even date herewith.

4. Any permitted assignment of this Warrant shall be effected by the Holder by
(i) executing the form of assignment at the end hereof, (ii) surrendering the
Warrant for cancellation at the office of the Company, accompanied by the
opinion of counsel to the Company referred to above; and (iii) unless in
connection with an effective registration statement which covers the sale of
this Warrant and or the shares underlying the Warrant, delivery to the Company
of a statement by the transferee (in a form acceptable to the Company and its
counsel) that such Warrant is being acquired by the Holder for investment and
not with a view to its distribution or resale; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder) new
Warrants representing in the aggregate rights to purchase the same number of
Shares as are purchasable under the Warrant surrendered. Such Warrants shall be

exercisable immediately upon any such assignment of the number of Warrants
assigned. The transferor will pay all relevant transfer taxes, Replacement
warrants shall bear the same legend as is borne by this Warrant.

5. The term "Holder" should be deemed to include any permitted record transferee
of this Warrant.

6. The Company covenants and agrees that all shares of Common Stock which may be
issued upon exercise hereof will, upon issuance, be duly and validly issued,
fully paid and non-assessable and no personal liability will attach to the
holder thereof. The Company further covenants and agrees that, during the
periods within which this Warrant may be exercised, the Company will at all
times have authorized and reserved a sufficient number of shares of Common Stock
for issuance upon exercise of this Warrant and all other Warrants.

7. This Warrant shall not entitle the Holder to any voting rights or other
rights as a stockholder of the Company.

8. In the event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization), stock split, combination of shares or stock
dividends payable with respect to such Common Stock, the outstanding shares of
Common Stock of the Company are at any time increased or decreased or changed
into or exchanged for a different number

<PAGE>

or kind of share or other security of the Company or of another corporation,
then appropriate adjustments in the number and kind of such securities then
subject to this Warrant shall be made effective as of the date of such
occurrence so that the position of the Holder upon exercise will be the same as
it would have been had it owned immediately prior to the occurrence of such
events the Common Stock subject to this Warrant. Such adjustment shall be made
successively whenever any event listed above shall occur and the Company will
notify the Holder of the Warrant of each such adjustment. Any fraction of a
share resulting from any adjustment shall be eliminated and the price per share
of the remaining shares subject to this Warrant adjusted accordingly.

9. The rights represented by this Warrant may be exercised at any time within
the period above specified by surrender of this Warrant (with the purchase form
at the end hereof properly executed) at the principal executive office of the
Company (or such other office or agency of the Company as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Company); (ii) payment to the Company of the exercise price for the
number of Shares specified in the above-mentioned purchase form together with
applicable stock transfer taxes, if any; and (iii) unless in connection with an
effective registration statement which covers the sale of the shares underlying
the Warrant, the delivery to the Company of a statement by the Holder (in a form
acceptable to the Company and its counsel)that such Shares are being acquired by
the Holder for investment and not with a view to their distribution or resale.

10. The certificates for the Common Stock so purchased shall be delivered to the
Holder within a reasonable time, not exceeding ten (10) business days after all
requisite documentation has been provided, after the rights represented by this

Warrant shall have been so exercised, and shall bear a restrictive legend with
respect to any applicable securities laws.

11. This Warrant shall be governed by and construed in accordance with the laws
of the State of New York. The New Jersey courts shall have exclusive
jurisdiction over this instrument and the enforcement thereof Service of process
shall be effective if by certified mail, return receipt requested. All notices
shall be in writing and shall be deemed given upon receipt by the party to whom
addressed. This instrument shall be enforceable by decrees of specific
performances well as other remedies.

IN WITNESS WHEREOF, MULTI-MEDIA TUTORIAL SERVICES, INC. has caused this
Warrant to be signed by its duly authorized officers under Its corporate seal,
and to be dated as of the date set forth above.

MULTI-MEDIA TUTORIAL SERVICES, INC.

By:
----------------------------------

Title:
-------------------------------

<PAGE>

CERTIFICATE OF DESIGNATION
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
MULTI-MEDIA TUTORIAL SERVICES, INC. (the "Company")

The undersigned corporation hereby certifies as follows:

FIRST: The name of the corporation is MULTI-MEDIA TUTORIAL SERVICES,
INC.

SECOND: Resolutions establishing a new series of Preferred shares were
adopted by the Board of Directors in accordance with Section 151 of the General
Corporation Laws of the State of Delaware such that:

1. Fifty shares of Preferred Stock, with a par value of $.01 per share,
are to be designated Series A (the "Preferred Stock"), with the following
relative rights, privileges, preferences, restrictions and/or limitations.

2. The holders of the Preferred Stock in preference to the holders of
Junior Stock (as hereinafter defined) shall be entitled to receive a dividend to
be declared annually on the first day of November (the "Dividend Date"). In the
event that the stock exchange or automated trading system upon which the
Company's Common Stock is traded is not open on a first day of November, the
Dividend Date shall be the next day thereafter on which such stock exchange or
automated trading system is open. Such dividend shall be the number of shares of
Common Stock of the Company (rounded to the nearest smaller whole number) which
is equal to $5,000 divided by the closing bid price of the Common Stock of the
Company on the Dividend Date on the stock exchange or automated trading system
upon which the Company's Common Stock is traded on the Dividend Date. No such
dividend shall be earned or payable on any share of Preferred Stock which is
converted in the 12 months preceding the Dividend Date. The first Dividend Date
shall be November 3, 1997.

3. The Preferred Stock shall be preferred as to assets over the Junior
Stock so that, in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of the Company, the holders of Preferred Stock shall
be entitled to have set apart for them or to be paid out of the assets of the
Company, before any distribution is made to or set apart for the holders of
Junior Stock, an amount in cash equal to, and in no event more than, $50,000 per
share of Preferred Stock. If, upon such liquidation, dissolution or winding-up
of the Company, the assets of the Company available for distribution to the
holders of its stock be insufficient to permit the distribution in full of the
amounts receivable as aforesaid by the holders of Preferred Stock, then all such
assets of the Company shall be distributed ratably among the holders of
Preferred Stock in proportion to the amounts which each would have been entitled
to receive if such assets were sufficient to permit distribution in full as
aforesaid. Neither the consolidation nor merger of the Company

<PAGE>

nor the sale, lease or transfer by the Company of all or any part of its assets

shall be deemed to be a liquidation, dissolution or winding-up of the Company
for the purposes of this paragraph.

4. To the extent that the Preferred Stock has not theretofore been
converted under Section 5, the Company may redeem all of the Preferred Stock at
any time on or after the earlier of: (a) November 1, 1999 or (b) when the
closing bid price of a share of Common Stock of the Company has equaled or
exceeded $3.00 on each of twenty (20) consecutive trading days. The $3.00 share
price referred to in Section 4(b) shall be subject to adjustment in the
circumstances set forth in the second paragraph of Section 5 below. The
Preferred Stock shall automatically be deemed converted under Section 5 upon
such redemption unless the registration statement referred to below has not
theretofore been declared effective, or unless the Company's Common Stock is not
then trading on NASDAQ or another generally recognized stock exchange or
automated trading system. The redemption price shall be payable in cash and
shall be equal to $50,000 per share, plus any accrued dividends thereon. The
registration statement means the registration statement which the Company is
required by separate agreement to file in respect of the shares of Common Stock
issuable upon conversion of the Preferred Stock (the "Registration Statement").

5. The holder shall have the right at any time after the earlier of:
(a) the day following the day that the Registration Statement is declared
effective or (b) April 30, 1997, in its sole discretion, to convert the
Preferred Stock, in whole or in part, into a number of shares (the "Conversion
Shares") of the Company's Common Stock equal to $50,000 divided by the
Conversion Price. The Conversion Price means a price per share equal to the
lesser of (1) $1.00 or (2) 70% of the greater of (a) the average of the closing
bid prices of a share of Common Stock of the Company during the ten trading days
immediately prior to such conversion or (b) the closing bid price of a share of
Common Stock of the Company on the trading day immediately prior to such
conversion. The Conversion Price shall not be less than $.50 per share. In the
event that the holder elects to exercise its conversion rights hereunder, it
shall give to the Company written notice of such election via United States
priority mail, overnight courier service or facsimile transmission verified
telephonically and shall surrender its Preferred Stock to the Company for
cancellation. The Company shall at all times reserve and keep available out of
its authorized and unissued Common Stock, solely for issuance upon the
conversion of the Preferred Stock as herein provided, such number of shares of
Common Stock as shall from time to time be issuable upon the conversion of the
Preferred Stock. The Preferred Stock shall be convertible only to the extent
that authorized but unissued shares of Common Stock of the Company are available
for such conversion.

In case the Company shall issue Common Stock as a dividend upon common
stock or in payment of a dividend thereon (except for the payment of the
dividend on the Preferred Stock provided in paragraph 1 hereof), shall subdivide
the number of outstanding shares of its Common Stock into a greater number of
shares or shall contract the

<PAGE>

number of outstanding shares of its Common Stock into a lesser number of shares,
the number of Conversion Shares to which the holder is entitled to receive shall

be adjusted, effective at the close of business on the date such shares of
Common Stock are to be issued, so that the Conversion Shares shall be equal to
the product obtained by multiplying the Conversion Shares in effect immediately
prior to the close of business on such date by a fraction, the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such dividend, subdivision, or contraction, and the numerator of which
shall be the number of shares of Common Stock outstanding immediately after such
dividend, subdivision or contraction. If any capital reorganization or
reclassification of the Common Stock, or consolidation, or merger of the Company
with or into another corporation, or the sale or conveyance of all or
substantially all of its assets to another corporation shall be effected, then,
as a condition precedent of such reorganization or sale, the following provision
shall be made: The holder of the Preferred Stock shall from and after the date
of such reorganization or sale have the right to receive (in lieu of the shares
of Common Stock of the Company immediately theretofore receivable with respect
to such Preferred Stock, upon the exercise of conversion rights), such shares of
stock, securities or assets as would have been issued or payable with respect to
or in exchange for the number of outstanding shares of such Common Stock
immediately theretofore receivable with respect to such Preferred Stock. In any
such case, appropriate provision shall be made with respect to the rights and
interests of the holders to the end that such conversion rights (including,
without limitation, provisions for appropriate adjustments) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise thereof.

6. The holders of the Preferred Stock shall have no voting rights
except as expressly provided by law.

7. The term "Junior Stock" shall mean the Common Stock and those series
of Preferred Stock which, by the terms of the Certificate of Incorporation or of
the instrument by which the Board of Directors, acting pursuant to authority
granted in the Certificate of Incorporation, shall designate the special rights
and limitations of each such class and series of stock and series of Preferred
Stock, shall be subordinate to the Preferred Stock in respect of the right of
the holders thereof to receive dividends or to participate in the assets of the
Company distributable to stockholders upon any liquidation, dissolution or
winding-up of the Company.

<PAGE>

DRAFT - 9 MAY 1997
MULTIMEDIA TUTORIAL SERVICES, INC.

THE UNITS AND THE SHARES INCLUDED THEREIN
OFFERED HEREBY ARE SUBJECT TO
SUBSTANTIAL RESTRICTIONS ON TRANSFERABILITY

SECURITIES PURCHASE AGREEMENT

Private Offering of 10 Units at $100,000 per Unit

(Minimum Offering $100,000, up to
Maximum Offering of $1,000,000)

DESCRIPTION OF UNITS

Each $100,000 unit being offered by MultiMedia Tutorial Services, Inc.
(the "Company") shall consist of a promissory note in the principal amount of
$100,000 bearing interest at a rate of 10% per annum and in the form attached
hereto as Exhibit A (the "Note") and a number of shares of the Company's Common
Stock, par value $.01, equal to $50,000 divided by the price per share (the
"Offering Price") of the Company's Common Stock in its next offering of equity
securities for an aggregate consideration in excess of $1,000,000 (the
"Shares"). The next offering of equity securities shall include any offering of
securities convertible into equity securities and Offering Price in such event
shall mean the price at which the securities are convertible. Investors will not
receive the Shares until the Offering Price has been definitively established
and the offering has been completed. The Shares will be entitled to the
anti-dilution protection set forth in paragraph 11(i) below.

In connection with the offer and proposed issuance of up to ten (10)
units (the "Units"), of MULTIMEDIA TUTORIAL SERVICES, INC., (the "Company"), the
undersigned prospective investor (the "Investor") and the Company hereby agree
as follows:

1. Subscription. The Investor hereby subscribes for the purchase of the
Units and agrees to purchase the number of Units set forth in Paragraph 12 of
this agreement. The Company, in its sole discretion and for any reason, may
accept or reject this purchase in whole or in part at any time not later than 10
days after the receipt of this agreement.

2. Restricted Units. Except as provided in Section 3 below, Investor
recognizes that the Units, Notes, and Shares when issued will not have been
registered for public sale under the Securities Act of 1933 (the "Securities
Act"), as amended, or the securities laws of any state and that the share
certificate will bear a "Restricted Stock" legend as follows:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF (1) AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT, OR

(2) AN OPINION OF COMPANY COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED."

<PAGE>

3. Registration Rights. If the Company proposes to register any of its
securities under the Securities Act of 1933 (the "Act") after the date hereof
(other than pursuant to a Form S-8, S-4 or comparable registration statement) it
will include the Shares in such registration statement unless Investor requests
in writing that the Shares be excluded therefrom. It is understood that the
Company may at any time elect not to file any such registration statement, or to
withdraw the same after the filing but prior to the effective date thereof, in
which case this right shall apply to next registration statement thereafter
filed by the Company. The Company will pay all expenses of the registration
hereunder, other than the Investors' underwriting discounts, brokerage and
attorney's fees, and transfer fees and taxes. The Investor will provide the
Company with such true and accurate information regarding himself and the Shares
as may be required for such Registration Statement by the then applicable laws
and regulations.

4. Payment of Purchase Price. The Investor shall pay for the Units by
wire transfer of funds or certified or bank check.

5. Company's Condition. The Company's obligation to issue and sell the
Note and Shares shall be subject to the satisfaction (or waiver by it) of the
following conditions precedent:

(a) Performance. The Investor shall have tendered payment
for the Units.

(b) Reservations. Each representation and warranty made
by the Investor in this agreement shall be true and
correct in all material respects as though made on
and as of the Closing Date.

(c) Legality. No change shall have occurred in any law,
rule or regulation that would prohibit the
consummation of any transaction contemplated hereby.

(d) Litigation. No action, proceeding or investigation
shall have been commenced or threatened, nor shall
any other judgment or decree have been issued or be
proposed to be issued by any court, agency or
authority to set aside, restrain, enjoin or prevent
the consummation of any transaction contemplated
hereby.

6. Representations and Warranties. The Investor makes the
representations declarations and warranties set forth in this Section with the
intent that the same may be relied upon in determining the Investor's
suitability as a purchaser of the Units. If the Investor includes or consists or
more than one person or entity, the obligations of the Investor shall be joint
and several and the representations and warranties herein contained shall be

deemed to be made by and be binding upon each such person, or entity and their
respective legal representatives, heirs, executors, administrators, successors
and assigns.

(a) No Regulatory Review. The Investor is aware that this
is a limited private offering and that no federal,
state or other agency has made any finding or
determination as to the fairness of the investment
nor made any recommendation or endorsement of the
Units.

(b) Ability to Evaluate. The Investor, by reason of the
Investor's knowledge and experience in financial and
business matters, is capable of evaluating the risks
and merits of an investment in the Units.

(c) Investment Intent. The Investor acknowledges that the
purchase of the Units hereunder is being made for the
Investor's own account, for investment purposes

<PAGE>

MultiMedia Media Tutorial, Inc. Page 3.
Securities Purchase Agreement

only and not with the present intention of
distributing or reselling the Units, the Note or
Shares in whole or in part. The Investor further
understands that the Units are not being sold to the
Investor in a transaction registered under the
Securities Act of 1933, as amended (the "Act"), or
any other state securities laws. As a result, the
Investor understands that there will be restrictions
on the transfer and sale of the Units and the
Securities represented thereby. The Investor further
understands that the Company will file a Registration
Statement on Form S-3 or other such form as may be
required with the SEC, with respect to the Shares
included in the Units. The Investor hereby agrees not
to sell or otherwise transfer the Shares until the
Investor has received notice from the Company that
the Registration Statement has been declared
effective. Investor hereby agrees that any exercise
of the registration rights granted hereby or sale of
the Shares pursuant to such registration shall be
made only in a manner consistent with the
representations and warranties made by Investor to
the Company hereunder. Investor understands that the
SEC may in its discretion comment on certain aspects
of the Registration Statement and the transaction and
that such comments may cause delay in the
Registration Statement becoming effective. The
Company shall have no liability to Investor on

account of any such delay initiated by the SEC.

(d) Investment Information. The Investor has received and
reviewed pertinent information regarding the Company,
including the most recent SEC Forms 10-KSB and 10-QSB
prior to the execution of this Agreement and is
capable of understanding and evaluating the
information contained therein. Investor has had the
opportunity to make inquiries regarding the Company's
affairs and has received satisfactory responses
thereto. Specifically, the Investor is fully aware of
the risks relating to the business of the Company and
purchase of the Units, which include, but are not
limited to, the facts that the Company has a limited
history of operations, and that such operations have
been unprofitable as of February 28, 1997. The
Investor will rely solely upon its independent
investigation and analysis in making the decision to
purchase the Units. In particular, and without
limiting the generality of the foregoing, the
Investor has not relied on, and the Investor's
decision to subscribe for Units has not been
influenced by: (I) newspaper, magazine or other media
articles or reports related to the Company or its
business; (ii) promotional literature or other
materials used by the Company for sales or marketing
purposes, or (iii) any other written or oral
statement of the Company, M.J. Segal & Associates, M.
J. Segal & Company, Private Investors Equity Group,
Target Capital, their representatives, officers,
employees, or any other persons purporting to
represent the Company. The Investor has had the
opportunity to discuss all aspects of this
transaction with management of the Company, has made
or has had the opportunity to make such inspection of
the books and records of the Company as the Investor
has deemed necessary in connection with this
investment, and any questions asked have been
answered to the satisfaction of the Investor.

(e) Short and Other Positions. The Investor represents
that it does not maintain a short position in any
securities of the Company at the time of execution
hereof,

<PAGE>

MultiMedia Media Tutorial, Inc. Page 4.
Securities Purchase Agreement

and represents that it will not "short sell" the
Common Stock during the period when holders own the
Units, Notes, or Shares. Investor will not acquire

any interest in the Common Stock of the Company until
such time as the Company shall advise the Investor
that public disclosure has been made of any
confidential information which Investor may have
received from the Company in connection with this
offering.

(f) Confidentiality. The Investor understands that this
offering is confidential. The Investor will not
distribute information on this offering to anyone
other than such legal or financial advisors as the
Investor has deemed necessary for purposes of
evaluating an investment in the Units.

(g) Authorization and Formation of Investor. The
Investor, if a corporation, partnership, trust or
other form of business entity, is authorized and
otherwise duly qualified to purchase and hold the
Units and underlying stock and such entity has not
been formed for the specific purposes of acquiring
Units in this offering. If the Investor is one of the
aforementioned entities, it hereby agrees that upon
request of the Company it will supply the Company
with any additional written information that may be
requested by the Company.

(h) Accredited Investor Status. The Investor is an
"accredited investor" as such term is defined in Rule
501(a) of Regulation D under the Act and within the
meaning of similar regulations under state securities
laws for the reasons indicated in the "Investor
Acknowledgments" accompanying this Agreement. If the
Investor is an individual, he or she is of majority
age and his or her marital status is as indicated in
the "Investor Acknowledgments." If the Investor is an
entity, the person executing this Securities Purchase
Agreement on behalf of the Investor is of majority
age. Investor has not relied upon the advice of a
"Purchaser Representative" (as defined in Regulation
D) in evaluating the risks and merits of this
investment.

(i) Restriction on Resale of Shares. Notwithstanding the
effectiveness of the Registration Statement, the
Investor shall not sell the Shares without the prior
written consent of the Company and of any underwriter
of any public offering of the Company's securities
during the restricted periods set forth in this
paragraph 6(i). This restriction shall apply to
one-half of the Shares for six months from the date
of the offering in which the Offering Price is
determined and for one-half of the Shares until the
first anniversary of the date of such offering. The
Investor further agrees that such periods may be

extended to the extent mandated by the Securities and
Exchange Commission or the Nasdaq Stock Market, Inc.
in connection with any public offering of the
Company's securities filed prior to the first
anniversary of the date hereof.

7. Reliance on Representations and Warranties: Indemnity. The Investor
understands that the Company will rely on the representations and warranties of
the Investor herein in determining whether a sale of the Units and underlying
securities to the Investor is in compliance with federal and applicable state
securities laws. The Investor hereby agrees to indemnify the Company and its
affiliates, and holds the

<PAGE>
MultiMedia Media Tutorial, Inc. Page 5.
Securities Purchase Agreement

Company and its affiliates and agents harmless from and against any and all
liability, damage, cost or expense (including reasonable attorneys' fees)
incurred on account of or arising out of: (a) any inaccuracy in the Investor's
declarations, representations and warranties set forth in this Subscription
Agreement; (b) the disposition of any Shares which the Investor will receive,
contrary to the Investor's declarations, representations and warranties in this
Subscription Agreement; (c) any lawsuit or proceeding based upon a claim that
said declarations, representations or warranties were inaccurate or misleading
or otherwise cause for obtaining damages or redress from the Company or any of
its affiliates or the disposition of all or any part of the Investor's Units or
underlying securities and (d) the Investor's failure to fulfill any or all of
the Investor's obligations herein.

8. Updating Information. All of the information set forth herein with
respect to the Investors, including, without limitation, all of the
representations and warranties set forth in Paragraph 6 of this agreement, is
correct and complete as of the date hereof and, if there should be any material
change in such information prior to the acceptance of this subscription by the
Company, the Investor will immediately furnish the revised or corrected
information to the Company.

9. Notices. Any notice or other communications required or permitted
hereunder shall be sufficiently given if in writing and sent by registered or
certified mail, postage prepaid, return receipt requested, if to the Company at
the address set forth on the first page of this Subscription Agreement, and to
Investor, at the address set forth in Paragraph 12 of this Subscription
Agreement, or, to such other address as either the Company or the Investor shall
designate to the other by notice in writing in accordance with Paragraph 9.

10. Governing Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of New York.

11. Representations and Warranties of the Company. The Company
represents and warrants to Investor as follows:

(a) The Company has legal capacity, power and authority

to enter into and perform this Agreement and to
consummate the transaction contemplated herein.

(b) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a legal,
valid and binding obligation of the Company,
enforceable against the Company in accordance with
its terms.

(c) The execution and delivery of this agreement and the
performance of the obligations imposed hereunder will
not result in a violation of any order, decree or
judgment of any court or governmental agency having
jurisdiction over Company and Company's properties,
will not conflict with, constitute a default under,
or result in the breach of any contract agreement or
other instrument to which the Company is a party or
is otherwise bound and no consent, authorization or
order of, or filing or registration with, any court
or governmental agency is required for the execution,
delivery and performance of this agreement.

(d) There is no litigation or proceeding or, to the best
of the Company's knowledge, threatened, against the
Company which would affect the validity or
performance

<PAGE>
MultiMedia Media Tutorial, Inc. Page 6.
Securities Purchase Agreement

of this agreement.

(e) Upon consummation of the transaction contemplated
hereby, the Investor will own the Units free and
clear of all liens, claims charges and other
encumbrances and the delivery of the Shares to
Investor pursuant to this agreement will transfer
legal and valid title thereto, free and clear of all
liens, claims, charges and other encumbrances.

(f) The Company will pay all transfer fees and expenses.

(g) The Shares when issued and delivered will be duly and
validly authorized and issued fully paid and
nonassessable and will not subject the holders
thereof to personal liability by reason of being such
holders. There are no preemptive rights of any
shareholder of the Company.

(h) The Company hereby agrees to indemnify and hold
harmless the Investor from and against any liability,
damage, cost or expense incurred as a result of

breach by the Company of any representation, warranty
or covenant of the Company hereunder.

(i) In the event of the issuance by the Company prior to
the end of the one-year period of restriction on
resale of the Shares set forth in paragraph 6(i) of
Common Stock for a value less than the Offering Price
(the "Reduced Offering Price"), the Company will
issue to the Investor sufficient additional shares of
Common Stock to equal, together with the Shares
already issued to the Investor, the number of shares
of Common Stock which would have been issuable to the
Investor had the Offering Price hereunder been the
Reduced Offering Price. For example, if the Investor
purchased one Unit hereunder and the Offering Price
was $5.00 per share, the Investor would have received
10,000 Shares. If the Reduced Offering Price is $4.00
per share, then the Investor shall be issued 2,500
additional Shares since at the Reduced Offering Price
the Investor would have been entitled to receive
12,500 shares. The provisions of paragraph 3 shall
apply to any additional Shares issued pursuant to
this paragraph 11(i).

<PAGE>

MultiMedia Media Tutorial, Inc. Page 7.
Securities Purchase Agreement

Print or Type Name of Investor:

12. Signatures. The Investor declares under penalty of perjury that the
statements, representations and warranties contained herein and in the following
Investor Acknowledgments are true, correct and complete and that this Securities
Purchase Agreement was executed at:

(City and State) (City and State)

Number of Units @ $100,000 per Unit
---------------------------
Total Purchase Price $
---------------------

Funds Should be Wired in Accordance with Section 4 of this Agreement.

Exact Name(s) in which Ownership of the Shares is to be Registered:

Address:
---------------------------------------------------------------

City, State Zip Code:
--------------------------------------------------

Phone Number: Fax Number:
------------------------------ ----------------

Investor Joint Investor (if necessary)
-----------------------------------------------------------------------

(Print Name) (Print Name)

(Signature) (Signature)

(Title) (Title)

Date: Date:
------------------------- -----------------------

Tax I.D. #
-------------------

RECEIVED AND ACCEPTED for MultiMedia Tutorial Services, Inc.:

By: Amount: $
----------------------------- ---------------

Name: Number of Units:
--------------------------- -----------

Title: Date:
-------------------------- -------------------

<PAGE>

MultiMedia Media Tutorial, Inc. Page 8.
Securities Purchase Agreement

Exhibit A

$100,000

PROMISSORY NOTE
(the "Note")

Brooklyn, New York May ___, 1997

MULTIMEDIA TUTORIAL SERVICES, INC., a Delaware corporation (hereinafter
called the "Corporation"), for value received, hereby promises to pay to the
order of ________________ (hereinafter the "Holder") the principal sum of
$100,000 on or before six months from the date hereof, together with interest
accruing at the rate of 10% per annum and payable at maturity or, if earlier,
out of the proceeds of any equity sales by the Corporation before any other
indebtedness of the Corporation is repaid. In the event that such proceeds of
equity sales are insufficient to make repayment in full, such repayment shall be
applied pro rata among all Notes issued pursuant to Securities Purchase
Agreements substantially identical to the Agreement to which this form of
Promissory Note is an exhibit. Principal and interest shall be payable at the
address of the Holder set forth in the Securities Purchase Agreement of even
date herewith.

1. An "event of default" with respect to this Note shall exist if any of
the following shall occur:

(a) The Corporation shall breach or fail to comply with any provision
of this Note and, except with respect of repayment, such breach or
failure shall continue for sixty (60) days.

(b) A receiver, liquidator or trustee of the Corporation or of a
substantial part of its properties shall be appointed by court order
and such order shall remain in effect for more than forty-five (45)
days; or the Corporation shall be adjudicated bankrupt or insolvent; or
a substantial part of the property of the Corporation shall be
sequestered by court order and such order shall remain in effect for
more than forty-five (45) days; or a petition to reorganize the
Corporation under any bankruptcy, reorganization or insolvency law
shall be filed against the Corporation and shall not be dismissed
within forty-five (45) days after such filing.

trustee or liquidator of the Corporation, or all or any substantial
part of its properties.

(e) The Corporation shall be in default of any other debt which is
senior to this Note.

(f) The Corporation shall promptly notify the Holder of any event of
default of which the Corporation has knowledge.

2. (a) If an event of default shall occur, the Holder may, in addition to
such Holder's other remedies, by written notice to the Corporation,
declare the principal amount of this Note, together with all interest
accrued thereon, to be due and payable immediately.

<PAGE>

MultiMedia Media Tutorial, Inc. Page 9.
Securities Purchase Agreement

(b) Alternatively, if an event of default shall occur, Holder shall
have the option upon written notice to the Corporation, to convert the
amount then outstanding under this Note into shares of Common Stock of
the Corporation at a rate of $0.125 per share (the "Stock"). Any such
conversion shall satisfy in full the Corporation's obligations under
this Note. The Corporation shall prepare and file a registration
statement and such other documents, including a prospectus, as may be
necessary in the opinion of counsel to the Corporation, in order to
comply with the provisions of the Securities Act of 1933, so as to
permit a public offering and sale of the Stock by the Holder. The
Corporation shall be responsible for all expenses of the registration
other than underwriter or broker fees or discounts and Holder's legal
fees. The Corporation shall file such registration statement within
thirty (30) days of the issuance of the Stock or, if such issuance
occurs within two (2) months (either before or after) of the
Corporation's fiscal year end, such registration statement shall be
filed within sixty (60) days of the filing of the Corporation's 10-K
annual report for such fiscal year. Holder will provide the Corporation
with such true and accurate information regarding himself and the Stock
as may be required for such registration statement by the then
applicable laws and regulations.

3. Miscellaneous.

(a) All notices and other communications required or permitted to be
given hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
telegram, recognized overnight mail carrier, telex or other standard
form of telecommunications, or by registered or certified mail, postage
prepaid, return receipt requested, addressed as follows: (a) if to the
Holder, to the address set forth in the Holder's Securities Purchase
Agreement of even date herewith or to such address as such Holder shall
furnish to the Corporation in accordance with this Section, or (b) if
to the Corporation, to it at its headquarters office, or to such other

address as the Corporation shall furnish to the holder in accordance
with this Section.

(b) THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF NEW YORK APPLICABLE TO AGREEMENTS MADE TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.

(e) The waiver of any event of default or the failure of the Holder to
exercise any right or remedy to which it may be entitled shall not be
deemed a waiver of any subsequent event of default or of the Holder's
right to exercise that or any other right or remedy to which the Holder
is entitled.

(f) The Holder of this Note shall be entitled to recover his legal and
other costs of collecting on this Note, and such costs shall be deemed
added to the principal amount of this Note.

(g) In addition to all other remedies to which the Holder may be
entitled hereunder, Holder shall

<PAGE>

MultiMedia Media Tutorial, Inc. Page 10.
Securities Purchase Agreement

also be entitled to decrees of specific performance without posting
bond or other security.

(h) This Note may not be transferred without the prior written consent
of the Corporation except if an event of default has occurred.

IN WITNESS WHEREOF, the Corporation has caused this Note to be duly
executed on the date first written above.

MULTIMEDIA TUTORIAL SERVICES, INC.

By:_______________________________
Title:

<ARTICLE> 5

<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such financial statements.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-END> FEB-28-1997
<CASH> 535,093
<SECURITIES> 0
<RECEIVABLES> 3,081,864
<ALLOWANCES> 1,411,000
<INVENTORY> 288,245
<CURRENT-ASSETS> 3,276,663
<PP&E> 962,091
<DEPRECIATION> 291,601
<TOTAL-ASSETS> 4,605,224
<CURRENT-LIABILITIES> 3,275,360
<BONDS> 200,000
0
1
<COMMON> 62,133
<OTHER-SE> 1,067,730
<TOTAL-LIABILITY-AND-EQUITY> 4,605,224
<SALES> 7,890,397
<TOTAL-REVENUES> 7,890,397
<CGS> 810,164
<TOTAL-COSTS> 810,164
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141,896
<INCOME-PRETAX> (1,697,030)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,697,030)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,697,030)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)

</TABLE>